Evolution of Restaurant Delivery - Past, Present and the Future

What is going on with the Restaurant Delivery Industry?

Restaurants are learning in a hard way how to sell online.

Restaurant delivery is nothing new. Pizzarias have been doing it for the last 40 years. So, why is everyone talking about restaurant deliveries as if something is new here.

What is new is: Everyone has a computer with internet connection in their pocket now - that’s new. These Online Food Delivery Behemoths capitalized on this technology trend and  made food ordering insanely easy for regular people. And we all fell for it. 

When the first generation online ordering platforms started with GrubHub and Seamless in the US in 2008-09, it was about incremental businesses for restaurants. Online orders to increase revenue in a downturned economy. 

The second generation App based delivery companies starting with DoorDash, UberEats employed an army of gig workers for food delivery and made the service even better. 

Because of the convenience they offered, restaurants depended on them for all their online sales despite the 25-30% commission they charged. It still worked because overall online sales was still small relative to the dining-in sales. 

Now what we are seeing during this pandemic is like a time travel to 2030 in terms of e-commerce adoption. Everyone is ordering online and no one is coming to stores.  

We are now forced to act this way because of the virus - but it can be a normal way of life in 10-15 years with more sales from online. 

So - the hard question for restaurants: Does relying on 3rd parties still work for you? 

The answer is probably a big NO for the majority of the restaurants. 

You are serving ghost customers through these marketplaces and paying one third of your sales income as commission. What are you becoming? A wholesale supplier of prepared meals to these marketplace with no connection to end customers.

There is no way you can run a profitable retail restaurant business without owning your online sales now and in future. You have to. It is not your extra revenue that  once you thought - it is THE REVENUE!  You have to own it to survive. 

So, what does the future look like?

Future is bright for businesses that will successfully operate their online sales directly on their website. They will have their regular customers who often can order online for convenience. They can pick up or you can deliver to them - Just like the pizza guys doing for 40 years. 

But now you can manage all these with easy to use software solutions that helps you to take online orders and manage deliveries seamlessly. 

If you only rely on marketplaces, your profitability will suffer and you will struggle to stay in retail business. Either you have to transform to a Ghost Kitchen, or go out of business. 

This current crisis has cracked open a window into the future for us. It’s time for a change if you have not done it yet.

Why restaurants need their own online ordering system

A recent article by NewYorker Magazine titled “How Delivery Apps May Put Your Favorite Restaurant Out of Business” shows the risks restaurants are facing now from third party Delivery App companies such as Uber Eats, DoorDash, Grubhub and others.

At the beginning of the food delivery wave starting in 2006 with Grubhub and others, online/digital orders were only a small fraction of restaurant’s revenue and it added incremental sales.

However, over the years online orders are becoming the major source of revenue while in-stores sales are declining. Therefore, online sales are not actually incremental sales over time but are replacement sales as customer preference is shifting towards buying online.

In 2018, 15% of total retail sales were made online in the US and it is growing 14% year over year according to the recent Mary Meeker’s Internet Trend Report. This means by 2030, about 50% of the total retail sales are going to be from online purchases, which is about 3X of what it is today.

The problem for restaurants with third party Delivery Apps is they take a large cut of the sale, about 25%-35%, reducing profit margins for restaurants for online sales. Most of the restaurants are small businesses and don’t have much leverage to negotiate these fees. 

Let’s do some math. If 30% is generally understood food cost, with 30-35% cut to delivery Apps, restaurants are left with 35-40% of the sale to cover store rent, employee salaries, utilities and admin expenses and a razor thin profit at the end if at all.

So, in 5-10 years when more than 50% of the sales are online, how can restaurants survive relying on these third party delivery apps?

Although it is not possible to fight the tectonic shift towards online orders, but it is possible to take control of restaurant's own destiny in the digital age by starting their own online ordering system.

Over the last 4 years, many online ordering softwares have been coming to the market to help restaurants take online orders and stay profitable in the digital age. 

Many restaurants only take online orders for “pick up only”. However, with few delivery drivers, restaurants can offer deliveries too. After all the big part of online orders are due to connivence of staying home and get items delivered.

It is possible for any restaurants to do it, again think how pizzerias have done it profitably over the years with their own drivers. In fact, finding delivery drivers are perhaps easier than ever now. Just ask your favorite DoorDash, Uber Eats, or Grubhub driver for help.

There are free delivery software like QuestTag Delivery, which helps restaurants to provide an easy to use delivery management tool.

Recently, QuestTag has partnered with one of the top and most affordable  online ordering systems, Gloria Food, to offer a free unlimited use “end to end” ordering and delivery system for restaurants.

There are other options too. Here is a list of top online ordering platforms published in another article last year, and there are many more.

In this age of very affordable small business softwares, we hope more and more restaurants will implement their own online ordering and delivery system. It will not only improve the bottom line but also will increase customer satisfaction and retention. 

Today, most of the restaurants who sale online through these third party delivery apps do not know who their online customers are - let alone sending email promotions or discount coupons to boost online sales

In a recent article by NPR, studies found 1 in 4 delivery drivers admit eating customer’s food when they work for these third party delivery companies. That’s really bad!

By having in-house delivery and online ordering, restaurants can ensure delivery quality and the best customer experience possible increasing customer loyalty. 

Restaurants need to understand online orders are not incremental business, but it is part of their actual business in the e-commerce era. By out-sourcing the online part of their business, they will be owning less and less of their own business.