It’s Sunday afternoon and you just don’t want to leave the house today. You’re hungry but can’t muster up the energy to cook a whole meal yourself. You want something easy and convenient. Enter online food delivery services.

You used to be limited to delivery staples such as pizza or Chinese food, but now with the greater online presence of restaurants and services such as GrubHub, Uber Eats, DoorDash, or Postmates (to name a few), you have access to more restaurants than ever before. You don’t even have to speak to anyone to order, just click through an app, it’s fantastic!

Consumers love the variety and convenience offered by food delivery companies, as 47% of us ordered food for delivery in 2017, up from 44% in 2016.  Further, delivery orders placed through an online delivery service app increased to 18% from 15% in 2016 (Morgan Stanley)

On the surface, the growth of online food delivery appears to be good news for most restaurants, for a variety of reasons:

  • Increased orders/revenue by reaching a larger audience
  • Keeping up with industry trends: restaurants don’t want to be left behind in the push for new customers
  • Improved order accuracy/systems: digital ordering is more accurate than phone ordering, minimizing mistakes

However, many restaurants are finding the online ordering business disruptive to their operation and, more importantly, to their profit margins.  Online ordering and food delivery present a number of challenges that many restaurants are struggling to adapt to.

  • Quality control: the restaurant has no control over the food once it leaves the restaurant.  This could lead to poor quality, damage or cross-contamination if the delivery company handles the food incorrectly
  • Profit: restaurants tend to operate on fairly thin margins and delivery companies can demand 10% to 30% commission on the order.  In addition, restaurant lose revenue from drinks and order add-ons (such as dessert), which often are higher margin items.
  • Operational complexity: every delivery platform requires its own hardware to communicate with the restaurant, often resulting in the need to hire additional staff.
  • Impact to seated guests: A high in-flux of online orders can impact the wait times for on-site guests, reducing their satisfaction with the dining experience

Although it’s still early in the game, it appears that the growth in online food ordering could have an impact on restaurant suppliers as well.  Alcohol purveyors, ice machine manufacturers and dish machine manufacturers may all see a negative impact if on-site dining declines.  Conversely, cooking equipment manufacturers could see growth, if online ordering/delivery grows without negatively impacting on-site dining.  In this scenario, restaurants may need to increase their kitchen capacity to ensure both online and on-site customers are served quickly and efficiently.

The demand for food delivery shows no sign of stopping, and as restaurant owner Tilman Fertitta said recently, “The consumer tells us what to do.” If what consumers want is food delivered to their door, that is what they’ll get.  But, keep in mind, while you may assume your online order is benefiting the restaurant directly, in actuality, third party couriers capture a significant portion of the revenue which could affect the long-term viability of some restaurants.  The next few years will reveal a lot about impact of online food ordering and delivery.

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