Should a Restaurant have a Delivery app?

Over the past decade, the face of the F&B markets has changed exponentially owing to the inception and continuous rise of food delivery apps. Before the food delivery app made their presence known in the market, traditionally, only a few restaurants offered home delivery. There are two tiers to the online food delivery system: aggregators (Delivery Hero, Foodpanda, GrubHub, and Just Eat) and new-delivery (Deliveroo and Foodora); whereas both the players allow consumers to compare the restaurant’s offerings and leave a review for their peers to read, new-delivery agents also provides logistics for the company. New-delivery players’ growth is owed to two key sources: substitution to eating at a restaurant and substitution for preparing food at home, customers can now enjoy a Michelin star restaurant’s food at home.

THE FOOD DELIVERY MARKET AS POTENTIAL FOR STURDY GROWTH

Total Addressable classic food-delivery market ⁽¹⁾ %

VALUATIONS OF NEW DELIVERY COMPANIES ARE RISING RAPIDLY

With the rise of the food delivery apps, the companies found that they had to cater to different behaviour patterns than those who used to order traditionally, some of the findings of the behavior were:

Time was the priority: Speed was of the essence, companies that made sure the food was delivered to the customer under 60 minutes found that this was a key factor in satisfying their customers.

Customer Loyalty: Customers rarely jumped from one app to another and usually stuck to the app they had signed up for, creating a strong winner-take-all dynamic, in which the reward goes to the player who can sign up the most customers in the shortest amount of time.

Orders were spiked during the weekends: Highest amount of orders were placed during Friday, Saturday, and Sunday,

And most orders were placed from home and rarely from workplaces.

Businesses are finding that by using third-party delivery apps, most of their revenues are being channelled towards paying the delivery companies’ commission. But they still have to opt for these companies because it’s a customer preference and is quite helpful with the outside weather turns foul. Customers now increasingly turn to their phones when their stomachs grumble and this proves that these apps are not going anywhere, anytime soon.

Insights:

On average there has been a sharp decline in the revenue for the restaurant playing only in offline mode.
In a Survey by OyeLabs, 22% of the customers said they order more when ordering from an app.

UNAVOIDABLE STEPS

Businesses have found that using third-party apps for delivery means they don’t have control over the delivery experience; if the food arrives cold or poorly presented at a customers’ place, there is very little the business can do to rectify this mistake because it is just not in their control.

There are usually smaller profit margins for the business if they tie-up with a food delivery app as most of the big players in the industry take up to 60% of the revenue made from the deliveries which usually means the businesses have to take up a high volume of orders to gain any real profit Third-party delivery apps have been widely criticized for their high fees and because there are only a few big players that are dominating the field of food delivery, smaller restaurants have no choice but to opt to sign up with them to expand their customer base.

There are simply many points of contact when it comes to tying up services with third-party delivery apps and the business owner cannot personally be there to ensure that his/her customer gets the experience the owner would have envisioned if the customer had chosen to dine in the restaurant.

The food delivery apps are constantly fluctuating its price models to appease the customers and this usually ends up giving small restaurants and eateries a very small margin of profit. But there is no guarantee if the price models will promise better revenues as it is unpredictable to assess customers’ behaviour fully.

THE HUNGER GAMES

According to Forbes, Online Food Delivery market is going to be a whopping $200 Billion by 2025. With Millennials shifting their inclinations from conventional eat out to various on-demand food delivery services, it is clear that this industry is here to stay, and now everyone wants to start their own online food delivery business.

From a wide variety of restaurants, unlimited cuisines, and the option to pay at a single click, undoubtedly, on-demand means delivery apps have made lives less complicated. Food delivery apps more than convey convenience as a specific service characteristic; they bring comfort to each customer at every point.

FUTURE AHEAD

The future of the food delivery industry is ever-growing and doesn’t seem like it is going to stop anytime soon, given that the pandemic is raging worldwide and people are staying home, they look to food delivery apps almost every day. With the big names dominating the market, they are also guzzling the life and revenue out of small restaurants and eateries but it is a ‘necessary evil’ for the restaurants to tie up with delivery partners to expand their customer base.

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Source: The finding are a sample of the report by McKinsey & Company- Source: https://www.mckinsey.com/industries/retail/our-insights/how-restaurants-can-thrive-in-the-next-normal