<p>Home delivery is surely not something that can be called new or disruptive.</p><p>The disruptive part of it is, of course, the scale that it has now reached and the technology part that allows it to happen.</p><p>And some say it's just the beginning!</p><p>I will not address here issues related to product quality or customer engagement, but that could surely make for another article!</p><p>In this one, I will only try to look at the home delivery business from an economical perspective starting with the question I raised in my earlier post about whether delivery is profitable for the restaurant operators and if not, for who is it then?</p><p>Martin Mignot, one of Deliveroo's prominent investors and board members claimed the company’s mission is to: "make on-demand food so much more convenient and better than it actually makes less sense for people to cook at home. They would only do it as a hobby. That's really the vision: it's all about reducing costs for restaurants."</p><p>But while Deliveroo, and probably its competitors too, embark on this mission, restaurant operators need to be making money from deliveries and to do so home delivery must generate additional sales, not substitute existing ones as shown in the table below (slightly modified from the previous version)</p><p><img style="display: block; margin-left: auto; margin-right: auto;" src="https://kradminasset.s3.ap-south-1.amazonaws.com/ExpertViews/therry+1.PNG" /></p><p>The good news is that some brands are acknowledging home delivery orders come in with a significant higher average ticket.</p><p>Up to 1.5 to 2 times higher according to Wendy's, but will that be enough to compensate for the fees that they have to pay to the service providers?</p><p>If so, why would McDonald's US franchisees be complaining so much about the fees being too high even though it is probably very safe to assume that they are being charged a very much discounted rate compared to smaller players?</p><p>Businesses that were born with delivery as part of their DNA (mainly pizza brands) have, from the beginning, not only set their selling prices at the correct levels to factor in the cost of delivery but also are not outsourcing (even so some are starting to now).</p><p>Of course, dedicated fleets are not the best use of resources neither as drivers always must go back to the same restaurant to pick up the next order.</p><p>On the other hand, the pricing structure of the Dominos and Telepizzas of the world allows them to offer discounts for customers that pick up their orders instead of using the delivery service.</p><p>But the challenge is very different for the restaurants that are now being pushed into delivery by customer’s demand. A service for which clients are not necessarily ready to pay more especially as they might already getting an extra charge from the delivery companies.</p><p>So, with all that, it would seem quite logical that who would really make money from home delivery must be the Deliveroos and UberEats of the world, but according to their latest annual reports it does not seem to be necessarily the case.</p><p>Of course, the maturity point has, by far, not been reached yet and it is estimated that depending on what country, less than 50% of all restaurants are offering delivery.</p><p>According to the UBS "The Kitchen is dead" report, the overall delivery market could grow from US$36B to US$365B by 2030 or even US$815B depending on the scenarios where the most optimistic one includes things like people ordering on average 2 to 3 times per week, drone delivery, apartment building with shared kitchen spaces.</p><p>In any case, investors seems to all be seeing a bright future for the business model and tons of money are invested despite relatively low returns at least for the time being.</p><p>Actually, even large restaurant operators are getting into it like Yum! who poured US$200M into Grubhub, or AmRest who recently took a 10% stake in Glovo.</p><p>So, at this stage, it really looks like who's getting the most out of this revolution in the foodservice sector are the consumers!</p><p>The market must mature, restaurants have to evolve and rethink their business model (Shared and/or Dark Kitchens might be the future?) and service providers need to expand and consolidate.</p><p>As for customers, we will have to make sure that we don't push it too far and kill the social essence of going out with friends to a nice restaurant with great food and service!</p><p> </p>
KR Expert - Thierry Rousset
Human insights are irreplaceable in business decision making. Businesses rely on Knowledge Ridge to access valuable insights from custom-vetted experts across diverse specialties and industries globally.
Our flagship service, phone consultations, enables you to get access to first-hand, grass-root level information from our global expert network to form or validate your hypothesis.