A few years ago, the restaurant industry was one of the few sectors largely untouched by digitization, but the COVID-19 pandemic and consumer trends pre-crisis have pushed quick-service restaurants (QSRs) to prioritize digital adoption. Restaurants are embracing all off-premise options including delivery, curbside or drive-thru services as critical components to their survival.
Restaurants have long been at the intersection of where customers work, where they shop and where they live. Consumer working and shopping patterns have been disrupted and some new behaviors, due to COVID-19, will probably stick around after the crisis. With 86 percent of consumers using third-party delivery services at least once per month, according to a survey from Technomic, and U.S. online food delivery revenues projected to hit $26.5 billion in 2020, based on Statista data, delivery has gone from being a secondary revenue stream to major business for many restaurants.
Before the crisis unfolded, we saw three delivery patterns take root in QSRs:
- Third parties: Uber’s proposed bid to acquire Grubhub highlights how lucrative restaurant delivery has become and why more third-party consolidation is likely.
- Own and transform: QSRs that had robust delivery programs before the pandemic are thriving in the current environment as delivery stocks like Domino’s and Papa John’s are up 25 percent year-to-date. Domino’s has experimented with drone delivery and a new pizza car with an oven on board in recent years to improve food quality and delivery time while winning customer satisfaction.
- Buy: Inspire Brands, the United States’ fourth largest restaurant company by sales, bought Jimmy Johns in 2019 in part because of its in-house delivery program.
North America has more than 10 online food-delivery companies, the largest being Grubhub with more than one-third market share, according to an analysis by Frost & Sullivan as detailed in a Forbes article in September. London-based Just Eat, acquired by Dutch company Takeaway.com in 2020, is the largest of Europe’s more a dozen providers, and also operates in Asia-Pacific and the Americas. But in terms of revenue, Asia accounts for a 55 percent share of the global online food delivery market. China alone had more than $34 billion in online food delivery revenues in 2018.
While many restaurants have had rocky relationships with third parties due to exorbitant commission fees, up to 15 percent or higher, restaurants also stand to benefit from this new era of delivery and impending consolidation.
“QSRs can improve their own delivery platforms while also working with third parties to be easily accessible to customers,” said Dan Lubetsky, senior director, customer experience and innovation. “Third-party consolidation will can bring new value propositions such as unique menus, personalized offers, multi-restaurant options and event services.”
Franchisees are also a big factor in how brands will address the future of delivery. “While third parties could benefit the corporate brand, franchisees can be negatively impacted through the use of third-party delivery services due to the high corporate-negotiated service fees which impact franchisee profitability,” said Scott Gorny, executive client partner at Publicis Sapient. “There’s also the brand impact of using third-party services – moving to a third party adds stress to the overall customer experience and removes both corporate and franchisees from this relationship.”