What is the real impact of Food Deliveries?
The last few years have seen a boom in food delivery services across the UK and beyond, with businesses such as Deliveroo, Uber Eats and Just Eat claiming to have opened up new revenue streams for ‘partner’ restaurants. But while there are advantages to this surge in home dining, it also brings with it challenges for restaurant owners who are looking to keep up with competitors in a crowded market.
Food deliveries are now huge and have created a new social habit, offering a convenient way for customers to eat their favourite food in the comfort of their homes. Delivery companies have also opened up a new revenue stream for restaurants, providing additional ways to sell their products and reach more customers.
While convenience is great for customers, and the promise of additional revenue streams is attractive to restaurants, there is more going on behind the scenes. Let’s keep on digging.
High commission rates for restaurants
When home delivery services first started, they charged restaurants a commission rate of about 10%, which feels like a fair deal. However, more recently they started charging restaurants up to 30% (plus VAT), leaving significant dents in already tight financial budgets. Changes in commission fees can occur whenever the delivery company decides to implement them because of the lack of long-term contracts.
But why do restaurants sign up to these high commission rates? The new revenue stream promised by delivery companies looks appealing. The revenue forecast, though, is all volume based and the reality is most often different. The common scenario is just a break even or even losses, considering all the time, effort, and even capital, required to participate in one of these delivery platforms. Restaurants then increase menu prices on these platform to cover additional costs, directly impacting end customers.
New food tech solutions are offering a solution to this: click-and-collect apps like AtHand incentivise customers located within walking distance to come and collect themselves — a more active and healthy option than waiting for your food sitting on your sofa. Even Deliveroo has just launched its own click and collect service: does this mean they realise the need to reconnect restaurants and customers?
Restaurants suffer when there are complaints
Delivering food from a restaurant to a home address is actually quite complicated and a lot of things can go wrong — but who is accountable for mistakes? Take a situation whereby the customer receives their order cold. This might not be their fault — perhaps the delivery got held up — but the restaurant receives a bad review from the customer, and cannot respond to the review by blaming the delivery company.
In the customers’ eyes, accountability is with the restaurant alone. And that’s who’s going to get a bad review. Making customers aware of how food delivery works can help bring more fairness to the overall system so that restaurants do not have to deal with poor reviews, additional costs for compensation, and potentially a spoiled reputation when they are not responsible for the mistake in the first place.
What data is shared, and with whom?
Delivery services collect a huge amount of data from the restaurants they work with, compiling information on consumer databases. This includes eating habits: what customers order, when, how, and where, while gaining an insight into the restaurants’ business performance.
In a world where data is the most valuable asset for any company, it is worrying to think that delivery service companies have access to such sensitive information. No data is shared by the delivery company back with the restaurant, so there is an unbalanced relationship.
Some delivery companies are taking data collection and market cannibalism further than this. Some are beginning to offer additional services, such as food sourcing, electricity and Wi-Fi. This seems convenient on the surface (particularly as it comes at a discounted price), but it’s risky in the long run. The ultimate aim is to lock more customers to their ecosystem and collect valuable data on how they are running their businesses. If you start sourcing ingredients and other products through these food delivery companies, it means that — in addition to your customers’ behaviours and purchasing habits — they will also gain insight into your menu margins and how your business is performing. Sharing this sensitive information with a third party is an unsettling thought, particularly if the third party ends up being a direct competitor.
What if the food delivery company becomes a competitor?
Some delivery providers are planning to eventually launch their own food brands. They intend to use data collected over the years through their restaurant clients, having a clear idea of who to target and how. This will bring them into direct competition with their own clients.
Dark kitchens will allow food delivery companies to make this step. If delivery companies start making dishes on their own, they will be in a strong position thanks to the hyper-local and customer-focused data they own and the lower costs of running their own dark kitchens. And all of this would have been made possible by restaurants, now placed at a weak disadvantage.
What are the alternatives?
All that being said, the food service industry is constantly evolving, and it is an incredibly exciting time to be a part of it all. Home food delivery apps are an innovative new way for consumers to dine, but it is not the only way; there are other new alternatives on the horizon too. One is the increase in click-and-collect services: these apps give restaurants the opportunity to engage in person, up-sell or cross-sell their products, and create a human connection — therefore increasing the likelihood of repeat business.
Other food start-ups which are offering an interesting alternative, are FoodStars and Vessel, part of ParkJockey: they rent out top-quality commercial kitchens which not only provide facilities for already established restaurants, but also to new, up-and-coming restaurants and food providers.
More competition, coupled with restaurants coming together to resist against the current terms and conditions, might mean stronger negotiating power for restaurants when discussing commission rates.
The Collectiv Food take on home delivery vs restaurant dining
For us, it’s all about balance. From our experience of supporting the foodservice industry in London, we forecast that customers will always value the real-life experience in a restaurant environment, the excitement of discovering independent businesses in cities like ours, and the enjoyment of meeting friends, interacting with strangers and celebrating important events.
We predict that there will be less reliance on delivery only, particularly for restaurants with a strong brand, and that costumers will strike a better balance between going out and supporting local restaurants and food outlets, and still enjoying the value and convenience of delivery whenever needed as they become more and more conscious of the positive impact of physical restaurants on cities and communities. So, rather than home delivery versus restaurant dining, a combination of both is just the right balance.
Food trends for restaurant professionals
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