Turbo-charged take-aways: the ongoing evolution of food delivery

It was always going to be tough to continue the upward trajectory of sales that the take-away food delivery companies enjoyed during COVID-19 and it has taken them 18 consecutive months of post-pandemic decline before they have finally recorded a positive uplift.

In June they managed a modest 2% uplift compared with 2022, however, even this was fueled largely by inflation bumping up menu prices and therefore order values. Without this, the sales numbers for June would have been down because order volumes declined 8% year-on-year, according to CGA by NIQ’s Hospitality at Home Tracker.

The rise of third party delivery

The relationship between hospitality companies and the delivery firms including Deliveroo, Uber Eats and Just Eat has been fraught to say the least. A major issue remains the commission levels that are charged, which for many companies can be around 30% of the order value and this seriously eats into their already thin margins.

The Restaurant Group reflected the thinking of the wider industry when it revealed the third-party delivery channel accounted for around 20% of its sales and that the softening of demand for delivery by diners was cited as a key reason for the outperformance of its Wagamama noodle chain. Meanwhile the management of Hostmore, the parent company of Fridays and 63rd+1st, has expressed a desire to not be reliant on delivery because of the low quality of this revenue – with the costs associated with the delivery providers a major issue.

Some companies have completely avoided delivery altogether including the US-based Darden that operates Olive Garden and Longhorn Steakhouse. The company has made it clear it finds the margins involved with delivery unappealing and has stated: “Right now we have no interest in delivering a $10 meal…to an individual household. That’s just not a business that we think we want to be involved in right now.” 

However, despite these views there have been recent signs that the third-party delivery firms are now very much entrenched in the hospitality industry globally – even for those food companies that operate their own delivery infrastructures. After holding out for years Domino’s recently made the decision to use the services of Uber Eats. It recognised that using only its own couriers was holding back its delivery capabilities. This followed a similar decision by rival Pizza Hut that joined-up with Uber Eats a year ago. The reality is that take-away food brands now recognise they pretty much have to work with the third-party delivery firms, whether they like it or not.

Such activity helped Uber recently release a positive trading statement revealing that it had made a profit for the first time in its bumpy history. It is a similar story with Deliveroo whose losses have halved in the first six months of the year and it is set to return £250 million to its shareholders. A key contributor to Deliveroo’s turnaround is its move to also deliver on-demand groceries for the major supermarkets and food retailers. This currently accounts for 11% of its business globally, and a higher proportion in the UK with the company now fulfilling more grocery orders per week than Ocado Retail. 

Going for groceries

The recent integration of the grocery and take-away food elements of its business is enabling restaurant orders to be topped-up with groceries through the order tracking page on the app. After a successful trial in London it is being rolled-out more widely. This move could have a major impact on the company’s financial position as it helps to increase the important average-order-value metric.

Such developments have been a contributing factor behind the rather predictable demise of the rapid commerce players such as Getir, Gorillas, Asap, Dija, Zapp, Jiffy, Weezy and myriad other start-ups. They briefly proliferated but most have succumbed to shutting up shop as their business models proved to be unsustainable and they came under pressure from established players like Deliveroo who have taken market share.

Planning ahead for pre-ordering

All these companies have focused purely on the on-demand part of the market where orders are taken from customers for immediate delivery. One area that has largely been overlooked is pre-ordering involving customers placing their orders for a specified time the following day or even some days into the future.

Such a scenario offers various potential benefits to hospitality companies including the ability to more easily plan ahead and thereby reduce waste as a result of the greater visibility of future orders. This can be factored into prepping times and the more efficient management of people within the kitchen. There is also a greater certainty for customers of being able to secure a delivery slot for their preferred day and time, which can be problematic on Friday and Saturday evenings.

Such an option could be provided alongside the regular on-demand ordering. This has been the approach of Crosstown Doughnuts that uses its own fleet of drivers (from its sister company Slerp) for pre-orders within London but for on-demand orders it still relies on Deliveroo couriers. Slerp works with a variety of restaurant operators including Ottolenghi, Eataly and JKS Restaurants. 

JP Then, founder of Crosstown and Slerp, suggests pre-order is a major missed opportunity for the hospitality industry especially as it is a way to drive-up orders directly from their own websites rather than via those of the likes of Deliveroo and Uber Eats, which clearly comes with the financial benefit of cutting out the hefty commissions.

Conclusion

Such initiatives suggest the food delivery industry is far from mature and that we can expect to see further interesting activity in the future. It is up to hospitality companies to see how they can most effectively use these services in a financially sustainable manner.

Read more about hospitality:

• Digital driving revolution in hospitality: what SMEs need to know
• Inhospitable times for the hospitality industry: addressing the staff shortage problem
• Best hospitality POS systems in 2023

Glynn Davis

Glynn Davis is a business journalist specialising in the retail and food and drink sectors. As well as writing for publications including Retail Week, Ecommerce Age, Propel, Caterer and Retail Bulletin, he’s also the founder and editor of Retail Insider and Beer Insider.