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Should Foodservice Embrace Third-Party Delivery?

https://www.sld.com/blog/digital-experiences/third-party-delivery-services-and-the-future-of-foodservice/

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Post May 24, 2019 by Melinda Deines
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Should Foodservice Embrace Third-Party Delivery?

You’re damned if you do, and you’re damned if you don’t. That’s the overwhelming response when you ask foodservice operators about third-party food delivery apps like UberEatsSkip the Dishes and Foodora. Such services say they are opening the door to new customers – but this isn’t what restauranteurs are seeing on the ground. The increase in ordering through apps for third-party delivery is directly related to two distressing trends: a decrease in eat-in visits, and a decrease in profit margin. In an industry where margins are already notoriously hard to manage, foodservice brands are less than thrilled with this uberization of their industry.

But, like Uber, these services are solving a pain point for the consumer and it doesn’t look like they are going away any time soon. So, how can foodservice brands manage this new world order? Here are some ideas brands should consider:

Cloud Kitchens

Many brands are already reducing their front-of-house square footage in response to a greater demand on the kitchen and lower demand for seats. A cloud kitchen is an extension of this model, where a kitchen dedicated to delivery makes use of a centralized location with no customer seating whatsoever. This tactic alleviates the pressure on restaurants with a proper front-of-house, where kitchens may be taxed to meet the needs of eat-in customers with increased delivery demands.

Re-Organizing Restaurants

McDonald’s is one of many foodservice brands that is rethinking the physical restaurant in response to the increased demand for pickups. The brand will spend $6 billion to redesign their US stores, with curbside pickups being an added feature. Pickups can also be moved to a separate entry to reduce the interference with dine-in customers. Increasing kitchen capacity and reducing space for seating is a common trend.

Go All In

If delivery is hot with your customers, it might make sense to create your own loyalty app and delivery service, and even foray into catering services. The reality is that takeout is expecting to generate over $200 billion in revenue in 2019. Especially for larger brands that have enough scale and can afford cloud kitchens, the approach of embracing change might be one that could pay off.

Skip Skip the Dishes

On the other hand, independent restaurants may find that when they crunch the numbers, they’re losing money on third-party delivery. With some services taking up to 40 percent of the order check, it’s easy to see how this could be a problem.

Not only that, but restaurants also lose the ability to interact directly with the consumer, which is such a big part of building a relationship. Many restauranteurs rightly worry that consumers will build a relationship with an app, and not with them. This becomes especially problematic if there is an issue with an order, which goes through the third-party delivery customer service rather than the restaurant itself.

There are few ways brands could address this:

  1. Create a unique, memorable dine-in experience. This sets the bar high and may be hard to achieve for some operators. Some innovative brands are renting their tables for co-working space, while others are offering unique “pop-up” events with Instagram-worthy physical spaces that are very shareable.
  2. Another way foodservice brands with multiple locations can skip third-party apps is by creating their own reward system. However, it needs to be enticing enough make it onto the customer’s phone – read our blog on rewards programs here.

Strategic Partnerships

Grocery stores, banks, food halls and co-working spaces are amping up their retail experiences and many of them are looking to integrate elements of foodservice. Such partnerships should be approached carefully, but when done well they can provide a great benefit to both parties. They may also allow for an extension of products; for example, ready-to-eat meals and meal kits are exploding in the grocery category.

It’s a challenging issue for foodservice operators, both large and small, to navigate. As with any disruptive change, third-party delivery apps have tapped into a strong customer need, creating a domino effect. The question for UberEats and their competitors will be how long can they hold out? Regardless of their ubiquity, these companies are what the Economist calls “tech unicorns” – and their own long-term profitability is very much in question. Foodservice brands need to look at the big picture, and ensure they are raising the customer experience bar on all fronts to hold on while the ground shifts yet again.

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