One of the many changes in our lives brought about by 21st century technology is the way we eat. Increasingly consumers are opting for delivered food, with the likes of Just Eat, Deliveroo and UberEats battling for supremacy. Gareth Ogden, partner, haysmacintyre , clarifies the current status of delivered food and predicts that the competition created by the major players may, in the long term, benefit restaurants.
Just Eat recently published impressive results for the first quarter of 2018; revenues were up 49% to £177m compared to the same period in 2017, underpinned by the Hungry House takeover. Deliveroo has also previously reported sales growth of more than 600% and recently announced further expansion plans reflecting the strong growth of the delivery market in the UK.
Delivery is here to stay
Whereas in the past, ordering a takeaway to eat at home was seen as a treat, it is increasingly becoming the norm. Technology has given access to a wider variety of options and cuisines, while a worsening work-life balance is increasingly making delivery more of a convenience option. This is a trend seen particularly among the younger, more tech-savvy generation. Indeed, it is the popularity among the younger generation that suggests the delivery boom is here to stay.
To date, Just Eat has acted as a sales platform between the restaurant and the customer – a one-stop online shop for a wide selection of local delivery options. It remained the responsibility of the restaurant to actually physically deliver the order to the customer.
Deliveroo and UberEats on the other hand, provide the delivery service, on top of taking the order. Typically, therefore, Just Eat has served mostly independent local restaurants that have their own delivery operation. Branded chains and higher end restaurants have tended to partner with Deliveroo or UberEats, which provide delivery drivers, leaving restaurants to focus on the quality and consistency of their food.
Fierce competition All this may be about to change as Just Eat is planning the roll-out of its own delivery service. This would be an interesting move from Just Eat as Deliveroo is well ahead in this market, with UberEats already playing catch-up for market share. Competition intensified further in June when Deliveroo announced a new ‘marketplace’ feature allowing restaurants that handle their own delivery to list alongside restaurants that use Deliveroo riders. They predict up to 5000 new restaurants will join their network.
Deliveroo is also developing its own offering by rolling out Point of Sale (POS) integration with restaurants. The new technology means that the online order is now automatically uploaded on to the restaurant’s sales system with no manual intervention required by staff. UberEats recently purchased OrderTalk with a view to a similar POS integration strategy.
Eat out fallout
What does this all mean for restaurants? There is a risk that the positive impact on increased delivery sales can actually be at the expense of eat-in sales. Restaurants already face high commission rates, increased pressure on kitchen staff to service delivery orders while maintaining a high-quality eat-in service and the negative visual impact of delivery drivers hanging around the restaurant.
The cannibalisation of eat-in sales represents a significant concern and questions whether the delivery business model is actually worth it. Furthermore, restaurants are reporting that they lose ownership of their customers through the third-party delivery channel, where the aggregator holds all their customers’ data.
However, the strength of growth in this market cannot be ignored and operators need to embrace the delivery revolution. They need to take it seriously and adapt their practices, developing and monitoring their strategy accordingly – even down to designing new sites with delivery in mind. The layout of a new restaurant and its kitchen can be specifically designed with the capability of servicing delivery orders and dealing with delivery drivers, with no visibility or disturbance to the eat-in function of the restaurant.
A further alternative is for restaurants to embrace the use of so-called ‘dark kitchens’. Deliveroo sees this as a key growth area, differentiating itself from rivals such as UberEats. Virtual kitchens provide a low-cost entry to local delivery markets, which may be inaccessible for branded restaurants’ existing eat-in locations, thereby widening their reach with little capital investment.
Some restaurants have actually built their business from scratch based solely on the ‘dark kitchen’ concept. Motu is a particularly successful example of a delivery-only brand marketing itself as offering “home-style Indian food” operating out of four “Delivery Editions” locations in London. The deliveryonly model enables an operator to pilot its offering with low initial investment as well as build a brand reputation. Motu is now planning a move into actual bricks-and-mortar eat-in locations off the back of the brand’s popularity.
Cautious optimism for restaurateurs
As trading conditions become ever tougher for the restaurant industry, operators need to be savvy and fine-tune their strategies accordingly. The delivery market is clearly an opportunity that needs to be embraced, however it is not without risk – particularly to the detriment of eat-in sales. There are also rumblings of discontent over the high rates charged by the aggregators eroding the potential margins on delivery sales.
The possibility of Just Eat providing a delivery service could therefore potentially end up being beneficial to restaurants if it increases competition in a market where the aggregators currently hold the whip hand. Operators are beginning to question whether the commission rates charged by Deliveroo and UberEats make the delivery model unsustainable and would welcome a shift in the balance of power back in their direction.
haysmacintyre is a leading top 30, mid-tier firm of Chartered Accountants and tax advisers in central London, providing advice to hotels, restaurants, pubs, bars and leisure companies ranging from family-run businesses to franchises and international hotel groups.