Where’s Third-Party Delivery Headed?
In the wake of the recent consolidation of third-party delivery providers, HT reached out to industry experts for their commentary on what this means for the future of third-party delivery and the possible implications for restaurants.
Yesterday Uber announced it has struck a deal to buy food delivery app Postmates and last month Just Eat Takeaway.com NV announced it has agreed to acquire U.S. third party delivery platform Grubhub.
These billion-dollar buyouts come at a time when third-party delivery providers are providing a lifeline for consumers and restaurants alike during the COVID-19 pandemic. In the month of May, third-party delivery orders rose 170% compared to the previous year, and rose from 2% of restaurant orders prior to the COVID-19 pandemic to about 7% during it, according to The NPD Group/CREST foodservice market research.
Third-party delivery fees are increasingly under fire as many restaurants, with dining rooms closed or reclosing, are leaning into off-prem to survive. San Francisco, New York and Seattle are among the cities that have moved to cap third-party delivery fees, at least temporarily during the pandemic.
Reports of possible mergers in the third-party delivery, which have been in the news for months, were not unexpected.
“We all knew the day of third-party delivery consolidation would be upon us,” says Skip Kimpel, CIO, 4R Restaurant Group and host of The Tech Chef podcast. “My concern is that as these major companies start to combine their resources, there will be a lack of competition, therefore having a negative impact on the rates it charges the restaurants.”
Others are optimistic these third-party delivery mergers may result in lower fees for restaurants.
Lower Fees on the Horizon?
“With more than 10 third-party delivery providers in the U.S, the market has long been saturated, but consolidation is now on the way,” says Matt Drewes, Cardlytics' SVP/ Group Head – Restaurant. “...From the restaurant chain perspective, this consolidation could have pros and cons. On one side, giants such as UberEats and GrubHub could have more leverage by consolidating the customer base, giving restaurant chains less negotiating leverage on fees. On the other hand, third-party providers could drive greater efficiency and reduce overall operating costs, resulting in lower fees. Either way, the consumer should benefit.”
Sources agree the deal will lead to greater efficiencies and cost savings for the delivery companies. “Uber and Postmates have claimed that this deal has the potential to save the companies millions of dollars. However profitability is tenuous, so whether those savings will trickle down to a lowering of fees for restaurants or changes in terms or the particular practices that restaurants have long been decrying will remain to be seen,” says Dorothy Creamer, Senior Research Analyst, Hospitality & Travel Digital Transformation Strategies at IDC.” ... In order to remain competitive, the delivery providers should heed the warnings of discontent with fees, data ownership, and terms and adjust accordingly.”
The Rise of Native or Self Delivery
Kimpel says he’s seeing “a shift and an elevated interest in self-delivery from restaurant operators.” He is involved in Restaurant Technology Network (RTN), which has launched a Native Delivery Best Practices Work Group to help troubleshoot those issues and codify best practices.
“There is a great opportunity for one of these third-party delivery companies to stand up and be a difference maker in the industry by adjusting rates to the point that it is a viable and profitable alternative to the self-delivery model,” adds Kimpel.
Sources agree there is sustained demand for delivery, whether it is done in-house or by a third-party delivery provider.
“As the country handles a new wave of hot spots and timing of the return to pre-COVID remains unclear, we can be certain that whether delivery is in-house or third party, delivery’s success will continue," says Matt Drewes, Cardlytics' SVP/ Group Head – Restaurant.
David Portalatin, food industry advisor at The NPD Group, says he’s seen a “dramatic shift” among many independent restaurants during the COVID-19 pandemic.
“The restaurant business is challenging to start with, and for that reason, many independent restaurants said third-party delivery is not for us. Then, the world changed dramatically overnight. “..Now restaurants are looking to third-party delivery apps” to drive sales and “that is going to enable the third-party apps to sign up a whole lot of restaurants.
“For many restaurants, the price of partnering with third-party platforms is coming on top of the costs of reopening with reduced capacity and other safety restrictions imposed because of the virus,” adds Portalatin. “Unfortunately, some restaurants are going to close as a consequence of the pandemic, and some are going to evolve.”
Leveling Up 3PD’s Operations
“With Uber’s recent decision to purchase Postmates, the brand has a huge opportunity to level up UberEats with some of Postmates current operations - including its monthly $9.99 fee for free food delivery,” says Tom Caporaso, CEO of Clarus Commerce. “Food share applications have been hot these past few months due to the pandemic, and while other competitors differentiate their partnerships with opposing restaurants, consumers are going to typically side with the app with the lowest price tag that day. However, more and more customers are seeking instant gratification from these applications, and many are willing to pay a recurring fee for immediate loyalty perks. In fact, recent data from Clarus Commerce found that 66% of consumers are motivated to pay for premium programs that offer free delivery, while 60% want extra discounts every time they plan to purchase. That said, Postmates Unlimited and GrubHub+ are the only two programs that currently offer this kind of convenience, making it much easier for loyal users to save money without having to compare competitor rates. Depending on how UberEats and Postmates plan to be combined in the near future, It would be a smart choice for Uber to include this current premium model into its existing food delivery offerings, especially if it wants to capture a bigger piece of the delivery market,” says Caporaso.
Creamer adds, “It will remain to be seen if the benefits third-party delivery providers reap from these recent acquisitions will manifest into improvements for restaurant owners.”
The Winner: Convenience-Seeking Consumer
"Providing food in a convenient manner has long been an option consumers prefer to have available as take-out, drive-thru, and pizza delivery have demonstrated,” says Cardlytics' Drewes. “However, as witnessed over the past few months with the accelerated adoption of third-party delivery, the need for consumer convenience has only escalated. In fact, Cardlytics has seen delivery grow from +47% the week of March 26, year-over-year to +119% the week of June 11. Now, nearly every major restaurant chain knows they need to provide some form of delivery service.
“The purchase insights we see on our advertising platform in banks’ digital channels, shows us that the average consumer purchases from three to four third-party delivery services, depending on the market. This means that consumers want access to all their nearby restaurant brands but have to use several providers to attain choice and variety.”
Consumers are willing to pay for convenience, adds Clarus Commerce’s Caporaso.
“More and more customers are seeking instant gratification from these applications, and many are willing to pay a recurring fee for immediate loyalty perks. In fact, recent data from Clarus Commerce found that 66% of consumers are motivated to pay for premium programs that offer free delivery, while 60% want extra discounts every time they plan to purchase. That said, Postmates Unlimited and GrubHub+ are the only two programs that currently offer this kind of convenience, making it much easier for loyal users to save money without having to compare competitor rates. Depending on how UberEats and Postmates plan to be combined in the near future, It would be a smart choice for Uber to include this current premium model into its existing food delivery offerings, especially if it wants to capture a bigger piece of the delivery market,” he explains.
The Future Includes Off Premises
“During a time when restaurants are limited to delivery and takeout, limited capacity and/or outdoor dining only, some relationships with third-party delivery apps are still increasingly tense as profit margins are already deeply impacted by the current pandemic," says Tasso Roumeliotis, CEO of Numa, an AI-powered answering service. "Third-party platform acquisitions like the recent Uber and Postmates announcement is significant for the food delivery industry, but it still does not solve some of the biggest challenges facing restaurant operators today including: layoffs and furloughs of staff; curbside service as a staple of the industry; and third-party delivery companies and restaurants focusing on contactless services.”
With restaurant dining rooms closed or closing again, restaurants are leaning into off premises, including curbside, in-store pickup and delivery. “Many restaurants have realized over the past four months that delivery, takeout and curbside needs to be a major piece of their strategy despite the fact many fought the idea previously for multiple reasons… I truly believe the consumer habits have been permanently changed in a very short amount of time. Those operators that are adaptable and willing to bend a little will be the difference between those that survive this tough economy and those that don’t,” says Kimpel.
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