It has become a common occurrence to walk into one’s favorite restaurant and see a team of delivery personnel from various third-party delivery businesses milling around the register waiting for their to-go orders. In our hometown of Chicago, it is not uncommon to see high-end restaurants with four or five stations in the back that are set up for the various delivery systems which include GrubHub, Caviar, Doordash, UberEats, and Eat24.
With the newer generations prone to the ease of food delivery, the number of “to-go” orders in the U.S. is on the rise. Cowen, a research company, surveyed 2,800 consumers and found a 10 percent increase in orders for home deliveries. Andrew Charles, a restaurant analyst for Cowen, believes the growth in restaurant delivery will actually overrun general restaurant growth. While delivery is currently bringing in $43 billion, by 2022 that number is expected to rise to $76 billion.
The Delivery-Only Model Struggles
Some entrepreneurs, seeing this spike in delivery sales for restaurants, believe restaurant “fronts” that act as delivery-only venues can deliver low overhead while creating a nice income stream. David Chang, founder and chef of Momofuku, a restaurant group known for innovative concepts that support local sustainable farmers, created Ando–a delivery-only concept that hit the floor running in New York City.
From the “delivery-only” business model, they morphed into a 12-seat fast casual venue. They opted for brick-and-mortar because they discovered that it was difficult to make a “virtual” restaurant profitable as single deliveries proved to be too slow to produce the necessary cash flow. In addition to thin margins, intense competition was also noted as a contributing factor. This was Chang’s second attempt at a delivery-only venue. Maple, located in Manhattan, was sold to Deliveroo–or at least its software was–a London-based food delivery company for $50 million in stock.
Ando was recently acquired by UberEats. As a start-up, Ando raised $7 million in venture capital with much of their first-year capital going to technology advancements. It is this technology that UberEats appears to be interested in.
To Do or Not to Do: Self-Delivery versus Third-Party
While many restaurants are turning to third-party delivery services for additional revenue streams, others are turning to self-delivery. Research by Mintel reveals the latter is potentially more desirable for consumers. According to their survey, while 12 percent of Americans used a third-party delivery service in the past three months, 30 percent said they would rather order directly from a restaurant. Many cited cost as a contributing factor to their preferences.
According to a Reuters analysis, venture capitalists invested $2.5 billion into on-demand delivery companies just last year. This competition and growing segment can be seen in restaurants that have opted to use multiple companies and have four or five tablets at their counter, requiring extra staff just for to-go orders. In addition to increased labor costs, commissions can run anywhere from 10 to 30 percent, making in-house orders more profitable and less space-consuming.
Of course, there’s nothing like getting your brand front-and-center, which third-party delivery systems tend to do very well. The best advice? Find a company with a good reputation that keeps commissions reasonable and give it a try. After all, according to Roy T. Bennett, “Do not fear failure but rather fear not trying.”