This is a trend worth circling. While restaurants continue to invest in white-label options and work to regain control of data and experience, aggregators have done nothing but balloon reach in the past year. For all of Grubhub’s challenges with profitability, it hasn’t struggled to prove demand. The aggregator’s gross food sales hiked 60 percent, year-over-year, in Q1 to $2.6 billion. Daily average orders lifted 44 percent to 745,700. Grubhub also reported 33 million active diners—1.5 million more than the previous quarter. Strikingly, a full 9 million more than Q1 2020.
In Datassential’s study, 40 percent of guests said they used third-party for delivery. Twenty-seven percent picked “phone,” 21 percent “restaurant website,” and 12 percent “restaurant app.” More than 60 percent of Baby Boomers said they’d rather use a phone than go online.
What’s also important to factor is COVID forced existing operators to review strategies and find ways to incorporate delivery in an effort to meet this demand. But it also inspired new brands to come to market with a delivery-focused strategy from inception. Ghost kitchens, virtual food halls, and the like.
Is there a structural limit to how high delivery’s share of total foodservice sales can be, even across a longer-time horizon?
In full service, particularly fine dining, opportunities for social interaction will limit delivery penetration to a certain extent, Rabobank said. Meanwhile, the prevalence of cheaper off-premises channels, like pickup and drive-thru—also beneficiaries of COVID’s clamp on dine-in—will curb delivery’s growth across counter service.
Convenience is the great equalizer. Respondents told Datassential they expected to wait 33 minutes or less. Forty-seven minutes or more and they start to get annoyed.
The economics for take-away and drive-thru win out for restaurants as well, and efforts to foster them will balance the future.
Chipotle is one of the most vivid examples. As of March 31, the fast casual boasted a total of 196 stores with order-ahead pickup lanes. Trailing 12-month “Chipotlane” restaurants drove 17 percent higher overall digital sales than traditional locations. But more notably, order ahead was nearly 80 percent higher and delivery about 30 percent lower.
Chipotle, to that date, raised delivery prices roughly 17 percent to offset costs and ease margin pressure.
It’s crystal then why more than half (26) of its 40 openings in Q1 included a Chipotlane, and why the company said 70-plus percent of 200 projected new stores in 2021 will feature one. BTIG analyst Peter Saleh went as far as estimating Chipotle could have as many as 1,000 drive-thru locations by 2025. Today, there are about 400 free-standing and nearly 1,600 end-cap Chipotles. Past new growth, there’s plenty of candidates for conversions.
Rabobank provided another comp. A deeper look at the cinema/box office industry suggests a cap on consumers’ trade-off between social/immersive experience and convenience. Despite wide availability of streaming (call it a proxy for delivery), the number of tickets/admissions has remained largely steady over the years. Concert sales have not suffered from the wide availability of CDs or streaming, either.
As the experience factor remains vital for restaurants as well, Rabobank said, delivery will only serve as a substitute for foodservice spending driven by convenience.
This brings forth the earlier question—will delivery drive incremental growth? Before COVID, global foodservice sales increased at a compounded annual growth rate (cagr) of 3–4 percent over the last three, five, and 10 years, respectively. This is a relatively consistent line, even as delivery growth accelerated from an 11 percent CAGR between 2013 and 2016 to an 18 percent CAGR between 2016 and 2019, doubling delivery’s share of total sales from 4.2 percent in 2013 to 8.4 percent in 2019 (and 14.6 percent in 2020).
Pre-coronavirus, traffic and on-premises sales were going in the opposite direction, perhaps at the expense of this growth. The category’s share declined consistently from 73.8 percent in 2013 to 68.6 percent in 2019. It was 52.8 percent in 2020, a strange year to measure against.
In Rabobank’s view, food delivery does not appear a serious substitute for home-cooked/ready meals from supermarkets. Not unless the price of a meal delivered drops to a comparable level. The rise of larger, well-capitalized delivery platforms/aggregators and better packaging might improve the overall experience and attract new and repeat users. However, foodservice is more likely to remain a zero-sum game with delivery largely taking share from other channels rather than generating substantial incremental sales.