Deliveroo et al are delivering change
With food delivery apps seeing a spike in traffic as people hole up in an attempt to stem the spread of coronovirus, we take a look at the ways restaurants have been adapting their businesses to satisfy the growing number of people ordering meals online.
Ask about the future of food delivery and you’ll be served up everything from driverless cars to robots to drones. Pizza Hut and Toyota are working on a concept autonomous delivery vehicle, Domino’s has forged a partnership with self-driving delivery startup Nuro to pilot robot delivery in Houston, Texas, and last month Uber announced it would begin trial drone deliveries with McDonald’s in San Diego.
These experiments doubtless make headlines and likely hint at the direction food delivery will go at some point, should regulators and governments get on board and city infrastructures support it. But for the vast majority of restaurants, the future of food delivery is less concerned with the techy mode in which food will reach people, and more with how they adapt their businesses in a sustainable way to handle greater numbers of people transacting online.
Ray Reddy was a product manager for Google Shopping before he launched his mobile ordering app, Ritual, in 2014. Since then it’s landed $127m in venture funding and expanded into 50 cities with 15,000 restaurants partners.
“The easiest way to predict how this space will evolve is to look at what happened to retail with the arrival of e-commerce,” he says. “We are 10 years away from the exact same transformation that’s happened with retail.
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“Retailers saw digital as incremental revenue, and that they could generate more revenue by opening a website. Then they realized e-commerce wasn’t an incremental channel but was actually going to be their business. The real question is how restaurants adapt. We will see more of them optimizing for channels and not doing everything. Some things, like delivery, will only be done out of certain stores.”
Retailers made the shift from managing e-commerce orders within local stores to setting up massive fulfillment and distribution centers focused solely on getting goods to digital customers. Restaurants are also moving in this direction, these ‘fulfillment centers’ dubbed ‘dark kitchens’. In disused buildings or shipping containers in derelict spaces, their ‘kitchens’ are cheap extensions of restaurants and prepare food for quick delivery.
Deliveroo set up its own network of dark kitchens, called Editions, earlier this year. “The reason for our investment is that we can see the benefit for consumers and restaurants,” says the division’s general manager, Yannis Alivizatos. “We are determined to deliver people the restaurants and takeaways they want to order from, but our data and insight make clear there are cuisine gaps in areas and consumer behavior is changing. Delivery-only kitchens allow us to address both issues without compromising the end user experience and delivering a great meal.”
With apps such as Deliveroo now accounting for 39% of delivery visits according to consumer research firm NPD, a rise of 14% year-on-year, we are seeing the emergence of a new breed of restaurants that operate only through these platforms.
For example, a company called Taster operates three online-only restaurant brands out of London, Paris and Madrid. It was founded in 2017 by Anton Soulier, who was one of the first employees at Deliveroo, and recently received $8m in Series A funding. It’s now seeing 30% growth month-on-month and has plans to expand in the coming months.
“Delivery platforms are fast becoming the new high street, and the infrastructure is now in place for food to go online,” Soulier says. “With Taster, we want to build iconic restaurant brands for this new era.”
However, a major challenge facing the growth of food delivery is simply that there’s a ceiling value on what people will pay, and how often they will pay it. Reddy’s bet with his app is that people will not stump up to have something delivered when they could easily walk to collect it. Ritual, then, allows people to pre-order and collect individually or for a group.
“Delivery is convenient, but you pay a reasonably high price for that convenience – you have to pay to have that food moved from one part of the city to another,” he says. “It’s an expensive thing to do. But the number of people who do that routinely – every day or week – is small. It’s not a behavior of your average person. If you look at delivery stats from other companies, it’s an occasional use thing for most people.”
This has given rise to subscription food services, paying a weekly, monthly or even annual fee to have food delivered to your door. It has a clearer value proposition to people who regularly order in, and brands such as Deliveroo and Uber see it as a way to eke more value from those who order the occasional takeaway.
In the UK last year, Deliveroo rolled out a service called Deliveroo Plus where, for £7.99 a month, subscribers won’t have to pay its £2.50 delivery on every order. Uber Eats has also been testing a loyalty program that could potentially do away with delivery fees.
Allplants is a three-year-old service that delivers frozen, plant-based meals to more than 10,000 households in the UK. Its founder, Alex Petrides, anticipates a rise in the number of food companies, supermarkets and restaurants that will offer a subscription services in the coming years.
But there’s only so many subscriptions the average consumer will buy into. We’ve seen this in the entertainment world, where the likes of Netflix, Hulu, Amazon Prime Video, HBO, CBS, Disney, Apple, NBCUniversal and YouTube Premium have all been battling it out to win subscribers. But, according to research from Deloitte, 47% of US consumers are frustrated by the growing number of subscriptions and services required to watch what they want. It’s been dubbed ‘subscription fatigue’ and threatens the business models these streaming giants have built.
Petrides says that, as the same thing happens to the food industry, he hopes companies will stop the race for sheer scale and instead try catering to a smaller number of loyal customers.
“People are going to divide into food tribes – we’re already seeing that happening. So we’re going to see more pockets of people getting absorbed into companies, and companies finding ways to serve them. I don’t think we’ll see survival of the fittest and insane growth for everyone. It’s more about how you nurture active audiences and brand champions.”
The final challenge facing the future of food delivery is sustainability. There’s a race to deliver food in as short a time as possible, but there’s increasing concern at the environmental damage this can have. Add to that the ongoing attention to plastics, which are still frequently used in takeaways, and it’s little wonder that many delivery businesses are putting focus on how to make their companies more environmentally friendly.
“The speed of delivery is totally unsustainable,” says Petrides. “We’ll never go for ‘at your door in 30 seconds’, but that’s where it’s headed. There will be a mindset shift at some point, but we haven’t hit that point where people will question the impact. Amazon is pushing that speed of delivery challenge on everyone, but we’re thinking about how we delivery faster without contributing more to carbon emissions.”
The Allplants founder predicts that, in coming years, we’ll see the demonization of the cardboard and paper bags largely used for delivery, in the same way we’ve seen a conscious effort to reduce the volume of unnecessary plastic that comes with our Friday night takeaways.
It’s something Deliveroo has also put thought into. Alivizatos says the company’s mission is to deliver customers an amazing meal, and asks: “If a meal isn’t sustainable, is it truly amazing?”
“We’ve taken some steps in this area, being the first food delivery company in the UK to introduce a cutlery opt-out option for customers and switching this on by default,” he says. “We’ve also helped our partners by giving away non-plastic straws to restaurants to help them trial making the switch.”
There are challenges however, he says. “How do we cut down on unnecessary packaging? How can we axe plastic and find viable non-plastic solutions to challenges such as transporting hot liquid? These are the questions the industry needs to address. We believe our new eco-friendly packaging store will help with this challenge.”
A version of this feature originally featured in The Drum magazine's 'Future of Food' issue in which we considered the changing food industry, and how marketing might change attitudes to food and drink in the future. You can purchase the issue here.