The on-demand economy sounds like it’s an “out there, somewhere” sort of thing. In reality, it’s very much here and now. Today’s consumer can source and purchase myriad products and services via smartphone without ever entering a brick-and-mortar location. Don’t believe me?
Watch a Gen Zer plan a get-together—but look quickly. By the time you tune in, they may have already ordered healthy munchies from Whole Foods via Instacart, wings from their favorite pub through GrubHub and adult beverages from Drizly, all of which arrive as they’re teeing up their favorite playlist on Spotify and welcoming friends. Swipe, click, tap: It’s a party, and they never left the house.
The scenario sounds cool, but the implications for foodservice are far-reaching. The primary driver of the on-demand economy in foodservice is third-party delivery. Though models vary, these services invite consumers to review menus, place an order and pay through their app or website. The service communicates the order to the restaurant by phone, email or a dedicated tablet in the unit, where it is executed by restaurant staff. The third-party service’s driver picks up the food and delivers it to the consumer, who pays a service fee to the delivery service, which also receives a commission from the restaurant.
DoorDash, Postmates and GrubHub are among the larger third-party players, and McDonald’s expansion of delivery to nearly 4,000 locations in partnership with UberEats establishes it as a mainstream model. However, third-party services are reshaping the delivery marketplace. While limited-service eateries are the source of more than half of traditional delivery orders, driven by pizza, full-service restaurants account for more than half of third-party delivery orders, according to Technomic’s recent On-Demand Delivery study. The user profile skews young—more than half Gen Z and millennials—but more than one-fifth of third-party-delivery users are baby boomers.
Weighing Pros and Cons
Third-party delivery services can help a restaurant earn more consumer occasions and grow sales without hiring a fleet of drivers. Some restaurants are realizing double-digit incremental sales gains, although with a cost: The delivery service commission can be as high as 30%. Also, an influx of orders can create bottlenecks in the kitchen and at the register, slowing service and potentially diminishing customer satisfaction levels.
Some operators are modifying their delivery menus to ensure items will travel well. To accommodate the higher volume, some are renovating kitchens to include dedicated make lines for delivery orders, adding storage space for increased packaging inventory and adding registers or drive-thru lanes exclusively for third-party-delivery pickup.
C-store foodservice pros can learn a lot by observing how limited-service restaurants tackle the third-party-delivery opportunity. While consumer demand is there, delivery is not yet widespread in the c-store channel; 7-Eleven works with several third-party outfits, and Sheetz has engaged Order Up in select markets. Technomic’s 2015 C-Store Foodservice study showed two-fifths of consumers indicated a high likelihood of using delivery if it were available at their favorite c-store; for younger consumers, that figure is more than half. We’ll examine changes in demand when we update the study later this year.
Two-thirds of c-store customers say they’ve never ordered food for delivery from a c-store, primarily because the c-store is viewed as an on-the-go solution; nearly half say they patronize c-stores only when out and about. What’s more, three in 10 just don’t think “c-store” when considering ordering food for delivery, and one-fifth don’t know which stores deliver and how to order. About one-fifth say price is a barrier, and an equal share say they’re more comfortable ordering from a restaurant, indicating greater confidence in a restaurant’s ability to execute delivery properly vs. a c-store.
Another crucial element of third-party delivery is managing a c-store’s brand equity. Once the order is picked up by the third-party driver, the store loses control of the item. What’s more, the customer’s interaction is with the delivery service provider, not the store’s personnel. The potential implications for brand perception are huge and daunting considering the strides so many c-store operators have made in improving brand image relative to foodservice. Handing that off to a nonemployee is rife with potentially negative consequences.
Restaurants may be further down the road with delivery, but convenience foodservice pros would do well to weigh the pluses and minuses when exploring if and how they can engage in the on-demand economy.
Donna Hood Crecca is associate principal of Chicago-based foodservice research and consulting firm Technomic. Reach her at dcrecca@technomic.com.
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