My money is on the convenience of ordering and adding the human experience, as we see major issues confronting food delivery.
Originally published on Forbes.com.
Since the beginning of the pandemic we have witnessed an unprecedented demand for food deliveries from supermarkets, restaurants and even fast food joints. Online ordering from the palm of our hand or desktop is now commonplace with the top reason, according to a new study from PYMENTS being convenience. The unanswered question is, is it about the convenience of ordering, or the convenience of delivery? My money is on the convenience of ordering, as we see major issues confronting food delivery. What will the future hold for these services?
Theatro, a mobile retail platform, finds in their just released customer experience survey that 38% of the respondents ranked supermarkets as the “most likely retailer to provide an unenjoyable shopping experience” (over double those who ranked auto retailers as the most unenjoyable – 38% vs 18%). No surprise then to find in the January 2023 State of Digital Grocery Performance Scorecard which analyzed 1.7 million orders and surveyed 25,641 shoppers over the twelve-month period, that grocery stores accounted for 85.3% of U.S. grocery sales, while online grew to 14.7%. In 2019, 3.4% of groceries were delivered, in 2020 due to the pandemic that grew to 10.2%; Coresight Research reports that of those shoppers who used grocery delivery, usage declined in 2022 from 55.5% to 49% in 2021.
Online restaurant ordering now accounts for about 40% of total restaurant sales, just over $22.4 billion in 2021 according to Bloomberg, and has grown 300% faster than dine-in sales since 2014. CB Insights forecasts that the food delivery market size will grow to $320 billion by 2029.
No one in the grocery or foodservice disputes the rise and importance of online shopping; but what is not being addressed is the problem with delivery. We have witnessed the rise and fall of superfast delivery services – Fridge No More, Jokr, Gorillas, getir, GoPuff all that were able to attract huge investments from Venture capitalists to the tune of over $28 billion in 2020 according to the research group PitchBook.
The pandemic forced many restaurants to adapt to the changing times by offering delivery or takeout. This has allowed them to continue operating during lockdowns and social distancing measures for sure; and those that had been able to pivot to delivery have had a lifeline. However, as the pandemic recedes, we have to wonder if this trend will continue.
A major challenge for restaurants is that the fees associated with delivery services can eat into their profits. In some cases, restaurants have had to raise prices or reduce portion sizes to offset the fees charged by delivery platforms. Many cities capped the fees or commissions to deliver services to help the struggling restaurant operators to 15%, including San Francisco, Denver, Las Vegas, Silicon Valley’s San Jose and New York City, but now many of these caps have or are ending and the fees are back on the rise. GrubHub told Quartz it had lost $100 million in 2020 just in the US as a result of cap fees. Now, restaurants may need to evaluate and consider investing in their own delivery infrastructure, which no doubt can be costly but may be more profitable in the long run. But the problem still remains if they can deliver “better”.
The mantra of these start-up food delivery companies was all about speed – of picking the order and getting it to the customer all in around 15 minutes; regardless of the very real obstacles including traffic and pedestrians. New York City alone, according to Mayor Eric Adams office, is the home to 65,000 delivery workers. Reports of pedestrian and auto accidents, delivery bike thefts at knife or gun point and even delivery driver deaths have been reported in the thousands. Delivery experiments that all failed.
Grocers have taken back their online service from third parties in an effort to answer shopper complaints about the quality of the foods selected in-store and the delivery. Instacart, the leader in grocery delivery announced in January that they were “winding down” their traditional ordering and delivery services as some of their retailers shifted to fulfilling their customers orders themselves including some Kroger KR +0.3% banners, Tops Friendly Markets in New York, Heinen’s in the Midwest. Instacart has instead focused on it’s new Instacart Platform a suite of services that offers retailers tools for warehouse fulfillment, ad support and consumer insights.
Another issue that confronts the food delivery industry is about worker classification. Many of the drivers for these services are classified as independent contractors, which means they are not entitled to benefits such as health insurance and paid time off. In some cases, this has led to legal challenges and protests by delivery drivers, who argue that they should be classified as employees. Not a formula that builds a reliable and strong workforce.
The consumer, unfettered by the prior constraints of COVID are looking at their credit card bills and the delivery charges and for some consumers, the fees charged by delivery services can make the service unaffordable in this era of rising food prices.
Grocery and restaurant delivery companies are to blame for the discontent surrounding food delivery – they forgot it’s all about the food; and there is nothing more human than food.
Food is a fundamental part of our human life, providing nourishment and sustenance that is necessary for survival. The relationship that people of all ages (especially Gen Z and Millenials) have with food goes far beyond simple physical needs. Our relationship with food is complex and it is multi-faceted and influenced by a range of factors: culture, tradition, emotions, and personal likes, tastes, and nutritional and dietary preferences. The types of food we choose and eat, the ways in which we prepare them, and the occasions on which we consume them are all heavily influenced by cultural and social contexts. Many people also turn to food as a way of coping with happiness, sadness, stress, or other emotions. How we eat and relate to food has a significant impact on our overall sense of well-being and our daily lives. Our relationship with food is important and mindful. And food delivery services, whether run by grocers, restaurants or third-party services don’t seem to embrace that thinking.
If food delivery is to survive it must be profitable for all parties, affordable for the consumer and recognize that they are the caretakers of the most valuable resources of our planet: our foods.