Will Food Delivery Remain Worth the Cost for Consumers?

May 21, 2017

With so many food delivery options, which ones will consumers stick with long term?

Last week, Forbes reported that GrubHub, the Chicago-based food delivery company’s number of active customers rose 26% to 8.75 million. While we’ve seen food delivery expand into everything from baby food to smoothies lately, some apps like GrubHub thrive more than others, perhaps regardless of the cost to the customers. 

But the question is how long until food delivery costs will be forced to fall and compete with the low prices on food in brick and mortar retail stores. 

Take into account the convenience options now offered today in most American cities. There’s grocery pickup, grocery delivery, apps for restaurant delivery, meal kit delivery, and so on. Let’s take a look at some of the choices on any given night for a medium income consumer that’s not interested in fast food. 

Bob is hungry and tired from a long day of work, but hasn’t had any time to go to the store. 

1. Bob could order groceries from Amazon. He has a Prime account, so he can get his groceries in as little as two hours with no extra delivery fee. The prices of the products are comparable to his local supermarket, and if he’s really desperate, he can pay $7.99 to get his groceries within an hour. The only issue is that although he likes the convenience of delivery, he still does enjoy eating mostly unprocessed foods and putting a little time into preparation, but unless Bob’s a vegetarian, he won’t be able to find much beyond center aisle type products and some produce. No meat and no seafood. 

2. Bob could order for free pickup from his local Kroger…anything he wants! He can choose from the meat, seafood, and produce departments, and he can even order a bottle of wine and some household items. The cost is exactly the same as if he shopped in the store, and all he has to do is drive to the store, pull into the Kroger Clicklist parking space, call someone, and they load up the groceries and take his payment from his window. The only problem is that orders have to be placed generally the day before, so that’s no help right now.

3. Grubhub! Bob can access via his phone many different types of cuisine around his area, a lot of which are too far away for him to consider actually picking up himself. So he decides on a Thai restaurant, but after he goes through the process of adding up his order, the delivery fee ends up being $5.99 and the tip around $6.50, and with tax, what started out as reasonably priced meal is now $13 more than he planned on spending. Seems a little ridiculous. 

4. What about a meal kit? Bob has heard about services like Blue Apron that deliver all the ingredients put together by a chef and farmer working together to create sustainable meals. Bob thinks about all the fun he’ll have learning to cook new things, and he will also waste less food, but that’s not an immediate help, and every time he gets to the billing information part of the sign up, he loses interest, and decides it sounds like too much of a commitment and a lot of pressure to feel like cooking at least three times a week. And if he has to cancel a week of delivery due to travel or something unexpected coming up, he’ll have to make sure he does so a week in advance, or he’ll lose out on the money and the food will go to waste.

5. And then Bob picks up his phone and clicks on the Instacart logo. While Instacart is the darling of the grocery delivery world right now and has just received an additional round of funding to the tune of $400 million, and while the app is easy to select which store Bob wants his groceries from and selecting the products are breeze he gets a bit confused about the "service fee" and "tipping charge." He knows he doesn’t have to add either, but he feels guilty so he adds 10% for each and then realize he just paid an extra 20% on his groceries and on top of that the delivery charge. He then waits for his delivery that comes within an hour and is happy. He asks the delivery person for the register receipt and is told that Instacart doesn't supply that. Next time he goes to the same store Instacart shopped for him and finds that the prices that are reduced on special or that offers him discounts for his frequent shopper card were not passed on to him. He wonders who got that difference.

All over the country, food delivery startups are developing their own unique angles, such as Territory, which offers meal plans of prepared foods created for health-minded individuals by nutritionists and chefs. Or how about those robots delivering food in San Francisco and Washington DC, or the robots cooking a pizza on the way to your house? 

With so many getting in the food delivery game, these services will have to make sure they think through their pricing, fees, tipping policies, etc. to keep the convenience affordable for average shoppers. Trying a service and being inspired to stick with it long-term are two different stories.