It has only been two years since Delivering the Digital Restaurant: Your Roadmap to the Future of Food, our first book, was released. We started writing in early 2020, when the global pandemic was just the seed of a news story in Wuhan, China. Since then, the restaurant industry has gone through one of its most challenging chapters. It has witnessed an explosion of innovation, delivery adoption, and business model adaptation.
In chapter 3 of the first book, “Delivery Is the New Drive-thru,” we recognized that any innovation must navigate a path of adoption. We drew parallels between the delivery channel and the growth of the drive-thru channel — which took a decade to find its place — both in terms of viable efficiency and efficacy for QSRs. And we applied the S-curve adoption model to delivery. Everyone agrees that the pandemic accelerated adoption of all manner of digital behaviors, including restaurant delivery.
But where to from here? Will third-party restaurant delivery continue to grow, albeit at a slower pace? Will it flatten out? Have we reached a decade’s worth of progress in just three years, or is there more to come? Or will it even decline as consumers return to their pre-pandemic behaviors?
It’s difficult to tell whether delivery sales are actually down in the obscurity of third-party platform reporting. With all the new verticals they have added over the last year — grocery, convenience, alcohol, floral — third-party restaurant deliveries may be declining. At best, they are flat, with the massive growth through the pandemic settling out into what many predicted: COVID pulled forward the adoption of delivery, but it didn’t create a higher ultimate saturation point. Or did it?
We can forecast what will likely happen using the concept introduced in our book: S-curve adoption of new technology (or behaviors or fashion trends).
Delivery as we know it — through third-party platforms or even first-party ordering fulfilled by third-party logistics — will flatten or decline. But consumers getting restaurant food delivery is likely to grow.
How is this possible?
Adoption of new technology or behavior is never just more people doing more of the same thing. Supply and demand work in concert to drive the S-curve of adoption. The stages of adoption are typically described by segmenting the user (the demand side: Innovators, Early Adopters, Early Majority, Late Majority, Laggards).
However, a lot must also happen on the supply side to drive adoption. Comparing what’s happening on the Supply side as Demand grows can help us predict what is yet to come, particularly exemplified by understanding what happened during the pandemic.
Looking at this table, it seems pretty obvious what has happened. The pandemic pushed the necessity of delivery. However, the industry never went through an affordability phase where the supply side made the service more affordable, and therefore more broadly appealing to the late majority of adopters. Over the next few quarters, transactions are likely to decline among the third-party delivery platforms. This is because those who would have been the Late Majority and Laggards, who were pushed into delivery by necessity, are now questioning how they spend their money.
It is even possible that the other cohorts — Innovators, Early Adopters, and Early Majority — may reduce their basket size or frequency on the third-party platforms. This is because of the significant increase in delivery prices over the last year. Not only did delivery not get more affordable, but it got less affordable.
Restaurants have long had a love-hate relationship with the third-party platforms. Over the last year, restaurants have seen that off-premises channels drive a relatively inelastic response to higher prices. Some have tried to reclaim the fees charged by the third parties by applying a blanket increase on those channels of between 15-30% above in-store prices. Recent articles and blog posts suggest that consumers have finally had enough. Consumer insights strategist Lisa W. Miller recently found that 18% of consumers said delivery was no longer worth it and that 47% felt prices were too high.
Some may read this and believe we’re signaling a bearish sentiment on the future for delivery, but nothing could be further from the truth. We remain bullish on delivered prepared meals. But the current incremental system relying on third parties has not proven able to reduce costs systematically. Costs of the system have increased. The demand for delivered prepared meals exists. The supply side has to change to see adoption continue.
The inefficiencies and costs within the current incremental, omnichannel delivery eco-system must be addressed. These include:
- Under-utilized gig couriers
- Un-coordinated activity between marketplace participants (restaurants, couriers, consumers)
- Over-utilized kitchens where complexity reigns when servicing multiple channels
- Consumer experience problems (order accuracy, speed, and chargebacks)
- Lack of informed pricing (data currently not used to determine appropriate prices for every product, location, channel, and time)
Likely, winners will be vertically integrated, as we have seen with the pizza category. Wonder is attempting to create such a model in the New York City area. ClusterTruck has successfully demonstrated such a model in several mid-western cities. Because these models are so different from the current incremental omnichannel mindset, it is likely that new players and concepts will emerge.
Future delivery growth will not have the surge of pandemic-driven necessity pushing it forward. Innovation will continue to drive significant continued adoption of delivery. Today, delivery is MySpace, and Facebook is just around the corner.
About the Authors
Meredith Sandland and Carl Orsbourn are co-authors of “Delivering the Digital Restaurant: Your Roadmap to the Future of Food” and “Delivering the Digital Restaurant: The Path to Digital Maturity.” After each spent 20-plus years in corporate strategy and retail food, Meredith and Carl each concluded that food in America was changing. They left their corporate jobs in search of innovation that would transform the restaurant industry. Ghost kitchens, virtual brands, digital marketing, the gig economy and lean operations are at the heart of the future they envision. Carl is the COO of Juicer, a restaurant dynamic pricing company. Meredith is the CEO of Empower Delivery, software that powers delivery-centric kitchens. Subscribe to their newsletter and podcast at deliveringthedigitalrestaurant.com.