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Joanna’s Take: The future of food delivery apps hangs in the balance

Restaurants are creating their own technology platforms and investing in self-delivery, while third-party delivery companies are expanding more into tech solutions and operations

The rise of the third-party delivery platform as an essential restaurant partner was swift and near-absolute. Just a few years ago, it was newsworthy whenever a restaurant chain announced a partnership with DoorDash, Grubhub, or Uber Eats, and it was not unusual for delivery companies to boast exclusive partnerships with major brands like Yum and Wendy’s.

But in a post-pandemic world where delivery is the life blood of the restaurant industry, the exclusive partnerships have mostly disappeared as restaurants realize the need to invest in delivery in any way they can to keep up with consumer demand. Now, operators like Domino’s are seen as outliers for resisting third-party delivery, and for Domino’s, that business decision has cost them during the current labor crisis. 

The third-party delivery platform’s ascension to power has not been without its bumps in the road. Since the start of the pandemic, local governments like those in New York City and Chicago have pushed back on delivery fees of up to 30% by instituting fee caps, decisions that Grubhub, DoorDash and Uber have tried to fight in court. Over the past two-plus years of the pandemic, the third-party delivery giants have been sued for everything from anti-trust violations to deception and unfair business practices.

As delivery platforms face a growing pile of lawsuits and decelerating sales (Grubhub just reported  a 5% decline in orders last quarter), coupled with the expansion of DIY delivery solutions and tech stacks, is the era of third-party delivery dominance coming to an end?

I argue that these platforms aren’t going away anytime soon; they’re just changing with the times.

The model of restaurants shelling out 30 cents for every dollar that they make from a delivery order is not sustainable. But it’s also naïve to think that Grubhub, DoorDash and Uber Eats will just quietly go the way of handwritten order tickets, especially when they’ve become such a crucial part of how customers experience restaurants. While there are smaller platforms out there, like Black & Mobile, and operator-run delivery alternative Loco Co-Op, the mainstream delivery apps are still the easiest place for customers to scroll through an endless list of food options and order a meal in one place.

But delivery apps can’t just fall back on their ubiquity; they are at a crossroad in the industry and they know it. That’s why “the big three” delivery platforms (with Postmates customers absorbed into Uber) are expanding their toolbox. Over the past year or so, we’ve reported on new features and options from these companies, from alcohol and grocery delivery to direct ordering and tiered pricing structures for operators.

Now, they’re even beginning to dip a toe into operations. In the past week, Grubhub announced an original virtual restaurant concept, MasterChef Table, that will begin offering delivery around the country, and DoorDash opened a hybrid ghost kitchen/food hall in Brooklyn as the latest DoorDash Kitchens Project.

When asked about DoorDash’s strategy with expanding its repertoire, Ruth Isenstadt, senior director of DoorDash Kitchens, said:

“DoorDash knows there is not a one size fits all solution to supporting restaurant partners in their off-premise growth. Our goal is to provide the best end-to-end technology, products and services that allow our partners to grow, operate and expand.”

She added: “This is why we’ve continued to adapt and innovate to meet the needs of restaurant partners: one of the innovations being DoorDash Kitchens to support restaurant partners looking to grow their business without signing a lease to open a new brick and mortar location.”

While DoorDash’s food hall-esque Brooklyn commissary kitchen won’t have original concepts, it would not be surprising if the delivery platform launches its own restaurant brands and Uber follows suit to keep up with Grubhub.

On the other side of the spectrum, as delivery platforms begin experimenting with operations, restaurants are becoming adept at investing in or developing digital technologies of their own.

From Stratis Morfogen’s AI-powered, modernized automats found at Brooklyn Dumpling Shop to Portillo’s tech-backed self-delivery system, operators are becoming nimbler in the digital world. The old days of separation of church and state, where operators stick to the kitchen and either resist the wave of tech-forward digital operations or solely rely on external vendors are waning.  

Moving forward, this will mean that the stronghold delivery companies have on the restaurant industry will loosen as the industry adjusts. The best-case scenario for delivery companies would be to keep finding new ways to expand their portfolio of capabilities, whether that’s through alcohol and grocery delivery or by operating virtual food halls and strings of ghost kitchens. In the age of convenience, restaurants will need all the help they can get to keep up with the on-demand crowd.

TAGS: Technology
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