The Food Delivery Model Needs Work

Businesses are trying to figure out an efficient way to meet rising consumer demand for delivery.

February 24, 2022

Food Delivery

NEW YORK—Restaurants are struggling to create a solid business model surrounding delivery after the pandemic forced eateries to switch to delivery when they were forced to close, reports CNN.

There were reasons why restaurants weren’t focused on delivery prior to the pandemic, says CNN. Delivery is expensive for the business—they either have to hire drivers or partner with third-party delivery companies, which can charge fees up to 30%, eating into their already thin margins. According to NACS’ “Last Mile Fulfillment in Convenience Retail” report, only 61% of retailers are satisfied with their third-party delivery partners.

Delivery also places stress on restaurant employees when they have to balance in-person customers and fulfilling orders, and if an order is wrong, the restaurant is blamed by the customers, not the delivery app.

Consumers are obsessed with delivery, however—the convenience of delivery is hard to beat, and they love the ability to place an order with the touch of a button, never having to speak to another human. A recent NACS report found that 43% of convenience shoppers have used a delivery service to order from a convenience store.

Delivery was 7% of total U.S. restaurant sales in 2019, and the percentage of sales spiked in 2020, but it’s now leveled off to 9% in 2021, according to Euromonitor International, and there are no signs of delivery going away.

Some restaurants are tackling the delivery challenge by separating their regular restaurant operations from delivery by offering online-only concepts, which allow the restaurant to promote foods that travel well and help “turn the service from a burden into a competitive advantage,” says CNN.

Applebee's launched Cosmic Wings, which serves Cheeto-flavored chicken wings. Brinker International, the owner of Chili's and Maggiano's Little Italy, has two virtual brands: Just Wings and Maggiano's Italian Classics.

Those virtual brands “offer some really unique opportunities to explore ... urban and smaller take-out delivery-centric prototypes,” said Wyman Roberts, Brinker's CEO, during a February analyst call.

For fast-food and quick-serve restaurants, more convenient pick-up options and better drive-thrus may be the way to go. Many of these types of restaurants are adding drive-thru lanes to serve just online-only orders. Chipotle is planning to open 4,000 more locations in North America, and most will have Chipotlanes, a dedicated drive-thru for customers digital orders.

“What we've seen with the Chipotlane [is], our digital business goes up, our delivery business goes down as a percentage and the order pickup percentage goes up,” the company's CEO Brian Niccol told CNN. “From an economic standpoint, the best margin transaction for us is in order ahead, and then the customer comes in,” he said.

Some restaurants simply choose to lift their delivery menu prices to make up for the revenue loss. The digital menu at Chipotle is more expensive than its pickup and in-store menus.

“The reality is that channel comes with additional cost,” Niccol said during a recent analyst call. “What we've seen is people recognize that and are willing to accept that for those occasions.”

NACS recently release a free report that helps convenience retailers understand shopper preferences for delivery.

“Given that shoppers are accustomed to stopping in-store to make purchases, ordering via a digital device or ordering for delivery to an alternate location have historically been afterthoughts for retailers and convenience shoppers alike—until now. Survey results show that one-third of convenience shoppers place preorders multiple times per week that are retrieved in store,” the report states.

It also found that order accuracy, loyalty rewards and subscription services are the most important factors impacting shopper preference for the service that completes the delivery.

Read about what c-stores are doing to make delivery work for their businesses in “Delivering Convenience” in the December 2021 issue of NACS Magazine.