Food delivery: nobody’s winning
Trapeze Media director Kitty Newman has been speaking with restaurants, delivery providers, and delivery software developers, and investigating the financials of the delivery industry. It looks like this model isn’t benefiting many — even the big boys. Here are her thoughts on what this means for the sector.
Apps like Uber Eats and Deliveroo aren’t invincible. Uber are valued well into the tens of billions, but have never turned a profit. They sold their self-driving car and flying taxi subsidiaries last year, and are buying up other delivery services to remain competitive.
Uber just acquired alcohol delivery app Drizly (February 2021), mere months after snapping up Postmates. Deliveroo only started escaping the red with their first profits in the second and third quarters of 2020. Would that have been the case in a world with no pandemic or lockdowns? Likely not.
These third-party delivery services have been a blessing and a curse. Restaurants which needed to quickly pivot to delivery when COVID hit could do so quickly, but have to pay crushing commissions. Delivery apps are struggling to turn a profit and large powerful food chains are haggling down commissions, so smaller restaurants lose a bigger cut per order. Thousands of riders have ‘jobs’, but often earn less than the livable wage.
I loved this article — 'Gulp! The Secret Economics of Food Delivery' — from Jonathan Nunn in The Economist, who spent some time as a delivery rider himself. He spoke with the owner of Dishoom about Deliveroo’s dark kitchen model. A dark kitchen (or ‘ghost kitchen’) is a space shared by several food brands — restaurant or non-restaurant. Kitchen and delivery facilities without the need for a full premises? Perfect for right now.
But the same problems keep raising their heads. Deliveroo will pocket up to 40% per order from some restaurants, which puts smaller independent brands in an almost impossible spot. The delivery apps have no doubt saved countless businesses, but they’ve done so in a very ‘rock and a hard place’ kind of way.
The other big issue that affects food brands in dark kitchens as well as restaurants using apps: a lack of access to customer data. Deliveroo and Uber Eats can retarget customers to bring them back time and time again. The restaurant should have this opportunity too. It’s something Deliveroo could provide for restaurant partners — what a great selling point that’d be!
The world’s not an ideal place, though, so here are some key things restaurants should be doing to push their marketing strategy forward in the meantime:
Brand identity and an engaging personality: after the quality of the food and the service, this is all a restaurant is left with under the dark kitchen model
Data capture: email sign-ups, website analytics, etc.
E-Commerce: home kits with healthy margins, branded merch, third-party products like seasonings and sauces
Local partnerships: collaborating with other food brands to exchange audiences, and nurturing a ‘local scene’
Bringing the venue experience to the customer: innovative ideas that will make the brand memorable, and inspire customers to visit any physical space a kitchen might have post-pandemic
If you’re thinking about setting up your own delivery platform I think it’s important to think about what else your platform can provide. Delivery is clearly a good route to customer, but it’s a loss leader, what else can you provide that’s of value and a higher return for you.
I’m carrying out interviews with businesses who have set up their own delivery services to document the challenges they’re encountering, and I’m looking for more businesses to speak to and to be part of this discovery process. Please reach out if you’d like to explore this topic with me.
— Kitty