At the height of the lockdowns, the only thing I encountered on the streets in the early evenings in my part of north London were swarms of scooters and cyclists delivering take-away meals for the cooped-up masses. When things opened up, I confidently predicted the boom in deliveries would subside to pre-covid-19 levels, and the streets would once again be safe from kamikaze couriers.
How wrong could I have been? Figures for delivery and takeaway for February were 131% higher than the same month in 2019, according to the CGA & Slerp Hospitality at Home Tracker, and it is delivery that is fueling this growth, as it is almost four times higher than it was three years ago.
The service has pretty much become “habitual to consumers”, suggested Lumina Research as it forecast the market will grow by £700m to £13.3bn this year, as an incredible 12% of adults order deliveries at least once a week. These people are most likely to be using the big three aggregators – Just Eat, Uber Eats and Deliveroo – which control a mighty 69.9% of foodservice delivery occasions.
The big gun food brands – Domino’s, McDonald’s, KFC, Papa John’s and Pizza Hut Delivery – have an incredible 29% of the delivery market, while KFC and McDonald’s have doubled their shares between 2019 and 2022, to 8% and 4% respectively.
The chunky volumes they command have enabled them to cut superior fee levels with the aggregators compared with other operators. Whereas a small independent might be coughing up a hefty 30% cut, the likes of McDonald’s is shelling out only half this figure. What’s interesting is that, even with this lesser charge, it is hard for the food brands to make a profit on their delivery transactions.
Delivery is hard to stack up financially, whichever way you cut it. It’s exactly the same for the retail sector. Even Domino’s, which does not use any of the food delivery platforms and has its own riders, is rolling out a delivery charge following a trial at 150 of its stores. Depending on the franchisee involved and the area, it will set at between 99p and £2.50. In the US, Domino’s also sought to deter deliveries during the busy Superbowl period by offering a $3 credit on future purchases if diners collected their orders rather than have them delivered.
Even the mighty McDonald’s has been trying to adapt its delivery model to tip the economics more in its favour. It has agreed an innovative deal in the US with DoorDash, whereby the existing 15.5% delivery chrge is being replaced by a sliding scale depending on the speed with which the order is completed in its restaurants. It can be as low as 11.6% and rise to 20.1% if the courier has to wait more than seven minutes in the restaurant. Speed ultimately helps McDonald’s push through greater volumes, and for DoorDash, it enables its riders to deliver more orders in a shift and therefore earn more money.
While the big guns flex their muscles and adapt their models, it is sadly the independents who find themselves in a tough position, according to Toby Savill, co-founder of Foodstuff, who suggests it is the smaller players paying up to 35% to the aggregators who are effectively “subsidising” the lower fees charged to the large food brands.
His business is looking to fill the gap with a proposition aimed specifically at independent local operators, with charges as low as 12% if they are exclusive on the Foodstuff platform, and a promise of average order values double those achieved with the aggregators. It currently operates in six cities and has a sweet spot of 35 restaurants signed up in each location. By focusing on specific successful local players and having a complementary spread of cuisines, there is a high level of customer experimentation across the brands on the Foodstuff app.
Clearly Foodstuff will never be as big as the likes of Deliveroo, but that’s exactly the point. It has its sights set on a specific part of the delivery market and has built its model around helping the independents operate delivery as a profitable revenue stream, which is very hard to achieve with the major aggregators. Even this relatively small part of the market represents a hefty chunk of business.
The appearance of players like Foodstuff is wholly reflective of a maturing market and highlights that if delivery is here to stay as a significant feature of the hospitality landscape, and represent a profitable channel for all stakeholders, then it will have to continue to evolve.
Glynn Davis, editor of Retail Insider
This piece was originally published on Propel Info where Glynn Davis writes a regular Friday opinion piece. Retail Insider would like to thank Propel for allowing the reproduction of this column.