By Tom Kaiser
You would have thought the restaurant analysts were reading lines from the movie Twister, specifically the part where Dusty tells Bill the monster storm is headed right for them. Alas, experts from The Boston Consulting Group were telling a room full of restaurant operators that third-party delivery is going to be “the biggest-single disruptor in the restaurant industry that we’ve seen in the last several decades.” This is serious, they emphasized.
“It’s coming at us, and it’s coming at us very fast,” BCG’s senior advisor, Allan Hickok, said during a presentation titled, “The Future of Delivery and Third-Party Aggregators” at the Restaurant Finance & Development Conference in Las Vegas (November 2016). “It’s a channel that, if you’re not prepared for it, it’s going to have a profound impact on your business.”
Hickok’s message, along with co-presenters Dylan Bolden (pictured above) and Mary Martin—both also from BCG—was there’s no debating whether third-party delivery will catch on, but rather how much this will inevitably shift the very foundation of the global restaurant industry. With the industry growing as quickly as it is, and adding new services and technologies at a blinding pace, all restaurant operators need to prepare for the inevitable storm.
“Consumers want to reduce the friction in their lives … in all consumer industries, whether it’s retail, travel or tourism,” Hickock said, “they’re looking for ways to make their lives easier [and] it’s being driven by changes within technology—so these needs have always existed.”
According to the National Restaurant Association, U.S. dining is a $782 billion industry. With so much profit at stake, there is a gold rush of investment dollars flowing into all facets of the industry—from new grocery startups and meal delivery services to the technology and delivery logistics enabling this food-based sea change. As an anecdote, Hickok added that $200 million alone has recently flowed into voice recognition technology that’s just one small part of the high-tech equation as evidenced by Amazon Echo and Google Home.
Martin put the coming shift into perspective, saying that BCG estimates delivery currently comprises about 5 percent of the U.S. restaurant industry. Most of that is the usual suspects: pizza, Chinese, Jimmy John’s, etc.
“We believe there is potential for rapid growth, and even for accelerated growth,” she said, adding that its current growth rate could make food delivery a $75 billion category as soon as 2020. “If this trajectory were to play out, third-party delivery would represent 40 percent of total delivery … up from 15 percent.”
According to BCG’s Restaurant Survey 2016, most of the gains for restaurant brands will come from millennial customers, who are significantly more inclined to use take-out, delivery and third-party delivery services than Gen Xers or baby boomers.
Rather than just a new hassle for restaurateurs, Martin added that these new-wave delivery services offer brands a platform to increase brand awareness just by being featured on provider websites or apps that, themselves, are becoming increasingly popular—especially with younger consumers.
“The largest aggregators, including Grubhub, have awareness pushing 50 percent,” she said. “It’s on par with regional or medium-sized brands like Einstein, Qdoba or Shake Shack.”
The flip side, of course, is that poor perception or performance from a third-party delivery provider can drive consumer perceptions down, especially when it involves the food’s condition upon arrival, time for delivery or cost compared with dining in.
Bolden gave four pieces of advice for navigating this shifting landscape:
- Develop a strategy for how brands will participate in delivery;
- Meticulously evaluate every step in the customer journey;
- Adapt product offerings and operations to enable delivery;
- Create tailor-made IT and digital strategies to maximize reputational and profit-margin gains.
“The economics of delivery are very hard,” he said. “Who’s the right partner or partners to work with? There are lots of considerations around selecting a partner.”
Getting down to the nitty gritty, he said, involves considering brand control, fee structure, overall pricing, menu availability and placement, in-house order flow, geographic reach and what customer data to collect and share as part of any partnership.
He added that many brands he’s worked with misunderstand that third-party delivery has significant implications for everything from menu mix to hours of operation.
“How you remove some of the pain points together … will be absolutely critical,” Bolden added. “The players of today are not going to be the players of tomorrow.”
