UberEats, DoorDash, Grubhub: Innovations in Restaurant Delivery
Delivery aggregators have driven immense innovation in the restaurant industry. As the space grows, we examine new innovations including Dark Kitchens, Virtual Assistant ordering, and Geofencing technologies.
With $825B in annual sales, 1M+ locations, and employing 10% of the workforce, the restaurant industry is a major component of the U.S. economy1. Delivery is a growing component of restaurant sales. Investment Bank UBS forecasts delivery sales could rise 20%+ annually and reach $365B in 2035, from $35B in 20182.
The post will briefly describe the main innovations in delivery platforms and discuss potential future trends in the restaurant delivery industry.
While seemingly mainstream today, delivery platforms have made significant improvements in delivery processes:
- Increased sales: Delivery may drive incremental restaurant sales. For example, McDonald’s claims 65% of UberEats orders are incremental to its business3.
- Efficient ordering: Restaurants are partnering with delivery aggregators to directly translate a customer’s order to the restaurant’s systems4. This reflects massive improvement over traditional phone-ordering systems and/or manual data entry by employees.
- Personalization/Loyalty: Delivery aggregators are increasing customer sales by suggesting order add-ons and creating loyalty programs.
- Delivery ETAs / GPS Tracking: Customers can more efficiently track orders through real-time GPS tracking.
Where to next? Predictions on Future Trends
Data-driven Dark Kitchens:
Delivery platforms collect massive amounts of information from consumers, including personal information, favorite dishes, ordering habits, and price sensitivity. Armed with this data, some delivery platforms are using this data to create their own delivery-only restaurants, known as ‘Dark Kitchens’5. The idea is simple: A delivery platform identifies the top selling dishes from highly-rated restaurants across cuisines, reverse engineers the recipes, builds a dark kitchen in a cheap, delivery-optimal location, and encourages consumers to order directly from these locations.
Dark kitchens create value in customer satisfaction (e.g., data-driven menu choices), strategic locations optimized around delivery, and grouping of several cuisines into one kitchen. This scenario presents significant risks to incumbent restaurants.
Virtual Assistant Ordering
Perhaps the future of delivery will rely not on the logistics provider, but the ordering platform used by the customer. For instance, most consumers may order through Alexa or Siri, who will take your order, provide restaurant recommendations, and outsource it to the preferred delivery partner or restaurant. Some restaurants are anticipating this trend by developing partnerships with virtual assistants to drive new sales (e.g., Applebee’s/IHOP and Google Home6).
Efficient Carryout: GeoFencing
While Delivery seems unstoppable today, the business case for delivering $10 in McNuggets for a $3 fee may not prove to be a sustainable business model. Last-mile delivery is known to be expensive, and rising labor costs, traffic congestion, and gas prices may adversely affect the economics.
A natural replacement is carryout, in which the customer bears the delivery cost, often in low-effort ways (e.g., on the drive home from work). Some companies, like McDonald’s, are testing technology to help customers order-ahead via their App, and then using ‘Geofencing’ (similar to GPS) technology to predict the customer’s arrival time to ensure the customer receives a freshly-made order7.
On-site carry-out creates value because it outsources last-mile delivery to the consumer, who is often able to perform this task at a lower cost than the delivery company.
Delivery platforms, either by restaurants or aggregators, are driving new innovations in the restaurant industry, including dark kitchens, virtual assistants, and geo-fencing. In predicting the industry’s future, the following questions will be critical:
- Will customers embrace dark kitchens, or prefer to use established restaurant brands?
- Is the future of restaurants on-premise, carry-out, or delivery?
- How will autonomous vehicles impact delivery’s economics and usage?
- National Restaurant Association, “Restaurant Industry Facts at a Glance,” https://restaurant.org/research/restaurant-statistics/restaurant-industry-facts-at-a-glance, accessed February 2019.
- Cheng, Andria, “Millennials are ordering food for delivery but are they killing the kitchen too?,” Forbes, June 28, 2018, https://www.forbes.com/sites/andriacheng/2018/06/26/millennials-are-ordering-food-for-delivery-more-but-are-they-killing-the-kitchen-too/#7de8a3fd393e, accessed February 2019.
- Meyersohn, Nathaniel, “Why Uber Eats and Grub Hub partnerships are risky for restaurants,” CNN Business, March 28, 2018, https://money.cnn.com/2018/03/28/news/companies/uber-eats-grubhub-delivery-apps/index.html, accessed February 2019.
- Liem, Emma and Littman, Julie, “Q1 delivery report: Brands doubling down on off-premise,” Restaurant Dive, February 8, 2019, https://www.restaurantdive.com/news/mcdonalds-chipotle-yum-and-dunkin-double-down-on-delivery/547941/, accessed February 2019.
- Butler, Sarah, “How Deliveroo’s ‘Dark Kitchens’ are catering from car parks,” The Guardian, October 28, 2017, https://www.theguardian.com/business/2017/oct/28/deliveroo-dark-kitchens-pop-up-feeding-the-city-london, accessed February 2019.
- Boulton, Clint, “Casual dining chains counter sagging sales with virtual assistants, AI,” CIO, October 1, 2018, https://www.cio.com/article/3309398/digital-transformation/casual-dining-chains-counter-sagging-sales-with-virtual-assistants-ai.html, accessed February 2019.
- Baertlain, Lisa, “McDonald’s, late to mobile ordering, seeks to avoid pitfalls,” Reuters, March 14, 2017, https://www.macrumors.com/2017/03/15/mcdonalds-mobile-app-ordering/, accessed February 2019.
Student comments on UberEats, DoorDash, Grubhub: Innovations in Restaurant Delivery
I, for one, would welcome the introduction of a data-driven dark kitchen. I would be very intrigued by the flavors it could come up with, and agree that delivery platforms are well equipped to introduce this innovation.
I do wonder why platforms such as uberEATS do not play a more active role in helping restaurants shape their menus. My hypothesis is that (i) restaurants don’t trust UberEATS as a valid data source for culinary decisions, (ii) uberEATS hasn’t yet invested in this area, given their massive growth, or (iii) restaurants are resistant to change, prioritizing the in-house experience over the takeout experience.
I’m very interested in this concept of Dark Kitchens. One such example that I heard of a few years ago was called Good Uncle, which originally launched as a way to replicate really popular restaurant items in their own kitchens and sell and deliver them in locations that are far away from the actual restaurants. They seem to have pivoted from that basic model now to focus more on college students. I can see the value in the original concept though — it could be really cool & interesting to get a replicated menu item from a local restaurant somewhere else in the country (for example, maybe getting replicated Animal Style fries from In-n-Out in Boston, or getting replicated Roscoes Chicken & Waffles in Florida, or getting replicated Bojangles Chicken & Biscuits in NYC). This could be an interesting way to partner with these local restaurants to extend their reach as well. For example, instead of operating a simple franchise model, Bojangles could instead license their recipes to this delivery service to expand their reach.
The Dark Litchen concept is extremely interesting. I think delivery apps should definetly make use of their data to develop concepts to better serve their customers. I also think a dark kitchen benefits from huge cost efficiencies in real estate and work force costs making it an ultra profitable food production. I have two concerns about dark kitchens. 1) how will restaurants that are on the apps react to Thai new form of competition? Similar to amazon selling trending items directly this might upset the suppliers in the platform. 2) will consumers choose a brand they don’t know? I wonder how open consumers are to ordering thins they’ve never had before form an unknown brand.