Food Delivery & COVID-19

By Greg Acinapura
Article

Food delivery has been around for decades and over the past few years, delivery capacity has exploded in urban areas of the United States.  Most visibly, the proliferation of companies like GrubHub, UberEats, Postmates, Caviar, etc. have brought the convenience of meal delivery to the masses and have proven to be essential during the COVID-19 pandemic.

What are the benefits of food delivery and how has it changed the restaurant industry?
From a customer perspective, delivery has been a convenient luxury within the delivery zones over the past 5 years.  The Millennial generation was the first generation ever where, albeit short lived, disposable income was spent more on restaurant dining than on grocery.  This new kind of consumer behavior has manifested into food delivery being incorporated more frequently into the weekly food consumption. Along with this has come the expectation that ‘everyone delivers now’.  

From an operator’s perspective, it has not been as seamless of a transition.  Some businesses can make a pivot like this easier than others. How do you keep your product quality high?  How do you ensure that your brand is keeping its loyalty with so many more competitors vying for your customers attention?  Is the money coming in from delivery able to pay for the extra staff, new packaging, higher utility bills, etc.?  

Before COVID-19 became a part of our lexicon, food delivery was actually at a crossroads.  These groups were not turning as much of a profit. There were public shaming articles written about businesses claiming that they did not offer delivery but that the delivery applications were using their brands as featured partners.  Some even went as far as allowing customers to order from them through their applications without the permission of the restaurant. Over the past few weeks though, delivery has nearly become a necessity to citizens that are under a stay-at-home policy.  Once this behavior becomes repetitive, it is extremely difficult to go back to a world without food delivery. Restaurants are now tasked with considering how to change their business model to accommodate delivery into their core. This means changes in real estate, operations, logistics, staffing and product offerings.  All of this needs to be considered in a time where restaurants are under serious threat of not coming back from the pandemic. We should see food brands that have been able to weather this storm come back as businesses that are made for the digital age and be able to capitalize on some of their competition not being there anymore.

What are the target demographics?
Demographics for food delivery vary greatly.  Most food delivery is happening in densely populated urban areas.  Slowly, suburban areas are adapting, but the business model looks very different based off of the space in between the customer and the restaurant (i.e. in the city of Philadelphia, a delivery driver can deliver 10 orders in one building at once, in the suburbs, that same driver would be limited to 2 or 3 before product quality would come into question).  The tech savvy Millennial, Gen X and Gen Y population were the first to adapt to food delivery, but now that the COVID-19 pandemic has forced people to remain in their homes, the adaptation rate has skyrocketed. Parents, grandparents and older generations not only prefer the safety of non-contact delivery but also have the time to understand how the technology works.  Families are preferring the ability to order for each individual member rather than compromise. Food delivery is allowing for customers to be satisfied with their meal order through highly communicative, instantly gratifying and efficient technology.

Where do you predict food delivery is heading?
Now that people are relying on delivery during the week more than ever, it is most likely that the trend will continue to become the norm, at least for a couple days out of the week.  Where you will typically see the bulk of the stickiness of delivery will be the times of the week where restaurants are not as busy (Sunday through Wednesday). People are social animals and will always look to interact with each other over a meal.  What will change is how staff will be utilized. Front of House staff may not be used 6 or 7 days out of the week anymore unless the business relies on offering the customer a true ‘experience’. Restaurants may not open their doors to customers between Sunday and Wednesday but instead focus on producing food strictly for delivery.  There will also be new kinds of businesses coming to fruition at a quicker pace like ghost kitchens who only focus on delivery, or more localized delivery companies who create local loyalty instead of relying on the larger companies that may not give their preferred local vendors a leg up in the long run. Brands will need to become virtual in order to stay competitive and relevant, otherwise they run the risk of not being exposed to their customers during the crucial decision making times of the day.

How interconnected is the restaurant industry to everyone?
Most F&B industry experts understand that a market correction or even a full reset was on the horizon.  Rents have soared in the bull market, labor costs have been significantly increased with the $15/hour minimum wage movement, skilled labor has been shrinking and lastly, the customer has never been as educated about their food as they are today.  An example of this is the integration of luxury items into the menu. If a customer wants truffles or foie gras at a high price, the dollars do not necessarily go to the business. Those kinds of items do not carry any margin, they act more as an item to attract customers.  If white Alba truffles are trading at $1000 per oz, the restaurant can’t mark the item up even more, it wouldn’t make sense for the customer to purchase at that point.  

The F&B industry is notorious for its razor thin margins but what is not discussed as much is how many other businesses are needed to keep a restaurant afloat.  These businesses are also under dire threat during this time because farmers, stemware manufacturers, linen/laundry companies, food waste companies, meat purveyors etc. will for the most part, dedicate themselves to a wholesale customer.  If their customers are not operating, neither are they. Needless to say, when the dust settles after this unprecedented time, the way Americans dine will forever be changed.