Delivery is the fast-mover of foodservice.
The UK market for dining at home has grown 73% over the past decade, reaching £4.2bn. But as competition intensifies, can the big fish keep a hold of their gains?
Within a historically fragmented industry, delivery aggregators such as Just Eat, Deliveroo, and Uber Eats have cemented their position as powerful digital intermediaries of ever-growing importance. Their combined UK revenues, while hard to isolate, likely top £600m. Aggregators take a bite from restaurants (20-35% of sale + fees for placement etc.) and, if they run delivery, from consumers (typically a £2.50 delivery charge).
While order numbers continue to grow (up 20% in the two years to February 2018) the UK market is showing signs of maturity. Just Eat's takeover of Hungryhouse (completed in May 18) and Amazon Restaurants' quiet termination of operations in December, indicate a trend towards consolidation.
However, the defining development of 2018 has been growing competition between Deliveroo and Just Eat. Prior to 2018 Just Eat had been an online platform, aimed at independents who ran delivery themselves. Deliveroo was a physical delivery solution, aimed at chains and non-takeaway restaurants who did not want to burden themselves with new logistics and unwieldy labour costs.
In the context of Uber Eats' UK expansion, those boundaries have been redrawn. Just Eat has been rapidly developing its own delivery fleet since the start of 2018, and Deliveroo has responded with the `Marketplace+' initiative, launched in June, allowing restaurants to deliver for themselves.
What are the implications for restaurants?
With aggregators increasingly undifferentiated in their model, restaurants can shop around when selecting a delivery partner and negotiate harder when offering out rights. Exclusive partnerships with the likes of McDonald's (Uber Eats), KFC and Burger King (Just Eat) and Wagamama and Nando's (Deliveroo), are crucial platform differentiators for consumers.
In the context of lessening differentiation, the aggregators are trying to add value and build deeper relationships with restaurants to ensure loyalty. Recently, Deliveroo has helped partners launch `virtual restaurants', brands which exist only on their app (e.g. Queso Dillo, Motu). This allows restaurants to use spare kitchen capacity while responding to local demand trends, identified by Deliveroo, for anything from ice cream sundaes to Mexican tacos. Uber Eats, already facilitating virtual restaurants in the US, is set to follow suit in the UK.
Tech solutions are a means for aggregators to embed themselves in restaurant operations. Just Eat have rolled out their `OrderPad' a tablet-based solution enabling restaurants to provide delivery updates and tailored messages to customers, significantly improving CX. 78% of UK orders are now processed using this technology. In 2018, Deliveroo and Uber Eats launched proprietary sales system integrations, removing the need for manual order data entry and enabling restaurant partners to save up to two minutes per order.
In a leaked investor report, Deliveroo painted a future where restaurant visits would be limited to `special occasions' and people would only cook `as a hobby'.
This vision remains a long way off the reality. Delivery today only accounts for around 6% of the UK foodservice market. However, it continues to grow share, becoming an ever more convenient and habitual part of consumer lifestyles.
Meanwhile, failed attempts by restaurants such as PizzaExpress to take delivery in-house, and the continued technological advancement and advantage of aggregators, suggest they are here to stay.
Restaurant operators will benefit from continued competition between aggregators. Talks between Deliveroo and Uber Eats, held in November, should be a source of concern. Those in the trade should hope they remain "miles apart" on valuations, in a sector known to cover ground quickly.