Restaurants jump on the gravy train

IBISWorld last week reported that new ordering and delivery platforms are contributing to a revenue increase of two per cent in Australia’s restaurant industry in 2017-18, to reach $21 billion.

“The food delivery sector has benefited from consumers’ changing lifestyle trends, including busier lives, higher workloads and diminishing leisure time. These social trends have helped boost demand for food delivery services, as time-poor consumers look to cut down on cooking time and make better use of their spare time,” said Bao Vuong, senior industry analyst at IBISWorld.

And while delivery still makes up a small part of restaurants’ overall revenue today, that won’t always be the case. Vuong tells IRW that delivery is becoming an increasingly important part of restaurants’ business.

“Those that don’t adapt may be missing out on a significant source of revenue,” he says.

UberEATS, Deliveroo, Menulog and Foodora – which IBISWorld estimates to have a combined market share of over 75 per cent – claim to deliver a number of benefits to restaurants that sign up to their platforms. The first of these is revenue growth.

Deliveroo’s country manager for ANZ, Levi Aron, says that restaurants typically see a 10-30 per cent increase in revenue by offering home delivery through the app. Spokespeople for Menulog and Foodora declined to provide specific figures, saying it depends on the restaurant and their location, but they all agree that restaurants mostly see incremental sales increases from delivery, rather than a cannibalisation of existing customers.

One reason is that the people who order food for home delivery are not the same as the ones who dine out. As marketing consultant Anna Jones explains, “The people who go into a Guzman y Gomez to eat and have a beer with friends are not going to choose to have it delivered instead. It’s a different eating occasion.”

Another reason is that restaurants are exposed to new audiences through apps. Consumers may order from a restaurant on Deliveroo or UberEATS that they have never even seen in real life.

According to Rory Murphy, Menulog’s commercial director for ANZ, restaurants should think of the platform as a marketing channel more than anything else. Unlike Deliveroo, UberEATS and Foodora, Menulog is primarily an ordering platform and only offers delivery to a limited extent.

“The simple reality is that by dipping into Menulog’s consumer audience, you get exposure to many more people than previously. What you’re really buying from Menulog is marketing,” he says.

Delivering data

Order and delivery platforms say the data they collect can also help restaurants improve their overall business. Deliveroo’s Levi Aron says the company uses historical and external data, such as weather conditions, and predictive algorithms to improve its delivery performance, as well as advise restaurants.

“We have over 25,000 restaurants on our system around the world and we know what the best packaging looks like for burgers or pastas. We do work with our suppliers to improve their packaging,” he says.

Foodora’s chief marketing officer for Australia, Charlotte Rijkenberg says that sharing data is central to their relationship with restaurants.

“We provide them with information about their shop as part of the relationship. We work very closely with them to make sure we both provide the best experience for the customer. When we see that cooking times can be shorter or the menu could be more efficient, we tell them,” she says.

Menulog’s Murphy says these advantages are becoming clear to more players in Australia’s restaurant industry.

“I can say that every single QSR business in the country is actively exploring their options [for delivery],” he says.

“When I joined Menulog 18 months ago, there was a portion who were unsure about delivery, they were worried about the economics – giving margin away and cannibalisation of sales. [Now] the industry as a whole has come full circle. They’ve realised that this is where the consumers are and where they need to be.”

One of those QSR players is Red Rooster, which this year launched its own online ordering and delivery platform, after having partnered with Menulog since 2014.

“We decided demand was big enough that we would build our own platform, which has been very strong for revenue growth,” says Red Rooster’s general manager of operations and delivery, Nathan Kelk.

This involved not only buying cars and hiring drivers, but also building an ecommerce website and linking in the new delivery team to marketing and operations. Although Kelk says the investment was in the millions, a cost shared by the franchisor and franchisees, he believes it was worth it, citing double-digit growth in the order channel.

“Customers love coming to our site because it’s our own brand. They can sign up to our loyalty program, which allows us to market to them specifically when we have a new deal. From our perspective, we definitely think the loyalty and trust building is best placed in our hands,” he explains.

In November, Red Rooster will roll out GPS tracking capabilities, so customers can see where their order is in real time.

“We’ve seen the business of delivery start off really slow and it’s ramped up,” Kelk says.

Eating into margins

Besides the wider variety of restaurants offering delivery today, new consumer segments are also using delivery apps. Foodora’s Rijkenberg notes that the platform has seen a big increase in the 60-plus demographic in the past year.

“The convenience of home delivery – that trend is growing amongst all age groups at the moment,” she says.

Another indication of the maturing food delivery landscape is the recent launch of a B2B marketplace by FoodByUs, a new player in the food ordering and delivery space. The platform aims to make it as easy for restaurants to get food delivered from suppliers, as it is for consumers to order dinner on UberEATS.

However, not everyone is convinced that the food delivery boom is all good news for restaurants. Marketing consultant Anna Jones says there are two main drawbacks to selling through third-party apps: the cost of operating on the platforms (most charge a percentage fee on every order) and changes that have to be made in kitchens.  

“Margins are really really low in fast food and delivery platforms take a cut, so they have to be doing enough volume to make it worth it. They also have to offer food that delivers well. Fries don’t deliver well,” she points out.

Pan Koutlakis, the former CEO of Foodora in Australia and co-founder of Eat Club, a new app offering limited-time discounts to dine at restaurants, says restaurants today aren’t equipped to do delivery well.

“Restaurants, from menu to fitout, are not set up for delivery being a main source of revenue. Firstly, with the scale of home delivery, less people are dining out. This means more empty tables, less atmosphere, lower spend, less walk-ins and less repeat customers,” he says.

“Secondly, restaurants sell far less drinks, appetisers and desserts (usually carrying higher margins) with delivery orders. The movement of delivery drivers inside venues is also distracting and sometimes uncomfortable for diners.”

“A delivery option in general is good for restaurants, but it needs to be managed well and should always be the restaurant’s second priority.”