The following text is based on an excerpt from the "European Food Trends Report" that can be downloaded from the GDI website.
Not all delivery services are the same. A small owner-managed pizzeria who also delivers a few pizzas to the neighbouring apartments operates very differently from an online delivery provider (ODP) such as Delivery Hero, Uber Eats or Just Eat. New business formats that function differently are seen on the market.
This model is the simplest one – a caller, a kitchen and an employee who delivers the hot food directly to the customer. The restaurant controls the quality, manages the customer relationship, bears the costs and keeps all the income. Usually the costs for labour (in particular, for the restaurant’s own fleet of paid drivers) and rent are high because an attractive, customer-centric retail space in a central location is required. Advantage: the restaurant can control all local customer information and there are no fees for an external third party. Restaurants who want to expand their offer by a delivery service need more than just a car and driver. Restaurants have to adjust to the requirements of the new distribution channel, for example by converting their space in such a way that they can quickly and efficiently process new orders. Additional meals mean more people in the kitchen, more working space and space for new tasks, such as the packing of meals, and a place where the delivery driver can collect the readycooked food.
This model was presumably born in 1973 when Domino’s introduced its «30 minutes or free» guarantee. If it takes longer than 30 minutes for the pizza to be delivered to the customer, it is free. To meet this promise, Domino’s created a huband- spoke system with a central hub and a network of branches at strategic locations. The hub processes all raw materials into half-finished products, which are then finished at the branches.
With this strategy, Domino’s created a competitive advantage at an early stage and paved the way for modern delivery providers. Today, four decades later, Domino’s is the world leader in delivery. This was done by managing the
entire delivery process, also known as «full stack». Domino’s now calls itself an IT and logistics company that sells pizza. The system’s backbone is that the company has full control over the customer ordering process, production quality and –
thanks to an enormous franchise network – the delivery process.
Domino’s now claims that new GPS and AI technologies will soon mean that it can make deliveries to any location where a customer’s mobile phone can be tracked, whether it’s a bench in a park or a blanket on the beach.
The Ghost Kitchen is a refined version of the Cloud Kitchen. Many people see this model as the future of restaurants and a threat to traditional dine-in restaurants. Ghost Kitchens are a highly efficient hybrid of menu concepts, specialised production and logistics, and low wage costs without dine-in customers.
This model is characterised by three key components:
eight_delivery_models.pdfUber has revolutionised the taxi industry, and now Uber Eats is diligently engaged in turning the global delivery sector upside down. In October 2018, Uber Eats had more than 1,600 Virtual Restaurants around the world, of which almost 1,000 were in the US. Most of them operate from existing restaurant kitchens, but with new brands that are only available from Uber Eats.
An example of such a Virtual Restaurant concept is SushiYaa in Dallas: the small sushi chain operates five physical restaurants under the name SushiYaa, but their kitchens also prepare meals for some two dozen virtual restaurants such as Bento Box, Poke Station and Mandu Dumpling House, which offer very different meals that are only available from Uber Eats.
While this model entails very high fees for the restaurant, it does not compete with itself on the delivery market. Uber Eats can therefore offer ever more menus without having to invest in new kitchens.
Another form of virtual kitchen involves the licensing of existing restaurant recipes and menus in a virtual model. The start-up concept Good Uncle is using this model to survive in the university catering segment. Good Uncle offers high-quality ready-made meals at different prices. The meals are delivered according to the drop-off process by its own delivery fleet. Good Uncle relies on a limited menu for a limited target market, and benefits from a direct marketing approach and low operating costs. There is a subscription- and a premium- based price system. The kitchen is virtual – it only exists online.
If someone were to say, «Let me solve all your delivery problems for a small percentage of your revenues,» many restaurant operators would seize the opportunity, in particular those who want to enter the market with a small initial investment. Online delivery providers are now entering the market with a business model based on a customer- focused app, a website or telephone number and an enormous amount of back-office computer power to increase order volumes.
To be successful, the aggregator must be a worldclass matchmaker for food orders. It needs a big customer database and a wide range of restaurant menus offered in big cities. For many ODPs, the biggest hurdle to market entry is the cost of acquiring customers. It does not, however, need an own fleet of drivers to do the deliveries. The drivers work on a fee basis as independent delivery men using their own vehicles.
The most expensive part of the delivery puzzle is the delivery of the food to the customer’s door, also known as the «last mile». One way of minimising these costs is to get the customer to collect the delivery at a central drop-off point.
Yun Ban Bao, a start-up in New York City, targets food deserts with many inhabitants of a Chinese background. It relies on direct marketing via the Chinese WeChat online service provider. This creates an own delivery market with the advantage of pre-ordering and pre-payment.
Yun Ban Bao accepts online orders for the next working day and then sends out the orders in accordance with a bulk drop model. In this way, the company reduces delivery costs and retains control of its fleet of drivers. The start-up offers data analytics services for smaller restaurants, thus speeding up revenue growth for the suburban food service sector.
Just Eat, one of the world’s biggest and most successful ODPs, started in the market with an own delivery fleet and permanently employed drivers. The company also works directly with restaurants that have their own delivery fleets. In this case, Just Eat functions as an online order platform and offers local companies the opportunity to be the face at the door of their customers. Thanks to the Just Eat delivery fleet, restaurants without their own delivery infrastructure can also list their menus in the app.
The concept of Dark Kitchens is one of the biggest threats for restaurants. This is a room created by an ODP with the objective of making deliveries to as many customers as possible at minimum cost per delivery kilometre from the restaurant kitchen to the hotspots. Although this model is similar to the Cloud Kitchen, the ODP in this case establishes a group of smaller but more competitive restaurant kitchens at a single location that they rent to their partner restaurants. A Dark Kitchen is also similar to the trending food hall concept, but does not have any direct interaction with customers, as guests never enter these production locations. In the UK, this trend was boosted by Deliveroo with its urban RooBox and Edition concepts. Partner restaurants rent portable kitchen space from the ODP and pay a higher percentage fee to cover the build-out costs for their space. The restaurants man the kitchens with their own employees at their own cost.
These are interesting and challenging times, for food service providers as well as for online delivery providers. None of these two groups seems to have discovered yet how to optimally exploit consumers’ demand for convenience and delivery.
Presumably, many restaurants will not survive if they have to give up to 30 percent of their revenues to ODP partners while their average net profit is less than 10 percent. No increase in sales can compensate for this.
At the same time, it seems as if none of the biggest online delivery providers in any of these segments can actually report a profit. It may seem at first glance that ODPs are the partners, friends or even rescuers of restaurants by giving them access to the delivery market. But this appearance is deceiving, because to increase margins and become profitable, the ODPs will have to try and eliminate the middlemen and become direct competitors to the restaurants.
Ever more ODPs want to generate profits to pass on to their investors who financed the fast growth of these ODPs. This means that ODPs are likely to try and eliminate the middlemen and become direct competitors to the restaurants by preparing their own meals in the medium term. This will increase their margins. Many small and independent restaurants will be unable to survive in this highly competitive market. In the end, their kitchens will have to switch off the lights and really become «dark».
GDI-Study No. 47 / 2019
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