Restaurant delivery has accelerated from 55 mph to over 100 mph in what seems like seconds. In a rush to make sure that their businesses can keep up with the delivery-Joneses, many operators have accepted high third-party delivery fees and commissions and added what is essentially another full service to normal business hours. But now it’s time to think smarter about how delivery can increase sales and not impede on in-restaurant sales.
The Delivery “Drinking” Game
In life BC (Before COVID-19), the Branded team attended many industry events. At these events, we’d play a (fictitious) drinking game: we would jokingly announce that every time a speaker says the word “delivery,” everyone must take a drink. We found that delivery was the topic consuming the market and hospitality industry.
In life DC (During COVID-19), not much has changed. There’s very good reason for delivery dominance. Chew on this:
- The revenue in the online food delivery market exceeded $90 billion in 2019 and is expected to reach $135 billion by 2023.
- According to NPD Group, digital orders have grown at an annual pace of 23% since 2013 and will triple the end of 2020.
This is worthy of time, attention and capital.
Time: From Pizza to Steak Au Poivre
Where is the credit due for this explosion in the market? Are adults cooking less? Are delivery fees for the consumer cheaper? Is the market oversaturated with delivery ordering services? Or is it all of the above? We are now presented with an entire market that is trying to deliver (pun intended) unique and differentiated experiences for consumers across all cuisines. Case in point: I just ordered Peter Luger for dinner.
Attention: I Discovered Seamless!
Third-party delivery service platforms (DSPs) paved the road for the many options of cuisine available for delivery today. Branded’s restaurants have worked with Seamless since the Big Bang. Fast forward to the present. For every customer who is enjoying Luger’s thickcut bacon from the comfort of their home, another operator is struggling over the high price of working with DSPs.
While we will not judge the cost of doing business with the DSPs, we are pleased that local municipalities have become heavily involved with capping fees to, typically, around 15%. DSPs were charging between 20% and 35% per order, leaving some restaurants in the red on a single third-party order. Smart operators are learning how to use DSPs in their favor, turning marketplace customers into their own. We are big supporters of white-label or native delivery platforms.
Capital: Show Me the Money!
Let’s talk investment strategies and opportunities for those interested in emerging and alternative investments.
A key driver of Branded’s focus in this vertical is predicated on the consolidation in the industry as shown by European food delivery service Just Eat Takeaway’s acquisition of Grubhub for $7.3 billion and Uber Eats’ acquisition of Postmates for $2.65 billion. These mergers will impact restaurants and consumers. No doubt, the cost of delivery will increase for customers. The price of online delivery service has been kept artificially low because a) venture capital and private equity has been an open ATM in funding the DSPs and b) restaurants have accepted high commissions because of their addiction to cashflows, even when they’re economically unattractive. The time to embrace new tech in the delivery market is now, and the opportunity is most attractive.
A strong delivery tech stack is medicine for operators and represents a potential goldmine for investors. Branded has made delivery the dominant part of our investment strategy. As longstanding restaurant owners and operators, we can test, vet and validate the technology solutions available. With our investment platform, we are uniquely able to invest in early-stage companies that are addressing the industry’s biggest pain points, challenges and opportunities.
Branded’s unique and integrated approach to delivery has demonstrated tremendous value to the delivery services at our restaurants while also being a catalyst for our investment portfolio. We believe it takes a village, and together, we will succeed.
Branded Strategic Hospitality
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New York, NY 10003