The rise of the on-demand economy – challenges and opportunities for the food and drink sector
According to some estimates, over the last ten years, the takeaway delivery market has grown from £2.4 billion to an estimated £4.2 billion as measured early last year, a 73% increase.
On-demand food supply businesses are key drivers in this explosion, the most well-known being Just Eat (which is now worth more than Sainsbury’s, Marks and Spencer and Morrisons), Deliveroo and Uber Eats. These new players are challenging traditional restaurant and take-away models.
Increasingly, consumers what to “optimise” their down time. They don’t want to have to shop for ingredients, spend the time cooking and create a meal that in the end may not taste as good as if they bought it, and other areas of the on-demand economy like Amazon and Netflix have given consumers an expectation that they can have what they want, whenever they want it. Therefore, they are increasingly turning to apps for food delivery, where they can get a similar and often better meal to the one they could prepare at home (or in some cases that they could get eating in at the restaurant), delivered quickly, with a few swipes on the mobile phone. Unlike with ordering directly from the takeaway, there is no searching around the kitchen drawers for paper menus, no waiting for busy restaurant staff to answer the phone, no giving out your card details over the phone, and there is the added attraction of the choice of different foods and restaurants all on the same webpage. Having restaurant meals delivered means no need to dress-up and go out, queue or wait for a table and the possibility of a higher class TV dinner.
Key characteristics of on-demand food companies are:
- mobile first – ordering is through a website or an app. It is quick, paperless and cashless.
- personalisation – using customer data to provide an increasingly bespoke service to the individual, logging past orders and making suggestions based on previous choices
- using the latest tech – developing voice technology as part of their offering (ordering through Alexa for example) and using the predictive capabilities of AI to drive efficiencies by estimating demand based on weather forecast for instance
- customers are willing to pay a premium for the user experience. It’s all about convenience. You can get the takeaway direct from the restaurant, and it may even be cheaper to do so, but you use an on-demand provider because you find it’s easy to use, has become familiar, has proved reliable, offers choices from different restaurants at a glance and may offer different dining options (like takeaway from restaurants that are usually eat-in only). Some providers, like Zomato, also allow you to view ratings and reviews of the restaurants on their sites.
The operating models of the on-demand suppliers themselves are continuing to evolve. Beginning with the “aggregators” – a pure on-line marketplace offering, like Just Eat and Foodhub, the service was limited to ordering and paying through the app or website, with the independent restaurant cooking and delivering either itself or through a third party courier. Entrants such as Deliveroo added the logistics end – taking the order and payment but also delivering the food cooked by the restaurant. Operators like Uber Eats then moved on to the food production itself, taking spaces in existing kitchens with “virtual restaurants” and this week announced it is joining forces with Starbucks in the US to deliver coffee, snacks and other items in 6 US cities with the plan to bring this to London in the Spring. A different offering still comes from businesses like HelloFresh, offering delivery of ingredients and recipes for customers at home.
The new entrants are super-ambitious. Many seek to become the definitive food company – not just the retailer/delivery agent, they want to be the first stop for breakfast lunch and dinner. This presents a challenge to the corner shop and local supermarkets as much as restaurants. Some may have been too ambitious though, like Sprig, Maple and Munchery in the US, which have found the on-demand food service industry can be tough, particularly if trying to handle all elements of the chain from ordering to cooking and then delivery. And although customers may be prepared to pay some premium for convenience, margins are tight and new businesses don’t get much time to make a name for themselves.
There are can be potential benefits for smaller retailers looking to join an on-demand network. Some offer commission-free listing to restaurants. Some will share data and offer support to start-ups. You may be able to test new concepts without having to invest heavily in promotion or open new kitchens, or start to offer delivery where you have only operated eat-in before. You may also be able to adopt new technology which will improve your efficiency and processes in the longer term. The opportunities are there, as long as the tie-up is right for your business.
If you would like any further advice, please contact Ed Fowler on 01892 506 345 or firstname.lastname@example.org