Restaurant delivery services are innovating and evolving with increasing speed as the competition for restaurant business and diner dollars increases. / DoorDash Restaurant delivery services are innovating and evolving with increasing speed as the competition for restaurant business and diner dollars increases. / DoorDash

The Current State of Restaurant Delivery Competition

Restaurant delivery is booming, fueled by technology and customer demand. Earlier this week, Grubhub announced it had completed the integration of Eat 24, which it bought from Yelp, onto its platform slightly ahead of the schedule CEO Matt Maloney laid out after the acquisition.

Grubhub isn’t the only third-party delivery company claiming headlines, either. Earlier this month, DoorDash joined the unicorn club after a $535 million series D round led by Softbank valued the company at $1.4 billion.

How It Works

Gone are the days when the only option for a restaurant was to hire its own delivery staff. Plenty of third-party companies will handle everything from ordering to marketing to making the physical delivery. Though as these companies race to build connected and competitive networks across the country and around the world, technology is still a huge barrier to entry in some markets. All delivery companies list the phone as their top competitor right now — that is, orders phoned into restaurants. According to Morgan Stanley research, just over half of restaurant delivery orders in 2017 were placed via online channels, with the remaining 48 percent phoned in. That’s a slight, though notable shift from 2016, when the split was an even 50/50.

Third-party delivery companies including Uber Eats, Caviar, DoorDash, and Grubhub provide several services to restaurants: marketing and discovery, order placement, and delivery fulfillment. And often, a restaurant can choose to tap into certain parts of that offering. For example, El Pollo Loco recently expanded its partnership with DoorDash, using the service to handle the delivery. But the chain receives and processes orders through its own website and app; not through DoorDash software.

That’s an important distinction, according to Olo Founder and CEO Noah Glass. “If you’re a restaurant, that’s first prize. You want the consumer to stay on your app or website, ordering directly from you. You retain that customer relationship data on the user and have that one-to-one relationship, rather than have the customer ordering through a third party delivery marketplace.”

Olo, a technology provider for large restaurant chains, provides restaurants — over 250 different brands like Applebee’s, Chili’s and Shake Shack — the ability to integrate ordering software directly into their website and mobile app. Olo was founded in 2005 mainly as a text message-to-order platform for restaurants. Over more than a decade, its evolved with the delivery boom to now include the ability to integrate with third-party couriers, or even to integrate directly with delivery service systems. This means a customer can order via a site like Grubhub, but the order is fed to Olo instead of through Grubhub’s system.

One huge benefit of a system like Olo: orders are fed directly into a restaurant’s point-of-sale system, instead of to a separate tablet that lives in the restaurant. POS integration is a hot topic in delivery, with all the major players working to seamlessly integrate their order placement services into the systems that restaurants use to manage and track food orders. Grubhub already integrated with several of the largest POS systems, including Breadcrumb, Toast, and Micros, and other companies will surely follow suit.

Choosing a Partner

Large restaurant brands have inked exclusive deals with delivery providers, allowing one company to be the sole delivery partner for the restaurants. These large — and popular — chain restaurants are big gets for third party delivery companies that benefit from increased visibility in new markets and the name recognition that comes from aligning with a notable brand. While McDonald’s is already well into its exclusive partnership with Uber Eats after starting slowly in late 2016. White Castle signed on with Grubhub exclusively in January. And, in perhaps the largest delivery deal to date, in February, Yum Brands chose Grubhub as its official delivery partner for Taco Bell and KFC restaurants, sinking $200 million into the partnership.

In addition to providing online ordering and delivery for two of the country’s best-known fast food restaurants, Grubhub benefits from years of delivery knowledge acquired by Yum’s third brand, Pizza Hut.

“Pizza Hut is a stalwart in the business,” said Chia in February. “Pizza hut is a leading delivery company. The ability for us to collaborate and tap into the knowledge of decades of delivery experience, from Pizza Hut especially, is going to be fantastic. We’re excited to learn from them as well and take those learnings and build really innovative tech and processes in the marketplace.”

Of course, these partnerships work best because of scale. For an independent restaurant, accepting orders via multiple delivery services is still good business because of visibility — but, of course, doesn’t yet solve the four-iPads-at-the-counter conundrum.

What’s Next?

Chia says services like Grubhub are only scratching the surface of a $200 billion industry with its $4 billion in gross sales, though the Yum partnership is a good first step. “The part of this deal where it’s very beneficial for both is going out into markets where online marketplaces, delivery, hasn’t been offered in a sustainable and technologically efficient way before.”

Sure, expansion is a great deal for delivery companies, but for many restaurants, the availability and popularity of delivery is a double-edged sword. On one hand, customers now expect to be able to place orders digitally for delivery. On the other, the companies that power the delivery take a cut of each order, eating into a restaurant’s profit. A recent New Yorker article profiled this issue in Manhattan, where one restaurateur said her overall profit margin had shrunk by a third, attributable to, she believes, delivery companies.

One way to look to the future of what delivery companies are planning for is to listen to what restaurants are asking for, and many restaurants are asking for lower fees from delivery services, which can total between 20 and 40 percent.

“Scale drives efficiency,” Grubhub CEO Matt Maloney recently told the Wall Street Journal, as he explained that as Grubhub gets bigger, it will have the ability to lower — or even eliminate — the fees restaurants pay for delivery orders placed and fulfilled via the service.

But restaurants — especially larger groups — know that they still have bargaining power when it comes to working with these companies. “We are a coveted delivery partner for delivery companies,” Shake Shack CEO, Randy Garutti, said on his company’s most recent earnings call. Shake Shack is testing delivery with all the major players in the space. “We want to make sure all the things that can drive sales are there for the long term before we pursue partnerships. We want to make sure we meet the demand that’s out there in a good way,” he said.

About a fifth of U.S. Wendy’s locations offer delivery through DoorDash, and the company plans to expand what it’s calling a test of delivery to include other providers, too. But so far, according to CEO Todd Penegor, Wendy’s is focused on high guest satisfaction in delivery. “We track overall satisfaction metrics, not only in the restaurant but delivery. The overall satisfaction for our delivery is even higher than the satisfaction in the restaurant,” he said last month. Part of this, he says, is the way DoorDash delivers — one courrier per order. Part of this is also the speed at which orders are delivered, and the company aims for 30 minutes or less.

Still, the fact that Wendy’s, which hasn’t committed to an official nationwide partner, is planning to test delivery with other partners could represent DoorDash’s relatively limited coverage. Until the recent funding announcement, it served just 600 cities. Now though, that influx of cash and rapid growth to 1,600 cities this year will likely help its case with Wendy’s, and others.

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