Growth of delivery can be measured in leaps and bounds across the industry as companies expand their national footprints, restaurant partners, and technology to cover increased demand at a time when the limits feel boundless.
— Kristen Hawley
DoorDash has a new national restaurant partner: Chick-fil-A. This news isn’t particularly remarkable on its own; such chain partnerships have been driving growth in the third-party delivery business for the last year or more.
But a few specific details of the partnership wonderfully define the current state of the delivery business.
First, the experience. Delivery via DoorDash, available at 1,100 Chick-fil-A restaurants nationwide, will only be available to customers within a 10-minute radius of the restaurant. That’s one way to prevent soggy french fries, which have become synonymous with the challenges of food delivery. Smart move, too, because according to Chick-fil-A, 90 percent of the restaurant’s delivery orders include its waffle fries.
Second, DoorDash worked directly with Chick-fil-A to integrate into its point-of-sale system for fast and efficient orders, a now-hallmark of delivery service-chain partnerships that launch with nationwide support.
Every delivery company wants to talk about footprint and growth, and each talks about it differently. Recently, Uber Eats announced it would cover 70 percent of the U.S. population by end of year. DoorDash chief operating officer Christopher Payne told Skift Table that his company now operates in 1,700 cities and will serve 2,000 by the end of the year.
Postmates snapped up a $300 million round of funding this fall and says it covers 60 percent of U.S. households. And Grubhub touts 95,000 restaurants in 1,700 markets with an additional 100 coming before the end of 2018. (It’s important to note that there’s no standard definition of “city” or “market” across the industry.)
The bottom line: business is booming.
Still, Room to Grow
The space for growth, both literally as it relates to company footprints stretching across the U.S. and figuratively as it relates to growing a restaurant’s — and by extension, a delivery company’s — business, is massive. There’s a potential $200 billion in food sales shifting to delivery that’s up for grabs over the next four years.
Right now, about half of delivery orders to restaurants still come in through the phone, which makes “traditional” phone ordering an even bigger competitor than a food delivery company of comparable size. (Though, according to Payne, DoorDash will phone in an order to a restaurant “if we need to and if that’s the way the merchant prefers.”)
All of this new technology and convenience is changing the way we eat, too. Delivery unlocks new occasions, according to Liz Meyerdirk, senior director & global head of business development for Uber Eats. And traditional off times are huge for Uber Eats’ business. “[We have] seen a huge increase in delivery orders after 9 p.m.,” said Meyerdirk.
That time is significant, she added, because it’s when many restaurants close for the night, or, at the least, see in-store traffic declines. In fact, in the past year, Uber Eats has seen a 149 percent increase in delivery orders after 9 p.m. in the U.S. and Canada. Fourth meal indeed.
At its heart, delivery is a convenience play, and only works if customers can find what they want and have it brought to them when they want it. And growth only occurs if delivery platforms are able to snag more customers. Enter the national chains. Just this year alone, major brands like Taco Bell, Wendy’s, Subway, and basically any other big name restaurant business that you can name have announced delivery initiatives of their own. While they vary by size, scope, and partners, they’re all tasked with delivering the known quantity of an expected favorite at the quality level that a diner expects. (Hence the Chick-fil-A/DoorDash 10-minute rule.)
There’s a reason well-known chain restaurants are driving delivery company growth. The same things that made fast food and chain restaurants appealing when they debuted decades ago makes them attractive now: They’re recognizable and predictable, which is important as delivery companies expand into new markets.
“We found the mix as you go into the more suburban markets, having more partnerships with chain and enterprise restaurants is much more important. They tend to make up a much larger part of the mix as you get out of the big city,” said Sam Hall, Grubhub’s chief product officer. “It takes people time to realize that they have more options than just having pizza delivered.”
To attract customers, Grubhub already leverages advertising from in-store signage to television ads. Hall said to expect more co-marketing efforts from Grubhub and its larger partner restaurants to come in 2019. According to a company spokesperson, Grubhub’s plan is to increase spend in channels where scale is working but hold when we see ineffective incremental investment.
But even with all of this chain-fueled growth, market penetration among smaller, independent restaurants matters for business success. A recent Morgan Stanley analyst report noted that “over the long term, Grubhub’s ability to grow its core, non-chain business is likely to be important to scalability.”
Growth Through Technology
Geographical footprint or number of restaurants and diners served is one metric for measuring growth, but in these competitive days, growth is also measured by the suite of features that services offer.
Early this year, a survey by TrendSource found that diners strongly prefer to order pickup or delivery via a restaurant’s own app as opposed to using a third-party marketplace like Grubhub or Uber Eats. That’s good news for some. Olo, a true pioneer in the digital ordering space since its inception in 2005, powers digital ordering at 250 restaurant brands totaling 50,000 locations — with no diner-facing product to speak of.
Instead, it facilitates online ordering, allowing restaurants to accept and fulfill orders using their own delivery fleet, or, presumably, partnering with the types of companies who offer said logistics fleets.
But that doesn’t mean that third-party delivery companies will suffer at the hands of consumer whims. DoorDash introduced its Drive program in late 2016, and it has become an important part of its offering. Drive allows restaurants to tap into DoorDash’s couriers and logistics platform while accepting orders through their own channels. DoorDash essentially powers the delivery, even though a customer may never interact with a DoorDash-branded app or website.
This is the arrangement at Chipotle, which recently launched in-app ordering. And according to Chipotle, it’s a win-win: stores see more orders, both via its own app and through its placements on third party marketplaces, like DoorDash and Postmates.
Plus, restaurant brands from McDonald’s to Chipotle have touted digital sales and delivery orders as highly incremental, meaning that restaurants reach new customers through digital ordering and delivery channels, raising the stakes for customer acquisition even higher.
This same incrementality applies to the distinction of orders placed via the restaurant’s own channel and those generated from listing Chipotle on both DoorDash and Postmates. “We see very little customer overlap between our own in-app delivery and our third-party delivery partner apps,” said Chipotle CEO Brian Niccol on the company’s most recent earnings call.
Restaurants are fielding more orders, and companies are competing to offer the best ways to handle them efficiently. Point of sale (POS) integration has become table stakes for companies. It’s a complex technological problem due to the sheer number of POS systems Uber Eats acquired a company called OrderTalk in May specifically to accelerate its POS integration efforts.
Grubhub announced its first major POS partnerships in May 2017, joining forces with three of the largest: Oracle Hospitality, Breadcrumb by Upserve, and Toast. This July in an effort to speed up its POS integrations, Grubhub acquired LevelUp for $390 million in cash. What started as partnership talks ended in acquisition, likely because of the value of LevelUp’s technology.
“We started talking to LevelUp earlier this year in the context of a partnership because of their deal with restaurant relationships and their ability to integrate to the POS,” Grubhub CEO Matt Maloney explained to investors just after announcing the deal.
The LevelUp acquisition also serves another top-of-mind technological priority. “LevelUp’s ability to build the brand experience on behalf of the chains is super helpful,” said Hall. Grubhub, too, can offer large restaurant businesses white-label partnerships, building a branded app and website as another road to customer acquisition.
According to the Wall Street Journal, Uber is hoping to deploy drone deliveries by 2021. That’s still years in the future on the calendar, and feels even farther away given the past few months of development in the space.
Increased technology that optimizes every aspect of delivery, from prep to hand-off is a more realistic view of the future. Pizza Hut just unveiled a “robot operated mobile pizza factory” that fits in the bed of a Toyota pickup truck. Instead of working to quickly deliver a hot, fresh pizza from the restaurant oven, pizza is cooked en route to its delivery location. Pizza Hut has not released a launch date for the new technology.
These tech-fueled, efficient logistics are a target of every delivery company tasked with layering technology on top of the complications of everyday life, like traffic.
“The only way this works is if we have great technology. But what customers care about is that we get food from point A to B perfectly hot in a very small amount of time,” said Grubhub’s Hall.
While on-the-road logistics can complicate business for delivery companies, each is also aggressively working on the best technology to manage the issue.
“Uber Eats is a global business,” said Meyerdirk. ‘We have new two-wheeled navigation featured in the driver or the delivery partner app [since] the routing might be different when you’re on a scooter or a bike than when you’re in a car or walking.”
Payne explained a similar feature within DoorDash’s technology. “One of the things that our system has had to do is understand where that delivery is happening. It needs to know that ‘this is going to a high-rise and it’s going to take a while to go upstairs’, or ‘parking is going to be more challenging in this area,’ or ‘frankly, we shouldn’t even use a car, this should be a scooter or a moped.’ Those are core pieces of our technological system. Now that we’re in 1,700 cities, we can go into a market and with the technology and the system to make it sing.”
Uber has also been experimenting with a sort-of Uber Pool for food delivery. According to an Uber spokesperson, the company is curious to see if diners are willing to wait longer for their food with cheaper booking fees. Orders are batched together by route, and the experience shows a carousel at the top of the app that touts “free delivery” or “$2 off your order”
Don’t discount the power of a good discount, either. When Chipotle launched its in-app ordering in August, it offered free delivery for orders over $10, helping to propel a 25 percent increase in app downloads. Chick-fil-A’s delivery announcement comes with promo, too: a giveaway of 200,000 free chicken sandwiches. New technology continues to shape the industry, but who can resist the allure of free food?