The Turbulent Relationship Between Restaurants and Food Delivery Apps: Navigating the Digital Disruption
SME'S MARKETING
In an era of digital disruption, no industry is immune, as witnessed by the transformative impacts on taxi services, hotels, and television. Restaurants, too, have experienced upheaval as consumers seek instant gratification through third-party food delivery apps like DoorDash, Deliveroo, and UberEats. While these services cater to convenience-seeking consumers, they simultaneously disrupt the traditional restaurant business model by diverting foot traffic.
The outbreak of COVID-19 in 2020 further exacerbated the challenges faced by the restaurant industry. Lockdowns and restrictions forced closures, prompting a surge in food delivery app usage. Yet, this dynamic has strained the relationship between restaurants and delivery services, raising questions about the future of the industry.
The Pre-COVID Rapid Growth of Food Delivery Apps:
The rise of third-party food delivery apps can be traced back to the early 2000s, with Grubhub launching in 2004 and others like PostMates, DoorDash, and UberEats following suit in subsequent years.
These apps exploited a gap in the market, positioning themselves between established restaurants and their customer base. The promise of quick delivery and mobile convenience attracted consumers away from traditional dine-in experiences.
However, the growth came at a cost for restaurants, as delivery services claimed a significant percentage (up to 40%) of revenue from each order.
Restaurants Face Digital Darwinism:
The restaurant industry, already facing challenges with a high failure rate (60% within the first year), had to adapt to digital disruption or face obsolescence.
Some restaurants embraced third-party delivery services, despite the impact on profitability, viewing it as a necessary evil to survive. Others failed to adapt and saw declining sales.
The aggressive growth strategies of delivery services, coupled with high fees, fueled animosity between restaurants and these platforms.
Delivery Services Rise, but Challenges Persist:
By 2025, the online food delivery market is projected to reach $200 billion globally. Major players like Zomato, Swiggy, Uber Eats, GrubHub, and DoorDash dominate different regions.
Despite the apparent success, reports revealed that leading companies faced losses due to aggressive global expansion strategies. Deliveroo, for instance, saw a 72% increase in revenue but also a 17% spike in losses.
Lockdown Impact and Mutual Efforts:
The COVID-19 pandemic led to widespread restaurant closures, with food delivery services experiencing a surge in business.
Some delivery platforms, like GrubHub and Uber Eats, temporarily waived fees to support struggling restaurants during the lockdown.
However, tensions resurfaced as it became apparent that fee reductions were not as altruistic as portrayed. Class-action lawsuits were filed against major delivery services, accusing them of imposing "exorbitant fees."
Restaurants Reinvent Themselves:
Faced with reduced margins and challenges from delivery services, many restaurants pivoted to in-house delivery or reinvented their business models.
Some restaurants became specialty food stores, offering takeout-friendly items. Others transformed into farm stands, selling products from their own produce.
The innovative approaches allowed restaurants to generate income while challenging the dominance of third-party delivery services.
The Entry of Tech Giants:
As the battle for the food delivery market intensifies, major tech companies like Amazon, Google, and Uber invested heavily in delivery services.
Amazon backed Deliveroo with $575 million, entering direct competition with Uber and GrubHub. Google announced plans to enable food orders directly through its platforms.
The entry of tech giants suggests a reshaping of the competitive landscape in the food delivery industry.
The Future of Restaurants and Delivery Apps:
The COVID-19 impact has led to a significant number of restaurant closures, with 75% of independent restaurants that shut down during lockdown predicted never to reopen.
As restaurants face challenges in turning a profit with reduced capacity due to social distancing, the war for the food delivery market is expected to continue.
The restaurant experience is likely to change, and the industry may witness a shift in how consumers perceive dining out.
In navigating this digital disruption, the relationship between restaurants and food delivery apps remains complex, with both challenges and opportunities shaping the future of the industry.