Why online delivery should be your first concern

Over the last 10 years, changes in social trends and economics have led to a shift in the way we consume food. Longer working hours, people remaining single for longer, the economic crisis and the growth in technology platforms has resulted in people choosing more frequently to ‘dine-in’ rather than dining out.

This has contributed towards over-capacity in restaurant units and a subsequent decline in the number of bricks-and-mortar stores over the last 24 months. At the same time, the delivery market has seen rapid growth, and is forecast to grow at an even faster rate over the next five years (see chart). This change in consumer behaviour and the rise of technology platforms has caused new market structures to emerge.

Source: Statista, last update: 2019-06. Direct restaurant-to-consumer includes orders directly delivered by restaurants, which will include orders sourced via platforms (e.g. Just Eat) or websites (e.g. Dominos).

A continued rise in smartphone usage, and the evolving consumer behaviour this perpetuates, means that online delivery is not simply a passing trend, but is firmly here to stay. This poses significant challenges for restaurants, who need to consciously decide how they want to play in the online delivery space.

The biggest challenges restaurants are facing today:

• Customer segmentation is becoming increasingly complex – there are ‘groups within groups’ and each group expects their needs to be fulfilled
• Consumers now expect – and demand – personalisation, from menu choices to delivery preferences
• Some customers use online delivery exclusively, creating an essential sales channel that would be lost if online delivery is ignored
• Convenience and value-for-money remain critical for consumers – delivery must be on time and the delivered product of a high quality
• Online marketplaces feature multiple sellers and increased competition – reviews are critical to the consumer decision-making process, and not being online will likely result in sales being lost to competitors who are

Assessing how to play

Two reactions from operators are common in the face of these threats and opportunities – ‘doing nothing’ to address delivery and ‘jumping in’ without planning. Both, however, can be disastrous to sales, operations and reputation.

If you’re ignoring delivery as a channel, you could be overlooking a potential high-growth sales channel for your business and enabling competitors to get ahead and steal your market share. Conversely, jumping into a delivery offer without carefully evaluating the financial and operational impacts on your business could result in even greater damage. Without rigorous preparation, your brand could be irreparably damaged through long delivery wait times, poor quality food, disruption to in-store operations, and destruction of the dine-in customer experience.

Carefully assessing how, and if, delivery fits with your brand promise, food concept and customer expectations is the first critical step in determining how delivery might work with your business. At this early stage, it may be clear that online delivery is not a viable channel, leaving the business to focus on its current growth strategy, without the constant distraction of the ‘delivery’ question. However, the decision to not offer delivery must be a well thought out strategy, rather than an emotional reaction.

If a clear fit exists between the business and delivery model, detailed operational and financial planning needs to be undertaken, which will ultimately form the basis for the underlying execution plan.

We suggest starting with the below questions as a way to work out if your business should be pursuing online delivery and how to develop a detailed execution plan:

The M&A perspective

The approach to online delivery is front-of-mind for private equity that already own businesses in the sector, or those weighing up a new investment.

Existing investors will be conscious that their portfolio companies could be benefitting from a potentially valuable revenue stream, while ensuring that the ROI on any infrastructure required to facilitate online delivery stacks up. They will also have one eye on exit and will want to ensure that management’s strategy and approach to online delivery is future proof, and drives EBITDA gains.

Meanwhile, those considering an investment in the restaurant industry will focus on the target’s business plan to ensure that online delivery is appropriately factored in, assumptions are deliverable and that any changes to strategy do not have a detrimental impact on the brand or customer experience. Those companies seeking investment that can demonstrate a credible, earnings-accretive and future-proof online delivery strategy should prove attractive to potential investors.

Looking to the future, forecasts estimate that online delivery growth will accelerate, and will evolve in significant ways. Delivery is expected to become an even greater part of the value chain, with consolidators growing to enable restaurants to go ‘direct to customer’ via white label delivery offerings. We also see further consolidation in the online delivery sector, with new offerings and models emerging from current providers. All of this strengthens the message that, right now, online delivery should be your first concern.

[This article is taken from an exclusive new AlixPartners whitepaper about online delivery. MCA readers can receive a PDF copy by contacting Steve Braude at sbraude@alixpartners.com or Craig Rachel at crachel@alixpartners.com]