By Jack Viscuso ’21
Technological innovations have brought their convenience into all facets of our daily life, from driving and communicating to cleaning and shopping, but in recent weeks, that convenience has shifted to reliance for millions of people across the globe. Eating has been no exception. For restaurants, a business shaped by human interaction with customers, mobile food ordering has quickly begun to transform what it means to “go out” to eat. A 2019 study by The NPD Group concluded that “restaurant digital orders have grown at an annual pace of 23% since 2013 and will triple in volume by the end of 2020.” Of those digital orders, 60% are made through mobile apps. Yet while placing a food order through Uber Eats or the Chipotle app offers unprecedented ease, the rise of mobile ordering is reshaping industries and facing some resistance from both the restaurants and consumers.
During a frigid winter evening or rainy Sunday morning, the appeal of simply opening an app to expect a knock on your door twenty minutes later is understandable. Back in 2004, Pizza Hut pioneered online ordering with the first one ever: a large pepperoni and mushroom pizza with extra cheese. As the decade progressed, startups such as Uber and Grubhub began to receive more attention, eventually spreading their services globally. In fact, Forbes estimates that the global online food delivery industry will reach $200 billion, more than double their current valuation, by 2025.
Turning to third-party delivery companies like Grubhub, DoorDash, and Uber Eats has emerged as a viable means of enjoying the profitability of the growing food delivery market. When you dig beneath the surface, however, what appears to be a boost to sales may actually be what is chipping away at small, local restaurants’ margins. An industry-standard budget allots 30% of a restaurant’s revenue for ingredients, another 30% for labor, and the other 40% for other costs such as rent, utilities, or supplies, according to The New Yorker’s Elizabeth Dunn. The pitfall of delivery services lie in the hefty fees imposed by these platforms. On every order, commission fees can be as high as 30%, leaving restaurants with a very small profit, or even worse, a loss. Suppose a restaurant charges $10 for a hamburger. With costs amounting to $8, for example, a 30% delivery fee leaves that restaurant with a meager $1.40. While massive chains like McDonald’s can fight against these exorbitant delivery fees, smaller restaurants are left at the mercy of larger corporations.
Food delivery has not only begun to replace drives to fast food restaurants; it is extending its services to grocery shopping. In the status quo, most shoppers are hesitant to embrace the idea of placing grocery orders from a smartphone. CNBC explains that just 3% of grocery shopping takes place online. The main reason for the limited growth arises from a trust-barrier and from consumers’ attachment to hand-picking their own produce and meat items. It is expected that individuals will initially resist new changes that upend traditional means of doing activities. Nonetheless, retailers such as Walmart, Amazon, and Stop & Shop are rapidly working to perfect grocery delivery techniques and procedures that quickly deliver ingredients freshly. Still, the vast majority of Americans have yet to place their trust in someone else to complete their shopping. Perhaps it is because the service has never been viewed as essential. Getting groceries is a task families have always completed and included in their schedules. That might be changing.
In recent months, food delivery services have been inundated with customers. Services once primarily utilized by a population of tech-savvy millennials have been overwhelmed by a surge in demand, especially from the elderly, amidst the ongoing coronavirus pandemic. Back in January when the virus ravaged China, the NPD Group noted that spending on food deliveries spiked by over 20% there. Fear of a prolonged quarantine prompted sales at JD.com, a Chinese retailer that delivers for Walmart and local grocery chains, to quadruple.
In the U.S., lockdown orders and social distancing guidelines erased any doubts about the service’s usefulness. Instacart, a grocery delivery startup praised by Forbes as “America’s Most Promising Company,” intends to hire hundreds of thousands of more personal shoppers at stores like Kroger, Costco, and Wegmans to satisfy soaring demand. Walmart and Amazon, in addition, have each announced plans to hire over 100,000 more workers. Ultimately, delivery is proving itself to no longer just be a convenience, but rather a necessity. The burden rests on companies’ shoulders to prove that the quality and ease of their services can fundamentally shift consumers’ attitudes towards this brand of online shopping, ensuring future reliance on delivery even after individuals step outside again.
Technology offers an innovative revolution to the shopping experience for both meals and grocery delivery. This interference of technology into seemingly untouchable aspects of life manifests the rapid convergence of computers and daily activities. While food delivery services offer customers unmatched ease, it poses new challenges to restaurants and tests the preparedness of the industry and consumers to support these innovations. The question thus arises as to what it will take to persuade customers to use services like Uber Eats or Instacart. Will the coronavirus pandemic be that catalyst for a major transformation of shopping habits?