The competition between casual dining and delivery services heats up…

As casual dining brands seek revenue returns through delivery partnerships, with Burger King, McDonald’s and KFC joining the charge, and online food delivery networks growing in size – with revenue expected to show an annual growth rate of 6.5% (CAGR 2020-2024) resulting in a market volume of £5,416m by 2024 – does this represent a fundamental shift in the way we eat out and in?

How is this going to change in the next five years?

Onefourzero explores…

How is the sector evolving and what is the future of online delivery?

There are currently two trends in the online food delivery sector; restaurant-to-consumer and platform-to-consumer.

Restaurant-to-consumer includes the delivery of food directly by the restaurant. Whereas, platform-to-consumer models deliver meals from partner restaurants who don’t need to offer delivery services themselves, and instead can rely on platforms such as Deliveroo.

The market’s largest segment is restaurant-to-consumer delivery with a predicted market volume of £2,919m in 2020.

Comparatively, revenue in the platform-to-consumer segment amounts to £1,296m in 2020.

The competition is fierce between platform-to-consumer and restaurant-to-consumer models, with both models rapidly expanding.

What is the demand?

Our research demonstrates the increasing popularity of platform-to-consumer delivery services.

We found that generic search demand for takeaways has increased more and more, with people opting for takeaways rather than a traditional dine-in experience.

However, we noticed that the overall search demand for keywords, such as “takeaway near me” has recorded a slight decline.

This suggests that the increasing popularity and dominance of key players in the market (i.e. Just Eat, Deliveroo, and Uber Eats) in the last few years means consumers go straight to their websites or apps rather than searching generic terms.

This trend has led commentators to label such platforms as “sticky”, given that once customers sign up, 80% never or rarely leave for another platform.

Who is dominating the market?

The key players in the food delivery industry in the UK are Just Eat, Uber Eats and Deliveroo.

Since their launch in the UK, Just Eat have dominated the market in terms of internet traffic (67.3%) with over 190 million visits a year. However, growth over the past year has been stronger in the smaller brands, such as Foodhub and Uber Eats (+177.6% and +82.6% respectively).

With the upcoming £5.9bn merger between Just Eat and Dutch food delivery firm, Takeaway.com, expected to be finalised by the end of February, Just Eat seems set to continue to dominate the market.

The merger also represents increasing consolidation of the takeaway delivery market, which expanded by nearly 20% in the UK last year.

Has the takeaway taken over?

With more and more customers opting for food delivery, restaurants are feeling the pressure.

Even if restaurants are partnered with delivery platforms, delivery orders are beginning to replace restaurant’s core business instead of complimenting it.

Restaurants partnered with services such as Uber Eats and Grubhub can pay commissions of 15 percent up to 30 percent on each order.

Jamie Oliver cited online food delivery services as one of the main reasons his restaurant chain collapsed, with Pizza Express, Byron Burger and Carluccio’s on their way to suffering a similar fate.

Since June 2018, more than 1400 UK restaurants have collapsed, with the so-called “casual dining crunch” taking its toll. In the year ending June 2019 insolvencies have increased by 25% – the highest since at least 2014.

Eater London even spent 2018 tracking and listing weekly restaurant closures.

It is notoriously difficult for restaurants to turn a profit, with rising food costs, a difficult commercial property market and staff shortages, the rise of food delivery is yet another blow.

Will restaurants survive?

The rapid expansion and increasing popularity of food delivery services poses a threat to restaurants, who will have to fight hard if they are to survive.

The rise of “dark” or “cloud” kitchens, for example, is one way restaurants are attempting to overcome the threat posed by online delivery services.

These commercial facilities dedicated solely to providing takeaway orders are avoiding the costs and necessary capital investment of setting up and running a restaurant, enabling them to be more competitive.

But food delivery companies are also getting in on this – Deliveroo Editions, for example, offers purpose-built kitchen space in areas with high demand so that brands can expand their reach without opening new restaurants.

It seems restaurants must partner with online delivery services to survive the threat these platforms pose, with even Burger King, McDonalds and KFC partnering with online delivery platforms.

Online food delivery platforms are reshaping the restaurant industry from within, and traditional restaurants and casual dining must be on board if they are to survive.

As restaurant economy continues to change, will we see less and less restaurants offering traditional dine in experiences?

Will eating out become more of a luxury activity than eating in?

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