DISRUPTION AND TRANSFORMATION: THE IMPACT OF ONLINE FOOD DELIVERY SERVICES ON RESTAURANT SALES

OUTLINE

1. Introduction
2. The rise of online food delivery services
3. Crowding-out effects and market expansions
4. The staggered entry of online food delivery services
5. Quantifying incremental vs. diverted sales
6. Strategies for restaurants
7. Conclusion

Introduction
With the growth of online meal delivery services, the restaurant industry has undergone tremendous transformation. These services have had major impacts on our dining habits, enabling quick smartphone taps to place food orders. This article investigates the connection between conventional restaurants and Internet meal delivery services, seeking to elucidate the dynamic relationships, market expansions, and disruptive consequences between online and offline sales using empirical research.

The Rise of Online Food Delivery Services
"The rise of online food delivery is fundamentally changing the restaurant industry. It's no longer just about the food and service you provide within the four walls of your restaurant, but also about your ability to reach and engage customers through the digital world." -Danny Meyer (CEO of Union Square Hospitality Group)

Over the past decade, online food delivery services such as Uber Eats, Glovo, DoorDash, Grubhub, and others have become extremely popular. They offer a vast array of culinary choices at the fingertips of consumers, making dining more accessible and efficient.

Crowding-Out Effects and Market Expansions

As online food delivery giants expand their services into different markets, various effects also emerge. On one hand, "crowding-out" effects could negatively impact traditional brick-and-mortar restaurants as more consumers opt for the convenience of delivery services. On the other hand, market expansion occurs as online platforms introduce new revenue streams and extend the reach of restaurants beyond their physical locations.

Some argue that online food delivery services may just "crowd out" existing sales, meaning they could take away business from dine-in or takeout orders by cannibalizing them. However, others believe these services could expand the market by stimulating overall demand for restaurant food, thus attracting new customers who would have yet to dine out otherwise.

The Staggered Entry of Online Food Delivery Services

According to recent studies, the introduction of online delivery platforms led to a significant increase in restaurant sales due to the visibility and accessibility provided by the platforms, which attracted a wide range of customers. However, as more delivery options became available, the market became saturated. Research suggests that the incremental gains seen in the initial phase began to level off, and the negative effects on traditional restaurants without an online presence became noticeable. These restaurants experienced a decrease in foot traffic and dine-in sales.

Quantifying Incremental vs. Diverted Sales

Online food delivery platforms have raised questions on whether they generate new sales or simply take away business from physical restaurants. Studies have shown that some argue that online delivery services create new business by attracting a previously untapped market, which results in an expansion of the customer base. Others suggest that online orders come at the expense of dine-in sales, leading to a redistribution of sales rather than an expansion, resulting in a decline in traditional revenue streams for restaurants that rely heavily on dine-in customers.

(Source: statista.com)

A few years ago, there was a fierce battle for national market dominance between DoorDash and Uber Eats; today, not so much. Although Uber Eats is internationally the best-known restaurant, the situation is very different in the United States.
By 2023, DoorDash now control 65% of the US market for online meal delivery services, with Uber Eats coming in second with 23% of the market share. Whereas, other apps’ market share is followed by Grubhub (9%), Postmates (2%), and others (1%).

Strategies for Restaurants

Following the digital transformation era, traditional restaurants are faced with the need to reassess their strategies. Nowadays, embracing technology is not an option, but a necessity. Here are some key strategies that restaurants should focus on to stay competitive and grow:

Optimizing Online Presence: Establishing an online presence is important. Restaurants should collaborate with multiple delivery platforms, invest in user-friendly websites and mobile apps, and leverage social media for marketing and engagement.

Fig. 1: Sample of an Instagram account for a restaurant app

Culinary Innovation: To stand out in the crowded online marketplace, restaurants must focus on culinary innovation. Unique and appealing menu offerings can attract a range of customers, including those seeking new and exciting dining experiences.

Fig. 2: Menu Template

Efficient Delivery Logistics: Timely and efficient delivery services are essential for customer satisfaction. Restaurants need to invest in streamlined logistics, ensuring food quality is maintained during transit and deliveries are made within the promised time frame.

Fig. 3: A delivery Logistics concept illustration

Collaborative Partnerships: Building strategic partnerships with online delivery platforms can be mutually beneficial. Restaurants can tap into the platforms' expansive user base, while the platforms benefit from an enriched and diverse array of culinary choices.

Fig. 4: Online Delivery Platform Illustration

Conclusion

Online food delivery services have a significant impact on restaurant sales, and the long-term effects depend on how both online and traditional establishments adapt to the changing landscape. Restaurants that embrace digital transformation, leverage technology for growth, and focus on customer-centric strategies are likely to thrive in this new era of dining. The relationship between online food delivery services and traditional restaurants will continue to shape the future of how we enjoy our favourite cuisines.

Data Points and References

1. Danny Meyer, CEO of Union Square Hospitality Group.

2. By 2023, DoorDash now control 65% of the US market for online meal delivery services.
   
   Source: Online Food Ordering Statistics 2023(enterpriseappstoday.com)

3. Fig 1: Sample of an Instagram account for a restaurant app
   Sources: https://miro.medium.com/v2/resize:fit:1100/format:webp/1*bWXx3kYaRXIOhhlmB-3p9w.png

4. Fig 2: Menu Template
   Source: https://psd.design/wp-content/uploads/2020/12/Drinks-menu-template.jpg

5. Fig. 3: A delivery Logistics concept illustration
   Source: https://img.freepik.com/free-vector/way-concept-illustration_114360-1191.jpg?size=626&ext=jpg&ga=GA1.1.1879230460.1709746236&semt=ais

6. Fig. 4: Online Delivery Platform Illustration
   Source: https://img.freepik.com/free-vector/food-delivery-onboarding-screens_23-2148549610.jpg?t=st=1709746673~exp=1709750273~hmac=cbf645c9a54823f3f754659e2e7712d5b1972abeb0f1630e4c8b3c7a2cffded2&w=826