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The Future of Food Delivery

The Future of Food Delivery

Couch-bound millennials change the landscape of food consumption from traditional restaurant dining, to unorthodox door-to-door meal delivery. They want their burgers, and they want them now. Is restaurant dining on the decline? Or does it still have a presence that is unmatched by food delivery?

The Future of Food Delivery

Of the 16 restaurants listed as selling burgers on Deliveroo in my local suburb, one place was unfamiliar. Sweet Lou’s Co. has a Sydney address that I walk past almost daily, but I’ve never seen it. A Deliveroo cyclist brought one of their freshly cooked Deep Louisiana Burgers to my door, still hot. It took a few clicks of a button and less time than it would have taken to walk the few blocks to collect it. But picking it up in person was never an option – its address is actually a burrito restaurant where there’s no such burger on the menu. Sweet Lou’s is a ‘dark kitchen’, a business that makes food exclusively for delivery. The receipt stuck on the brown paper bag comes from the burrito shop, a sign that my burger slinger is operating out of the same kitchen.

A burger, delivered straight to your door.

In the world of online food delivery, where a hot meal is only ever a couple of clicks away, places like Sweet Lou’s are feeding more and more time-poor customers their dinner, while a legion of new ‘gig economy’ workers bring it to their tables.

A FOOD DELIV-OLUTION

The rapid proliferation of delivery apps is also breathing new life in to the restaurant scene, with the sheer ease of summoning a meal from the couch helping to lift restaurant revenue growth, while consumer spending elsewhere is stagnant.

While previously the home delivery market was dominated by your local pizza shop or suburban Chinese restaurant, the business of delivering food has revolutionised. An outsourced, online platform for ordering and delivery means that customers can have almost any food delivered to their door without the need to call, without the need for cash and within as little as 15 minutes. It’s proving especially popular among millennials.

“Although it feels like things have exploded in the last year or so, we’ve been laying the foundations for digitisation of these types of transactions for a long time,” says Alistair Venn, managing director of Menulog. “It’s really all about harnessing new types of technology. Amazingly enough, 11 years ago the primary form of communication with restaurants was via fax.” Now, it’s an app downloaded to a smartphone.

Menulog, which has more than 3 million users in Australia and New Zealand, began as an online marketplace for suburban restaurants. As it has grown and become part of the Just Eat group, they have retained a slightly different model to other food delivery companies. Marketing – not delivery – is its focus, and the majority of its partner restaurants organise their own delivery drivers. For competitors Uber Eats, LazyAz, and Australia’s Deliveroo and Foodora, delivering food is their core business. It’s a competitive, fast growing industry that capitalises on changing social trends and the possibilities of technology. “The growth in smartphones and the time pressures that we all experience are the fundamental macro trends that sit behind the growth in online delivery, they drive customers – it’s not simply that they decided to order today,” says Mr Venn.

Food businesses, from high-end restaurants that would have previously turned up their noses at home delivery to fast-food giants at the opposite end of the spectrum, are all having to take note as customer habits change. After continued requests from an eager public, McDonald’s Australia finally decided to partner with Uber Eats in June last year. The move cemented the commercial importance of delivery apps in the food industry’s future.

McDonalds are now partnering with UberEats, so you don’t have to step outside to get your Big Mac.

CHANGING THE RESTAURANT SCENE

Venn says Menulog delivered meals to 35 per cent of Australian homes last year. While New Zealand audiences have been slower to adapt to the technology of ordering food online, it’s now growing faster than the Australian market. “Customers are saying they like the convenience of ordering online, and we do know the delivery market in Australia is growing four times faster than the dining market,” he says.

Though comfort foods like pizza, pasta and burgers are still the most commonly ordered foods on Menulog, the popularity of healthier weeknight options are fast increasing, as people incorporate food delivery more regularly into their busy lives.

Restaurants are transforming their business models to best attract this market, from developing delivery-appropriate menu items to opening later and physically changing the layout of their restaurants.

“What we do see happening a lot with restaurants across Australia and New Zealand is as restaurants are doing new fit-outs, they are growing the size of their kitchens to be larger than a traditional footprint and shrinking the size of the front of house in order to re-balance that ratio between sit down, take-out and delivery,” explains Venn.

Some are forgoing the front of house entirely. People have been running delivery-only kitchens for some time in the Australian market, following trends from the UK and US, where chefs are stationed in shipping containers in suburban car parks. Now, some of the delivery apps that have enabled this concept are launching their own dark kitchen precincts.

Deliveroo launched the first of these sites in Australia in November last year, known as Deliveroo Editions. Levi Aron, Deliveroo country manager for Australia, says the aim is to create purpose-built kitchens that are technology enabled and designed for delivery. “We partner with the best restaurants in Australia and bring them into our Editions sites,” he says. They invited seven well known restaurant brands, including Gelato Messina, to move into the Windsor site in Melbourne, and other locations will roll out across the country this year.

Rather than delivery being an afterthought, this model begins with it as the focus. Everything is based around how to best get an item of food to a customer – food that travels well, a site that can be easily serviced by delivery cyclists and a kitchen that is built to be entirely functional. Instead of the chef’s pass, there is the handing over of a takeaway box to a cyclist, ready to hit the road.

“Editions is good for restaurants,” says Aron. “It provides restaurants with the infrastructure to set up their kitchens so they can bring their brands to new areas – whether that be within their same city but a different suburb, interstate and in the future, overseas – within a very short period of time.”

Menulog don’t intend to follow a similar path, but a number of restaurants on their platform already operate dark kitchens. Still, Venn says he would generally encourage a restaurant not to limit itself to just delivery: “If it is possible to have a restaurant with a footprint that allows the capacity for sit down or walk in, why not have a restaurant that allows for more types of customers?” For him, the most interesting possibilities arise for established restaurant groups that can increase their reach with delivery hubs. “If it’s really impossible to gain access to real estate to be able to service a specific suburb, then a dark kitchen might be an interesting way to be able to access that suburb,” he says. “You don’t have to seat customers in all of your venues in order for customers to know and have experienced your brand.”

Depending on your views, running a restaurant where you never have to meet a customer face-to-face could be either missing the point or living the dream.

There are certainly benefits, though. The overheads of a physical restaurant can be exorbitant, and bypassing these can open up possibilities, enabling businesses to broaden their reach, take greater risks or even diversify their food offerings.

A woman in Brisbane, for instance, began a delivery-only Greek restaurant, borrowing her mother’s café at night as the kitchen. It might be a place for a young chef to start out on their own. And it allows a burrito company to make burgers from the same kitchen under a different brand, and sell them exclusively online.

COST OF CONVENIENCE

An aspect of the industry that has and will continue to make headlines is the delivery drivers, who form part of what’s become known as the gig economy. They are employed as independent contractors, meaning they are not entitled to a minimum wage. Deliveroo, Uber Eats and Foodora argue this arrangement offers freedom and flexibility for employees, while labour unions argue that innovation shouldn’t come at the cost of basic workers’ rights.

Other criticism comes from restaurateurs themselves, some of whom say that outsourcing delivery isn’t profitable for them, but they need to partner with delivery apps to remain competitive. Last year’s study by Intermedia, called Eating Out In Australia, found that while more Australians are ordering in at home than ever before, the actual number of customers ordering through these services remains small.

Some restaurateurs have claimed their profit margins are lost because of the commission taken by delivery companies, which varies between them but can be as high as 35 per cent. This is in addition to a delivery fee – usually around $5 – which is charged to the customer. Venn says that Menulog, which doesn’t retain the delivery fee (because it doesn’t provide delivery) and charges a commission that he says is about half that of any other player in the market, is different to other companies because it is passionate about profitable restaurant growth, and works with restaurant owners to help them achieve it. “There’s no way a restaurant can’t make this profitable, it’s just a method of tweaking some of the variables,” he says.

Sally Neville, deputy CEO of Restaurants and Catering Australia, says: “There has been an enormous growth in the home delivery industry, but we have seen there is no one formula for success.”
“Some businesses have said it’s grown their business significantly and it has saved them … Other businesses are leaving the home delivery sector because it doesn’t work for their business model,” she says.

The restaurants that have been able to make it work are generally the ones making food that is suitable for delivery, and have considered how it fits within their pricing structure and their business. “The digital economy is a fast-moving beast, it’s not going to go backwards, it’s only going to go forward,” Neville says. “If restaurants want to be part of it they need to find a way to manage their expenses and make sure the technology works for them.”

IS THE RESTAURANT DEAD? 

So, does the rise of the dark kitchen signal the death of restaurants, thanks to pyjama-clad millennials waiting behind closed doors for their food?

Ms Neville says that people look to established brands with good reputations when ordering online, and so businesses with a physical restaurant will always have the advantage. Others feel that the option for delivery only heightens the experience of dining in at a restaurant, because it becomes all about the social interaction.

“It’s a very different experience for a customer to go out for dinner or for a special occasion, they’re really choosing to do so for the ambience of the restaurant more than anything else and I don’t think for a moment that will go away any time soon,” says Venn.

Restaurants have a physical presence that cannot be matched by food delivery.

He looks to the UK, where the online ordering penetration is three times higher than it is in Australia and New Zealand, to provide a useful guide of where the industry might be headed. One development there he’s particularly excited about is the fleet of self-driving small robots that Just Eat uses to deliver food to customers in London. Take comfort in the fact that even in a future where robots roam the footpaths delivering burgers from restaurants that don’t exist, the art of dining out lives on.

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