Just a month ago—on June 24—Amazon ended its restaurant delivery service known as Amazon Restaurants as well as its Daily Dish program that focused on delivering lunches during the weekday to offices and other workplaces.
Their foray into the third-party restaurant delivery megatrend began in 2015 when they began offering this service to members of their Prime Subscription program. Ultimately, the service was available in over 190 cities across the U.S.
In 2016, Amazon Restaurants stretched their wings and brought their program to the United Kingdom which, by the end of 2018, had shut its doors.
They have kept one foot in the door of food delivery—backing one of its former competitors in the U.K.—Deliveroo. Amazon lead the way in a recent $575 million funding round for this London-based third-party delivery service that operates across 12 countries including Australia, Belgium, France, Germany, Hong Kong, Italy, Ireland, Netherlands, Singapore, Spain, United Arab Emirates and the United Kingdom. They also are continuing to provide delivery services for their natural grocery chain, Whole Foods.
So, just why has this incredibly competitive and successful company, that hit record net profits of $10.1 billion in 2018, decided to exit, in part, from the restaurant delivery service? We would venture to say, in one word: “Competition.”
The Competitors
DoorDash recently surpassed GrubHub as the dominating force with a 34 percent market share in the U.S. GrubHub is close on their heels with a 33 percent share, and Uber Eats comes in third. With these three giants carrying over 75 percent of the market, little room is left for those coming in long after the party has started. Currently, there are about a half-dozen companies battling it out. Word is that even Postmates, a company that has been in the business for 8 years and comes in at about a 10 percent share, may be considering a sale.
Restaurant’s Take
While many of the big chains such as McDonald’s, Wendy’s, Chipotle, Taco Bell, and KFC have partnered with a third-delivery service provider, other restaurants are beginning to debate if the cost, which comes in the form of commissions and/or delivery fees, is worth the service that these companies provide. These fees range, depending on the company, anywhere from 12 to 30 percent of the order.
One such company is Jimmy John’s, a sandwich chain with over 2,800 locations across the U.S. In February of 2019, they announced through a national ad campaign that they would never use third-party delivery. Other businesses that are steering clear of third-party restaurant delivery include Domino’s, Panera Bread, and Olive Garden.
Restaurants that have opted to try this service report that they are obtaining customers that they might never have catered to. For others, third-party platforms bring in many more orders and a drastic increase in needed business, despite the cost. When Dickey’s Barbecue Pit, the nation’s largest barbecue chain, started third-party delivery in 2016, sales shot up. This segment of their business now accounts for about 20 percent of their sales. The approach they have taken is called a hybrid model, with many locations providing both in-house and third-party delivery services. In this way, they are discovered by new patrons and can build their customer base through the third-party segment, while retaining a more profitable in-house process for existing customers.
The Delivery Dilemma
Whether opting for in-house or third-party delivery, it’s clear that, with recent trends as they are, having a delivery service of some kind is invaluable. Take-out and delivery sales account for about 6 percent of sales in fine dining establishments, and a whopping 50 percent in fast casual.
Whichever approach a restaurant chooses, changes will probably be a part of the transition into adding a delivery model. These include creating dedicated space just for to-go orders as well as redesigning packaging that travels well (think ventilated and insulated) and preparing dishes with delivery in mind. Some have even developed a second line in the kitchen that is devoted to to-go orders. Should delivery orders explode, you will most likely require an employee, or two, that can take the lead and focus solely on these types of orders.
Since 2014, delivery and digital ordering has grown 300 percent faster than in-house dining, and restaurants that added third-party delivery services found their sales increasing by 10 to 20 percent.
Amazon Restaurants may be a thing of the past, but you still have the best in class third-party delivery platforms to choose from, or you can bring the process into the fold and create an in-house delivery system. If you haven’t embraced this popular trend, now may definitely be the time.
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