I’ve been thinking a lot about food recently. Not because I’m on a diet (although I am on a diet) but because it seems a lot of interesting things are happening in what you could loosely call the “food space”.
- As a country, the UK is eating out less. Traditional town centre restaurants are facing ever increasing costs and decreasing footfall.
- The home delivery of restaurant food is booming.
- “Food of the Future” startups like Huel are having tremendous success.
- There seems to be greater awareness and scrutiny of how mass produced food is made.
- More people are making lifestyle choices around their food like veganism or fasting – often with astounding results.
In this post I look at the first two of these trends in a bit more detail. In my next post I’ll muse about the others.
Not going out anymore
In the last few days Prescott and Conran has gone into administration. So has Hummus Bros. Prezzo and Carluccio’s are restructuring. And many recent headlines have focused on the problems being experienced by burger chain Byron and tabloid favourite Jamie Oliver and his Jamie’s Italian chain.
Britain is in the midst of a “casual dining crunch” – a perfect storm of slumping demand and rising costs.
Suppressed wages and loss of confidence due to Brexit are being cited as the principle cause of consumers spending less and less on eating out. At the same time restaurants are battling rising costs in just about every area: rent, business rates, ingredients, energy, insurance, staff. All against the background of increased competition with the overall number of restaurants in the UK increasing by 16.7% in the past 5 years. Ouch. There is lots of interesting analysis here.
As well as all the macroeconomic things going on I personally feel many chain restaurants have lost focus on their own product and what is important. I have certainly grown weary of poor quality food delivered with indifferent service in horrible cavernous spaces whilst a high price is charged. Sadly, this is what many of the chains seem to offer these days. I now go out of my way to try and find independent restaurants whenever I can in the hope that at least some of the staff involved care about the food and the service.
Delivery services to the rescue?
It’s not all doom and gloom for restaurants though. Deliveroo, Uber Eats and Amazon Restaurants (amongst other providers) are all falling over themselves to help restaurants offer a delivery service.
And whilst the UK may no longer be eating out as often as it once did, ordering in has seen a massive rise in popularity. Britons now spend £4.2 billion a year having food delivered to their homes – up 73 percent in 10 years. And industry analysts The NPD group predict that takeaway delivery will grow a further 17 per cent in value over the next two years to a possible £5 billion.
So more business for restaurants (even if those customers aren’t coming in and sitting down) and a large choice for consumers of familiar restaurants whose food can be delivered to your door via a few clicks on smart, well designed mobile apps that track the order at every stage of it’s journey from kitchen to your home.
This has to be good news right? Win Win surely?
The answer to this question really depends on how you look at things and whether you are primarily interested in the short term or whether you are more interested in where this market might all end up.
If you are running a restaurant business the platforms Deliveroo & Co offer could seem heaven sent. A steady stream of new takeaway orders keeps your existing kitchen staff busy and contributes to your costs – especially welcome when, as mentioned earlier in this post, fewer people are walking into your ever more expensive premises.
You don’t need to recruit your own delivery team nor manage the various spikes or slumps in demand – it’s all taken care of for you. Of course you need to pay a fee to the delivery platform but that would seem a small price to pay for all those new customers. Short term it’s happy days for all concerned!
Deliveroo are certainly thinking big. If delivery demand at your restaurant starts to increase and your kitchen is struggling to keep up they have the answer – dark kitchens! These are additional kitchens (they call them “Deliveroo Editions”) in cheaper locations which give restaurants extra capacity to fulfill incoming orders.
This does creates a few interesting issues to ponder – does it matter that your edgy Hoxton Square burger doesn’t actually come from edgy Hoxton Square? Do you care? After all, your favourite frozen pizza is unlikely to have been lovingly crafted in Italy even if the original recipe originated there. In today’s global world we accept that Apple headphones may be designed in California but ship from Shenzhen, China – do we accept the same for food delivery?
Central to this pondering is the question what exactly are you buying when you order food for home delivery. Is it just about the food, or does the proximity of where it was cooked / assembled / heated up matter? Is it actually more about convenience? Like most consumption I would suggest there is huge power in brand. Lots of things are subliminally wrapped up in a brand and a well know restaurant brand that you’ve experienced before can stand for quality or familiarity. This is a fact the delivery platforms are only too aware of – they gain credibility because you recognise the restaurants they have on their platform.
There’s something very familiar about all this
The growth of the restaurant delivery apps reminds me of the initial growth of platforms like Uber, Ebay and Amazon Marketplace. For many small businesses (for example self employed minicab drivers or small independent retailers) the arrival of these platforms was truly transformational with masses of incoming business and lots of new customers .
However, there were two stings in the tail. The first sting is simple economics – other self employed minicab drivers and other small independent retailers see what is going on and sign up thereby increasing supply and competition. If you are selling a unique differentiated product this is less of a problem but as many Uber drivers have found if you are offering the same product or service as someone else then you are a commodity and you will see less business coming your way as the market becomes flooded with sellers just like you.
The second sting for these small businesses is a bit more profound – all those new customers aren’t really your customers.
The legal small print on your Uber email receipt may tell you that your ride was a contract between you and the driver and when you buy your breakfast cereal through Amazon Marketplace you may sometimes (confusingly) be emailed a receipt direct from a supplier you’ve not heard of – but in a customer’s mind I think virtually everyone feels they’ve purchased from Uber or Amazon – that is the platform they used and that is who they paid. The small business who actually drives or posts the order out is just a supplier to that platform.
But hang on – that’s not the same with restaurants – is it?
We arrive at the $64,000 question – although knowing the answer with certainty would, I suggest, be much more valuable than that!
Is home delivery of restaurant food a commoditised business or is it a brand business? Earlier in this post I suggest it might be a brand led business – but is that true?
Does your Pizza need to come from Pizza Express or could it come from Any Pizza Seller? What if Any Pizza Seller had a lot of 4 or 5 star reviews saying how great the Pizza was? What if it was a little bit cheaper? What is the Pizza was bigger? What if it came faster? Would you be tempted?
One thing for sure is that Deliveroo, Uber Eats and Amazon Restaurants are starting to aggregate huge amounts of data on who orders food, when they order it and what they order. That is valuable data.
Unsurprisingly, many in the restaurant world are becoming increasingly concerned about the likes of Deliveroo, wondering what their end game may be.
They won’t have been calmed by a recent article on Eater :
Deliveroo has laid out a radical plan to overhaul its business model with automation and making its own food in a 20 slide presentation to investors, obtained by Eater. The standout objectives for the delivery giant in the presentation are:
- Create its own food offerings, personalised for customers
- Half the cost of food for customers
- Automate delivery
- Automate food production
- Double its profit margins
The full article is well worth a read for anyone who has even a passing interest in this area – the stand out quote for me is this
The managing director of Vietnamese restaurant chain, Pho, Mark Smith, said as recently as February this year, he expected Deliveroo to make its own food. “They control the customer data. They know all the Vietnamese noodle customers who’ve ever ordered Deliveroo through us. Combine that with a dark kitchen and the data, that’s really powerful for them to start thinking about being an operator.”
The Great Restaurant Data Heist – are we being Foodjacked?
A possible theory is that Deliveroo & Co are playing a clever game by riding on the coattails of the reputations, loyalty and brands established restaurants have taken many years and big marketing budgets to achieve.
Customers use the delivery apps because of the familiar, trusted brands present on those platforms – but all the data on customers and their purchase patterns is retained by the platforms. That data may eventually help the platforms cut or downweight the presence of legacy brands in favour of new brands that offer similar food including perhaps brands created by the delivery platform themselves.
Data is the key ingredient
What Uber and Amazon within their traditional respective categories of transport and “stuff delivered” have taught us is that running a digital “mega category” business at scale is about demand management, logistics, user experience, customer service and marketing. Central to all that is data. Data informs and data refines. Data also creates more data. The more frequently customers use your service the more data you have and (assuming you know what to do with the data) the better you can become. The actual product (transport / stuff / food) is important but also – in a way – somewhat incidental. You could also argue that staff (or suppliers?) and their welfare are also somewhat incidental to all these businesses. It’s the data they want because that is where the real business value is created.
The possibility of Deliveroo & Co producing their own food reminds me a little bit of Deliverance – remember them? From 5 kitchens across London Deliverance offered you multiple cuisines in one delivery – perfect for feeding hungry office staff working late into the night who had competing preferences for the type of food to order!
Deliverance closed because (as I understand it) sales were low and costs and wastage was high. They built the kitchens and delivery capability but struggled with sales volume and demand prediction. Deliveroo & Co would be coming at things the other way round: having already built a massive customer base and armed with (one would assume) great predictive analytics and demand management tools they should be pretty confident their own kitchens would be busy – and if not they could always rent them as dark kitchens!
So what is the key take out? (sorry)
Food itself is a mega category that isn’t going anywhere fast. AI or VR isn’t going to remove the need to eat. And you can’t 3D print a burger (yet). But what will be the long term effects of all these changes in the market?
I suspect we’ll see the number of high street restaurant chains continue to shrink as leases come to an end and consumer confidence remains subdued. But some chains will innovate and reinvent eating out, something I personally think is sorely needed in the sector. My top tip to a UK operator here would be to explore experience concepts like the cinema/food combo that Alamo Drafthouse gets so right in the US.
On the home delivery front I think the eventual outcome is less clear. There is quite a lot of nuance in this market. Deliveroo may on one level have a desire to cut out brands and make more margin (although in some of their comms they strongly deny this) but I suspect if they are smart (and they are of course very smart) they know that is an overly simplistic and somewhat naive ambition – although I do think there could be some room for experimentation with home grown brands to cater for certain user purchase mindsets.
To illustrate what I mean: when you think about ordering food it isn’t necessarily a one size fits all market: it can be lots of sub markets even within the same household or within the same user profile. Is today’s food order to accompany a romantic night in, feed the kids or accompany a football night with the boys (or girls)? Is it food to keep you awake as your burn the midnight oil or a cheeky snack in the early hours when you roll in from a night on the town. And of course the platforms now deliver at lunch and breakfast too which creates even more purchase intent scenarios.
Personally I think a lot of the data crunching and refinement these platforms will do will focus on improving the user experience so the apps will get smarter around trying to predict, anticipate and then best service the user’s various reasons for ordering.
If you are eating purely for fuel whilst you chase a work deadline working from home maybe a Deliveroo branded Pizza hits the mark – if you’ve got friends round on a Saturday maybe a more familiar brand with some heritage anchored in the real word with multiple courses and better presentation of the food is appropriate. Brands do have heritage and brands aren’t created overnight. Brands bring trust to the platforms.
The platforms will continue to roll out features that make their platforms sticky and different – each trying to grow their respective share of the market. We are already seeing new features like bill splitting and subscription models for delivery fees emerge – I can’t imagine dynamic pricing and more sophisticated loyalty schemes are far off.
In time I wouldn’t be surprised to see the big restaurant players make a much more concerted effort to try and encourage direct customer ordering in an attempt to cut out or reduce the impact of/reliance on the platforms. It is very reminiscent of the hotel and insurance industries as they have made big efforts in recent times to take back the customer relationship from aggregators like Compare the Market or Expedia. The clever breakout restaurant operator of 2018 is going to be the one who combines the option of home delivery and in restaurant eating together in a single product offering – eg pay a monthly fee and get 50% off both – that will be huge – mark my words!
Zooming out a bit I think there will be similar societal issues around these food delivery platforms as those being raised around Amazon and Uber in the “stuff delivered” and transport markets. When does disruption become domination? When market dominance is achieved what happens to prices and to competition? How are suppliers protected? Are aggressive venture capital backed companies a force for good in society? What is a governments role in all of this?
And – of course – we should not forget one of the biggest questions facing our digital world today – what about Serendipity? Nothing beats finding a restaurant by accident that you like so much you still regularly go back 14 years later – no algorithm is going to help with that.
Lots of food for thought I hope you’ll agree. The issues are complex but the market is exciting and I’ll be watching with interest!
In Part 2 I’ll be looking at other things happening in the food space including new types of food and how the choices people are making about their diet are yielding amazing and unexpected results.