What? No Food Delivery?

The $300 billion restaurant industry finds that a well-used but costly service is under siege. 

It’s dinnertime on Friday after a long work week. You call a local restaurant to order your favorite dish delivered to your doorstep. But sorry, they’re busy tonight and not doing deliveries. You stare at your phone. If you want that bibimbap, you must go all the way to the restaurant. And then all the way home.

This is nothing short of a minor crisis for committed delivery customers. Big chains like Olive Garden and Applebee’s are pausing deliveries during their busiest shifts  the times people want delivery. Most are citing staffing shortages, but experts say there is another issue: the cost. Either way, the numbers behind all this are enormous: The US restaurant industry brings in $300 billion annually, and US delivery services bring in $22 billion yearly.

Radhika Papandreaou, sector leader for the Travel, Hospitality and Leisure practice at Korn Ferry, says the industry is indeed plagued by a worker shortage. But more important, she says, is that delivery service firms charge commission fees of 10% to 35%, costs too high for some chains to bear. “There’s a natural friction there between delivery services and restaurants because the delivery services are third parties,” she says.

Food delivery is over 300 years old, dating back at least to mid-eighteenth-century noodle couriers in Korea. US newspaper ads hawking food to your doorstep have appeared for more than 100 years, but until recently, most of the fare stuck with the foods associated with delivery, like pizza and Chinese food. That changed in the last decade, with the swift rise of third-party delivery services whose global market has tripled since 2017, fueled by the ease of ordering in lasagna, sushi, or pulled pork. These companies are now consolidated into a handful of players that can demand substantial commissions, heating up a long-simmering conflict between restaurants and delivery services that is accelerated by pandemic-era short staffing.

To be sure, some restaurants are racking up cash from pandemic-era delivery customers. But this is part of a curious and complex picture: pandemic-era restaurants now have wildly different financial models. That’s why their delivery solutions will need to be unique, not just to a given chain, but to a given restaurant, say experts. “Owners have to figure out how much of their business comes from delivery versus pickup and then decide if it’s worth it,” says Papandreou. “That’s definitely a case-by-case calculus.”

Experts say that restaurant delivery is primed for swift innovation and automation. Until now, delivery services have found great success and little incentive to consider using robots. Juan Pablo Gonzalez, sector leader for professional services at Korn Ferry, says that companies need to ask, “What’s the work of delivery that has to be done by humans?” He says businesses should consider three main considerations: demand, what variables can be shifted, and price.

These will be no small shifts. Many communities build their busy lives around deliveries, particularly families and white-collar workers who are short on time. Which is why, says Gonzalez, creative solutions will likely ensue. For example, a restaurant might find it more efficient to deliver food to the center of a housing development. Or to employ a drone. Or both. “Companies are going to have to find some type of equilibrium,” says Papandreou. “They’re going to have to figure it out.”