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Delivering the Goods? An Overview of Foodservice Delivery In Canada

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Technology has been a significant disruptor for a number of industries, including brick and mortar retail stores, the taxi industry and traditional accommodation. It was only a matter of time before technology would also shake up the foodservice industry. Enter third-party aggregators—such as Uber Eats, SkipTheDishes and DoorDash—that make it easier for guests to order food without the inconvenience and hassle of going out. It’s all part of the new ‘convenience economy.’

Yet, third-party aggregators have become an extremely polarizing issue in the foodservice industry. According to Restaurants Canada’s most recent Restaurant Outlook Survey, a number of restaurants have embraced third-party delivery for boosting sales and expanding their reach to new customers. Other operators are more wary, describing third-party delivery services as “a necessary evil,” “overrated” and “expensive.” 

There are, however, two things that all restaurant owners can agree on. First, third-party delivery is changing the entire business model of the foodservice industry as we know it. And second, third-party delivery is here to stay.

By the Numbers: Foodservice Delivery in Canada

Foodservice delivery sales in Canada grew to $3.3 billion in the 12 months ending February 2019, according to The NPD Group. That represents 5.8 per cent of the $57 billion in total full- and quick-service restaurant sales in Canada.  

Of the $3.3 billion spent on delivery, $1.9 billion is spent on digital delivery and $1.4 billion is spent on traditional telephone delivery orders. Looking specifically at digital delivery, an estimated $714 million is generated by delivery ordered from company-owned websites/apps, and the remaining $1.1 billion is through third-party aggregators. By way of comparison, third-party delivery sales in the United States are an estimated $10 billion (typically, the Canadian market is about 10 per cent the size of the American market).

While digital delivery remains small relative to the overall size of the market, digital delivery sales have soared by nearly 52 per cent on a year-over-year basis, compared to 4.7 per cent growth for the overall size of the foodservice industry. 

The Consumer Perspective

With smartphone penetration in Canada expected to exceed 70 per cent this year, it’s only natural that apps and foodservice now go hand-in-hand. With their busy schedules and more people working at home, many have less time to go grocery shopping and prepare meals.  Delivery is clearly filling a consumer need for speed and convenience, especially for younger generations that want instant gratification.

In fact, 44 per cent of Canadians between the ages of 18 and 34 used an app or a smartphone or tablet to order items for delivery in the last year. This compares to 28 per cent of 35 to 49 year olds and just 12 per cent of those 50 years of age or older.

When it comes to ordering from third-party delivery, 23 per cent of 18 to 34 year olds order in at least once a month or more. This compares to 17 per cent of 35 to 49 year olds and only 8 per cent of those 50 years and older.

In total, The NPD Group estimates that third-party aggregators made more than 132 million deliveries in the past 12 months.

Beyond the statistics, third-party delivery is also changing how customers view and interact with restaurants. If a household wants delivery, rather than say, “let’s order from restaurant x or y tonight,” now the customer journey begins with “let’s order Skip.” 

The Restaurant Operator Perspective

Despite the growth in third-party aggregators, the share of operators that use these delivery services varies by segment.  From Restaurants Canada’s Restaurant Outlook Survey, 62 per cent of quick-service restaurant operators use one or more third-party delivery services compared to 34 per cent of full-service restaurants. For full-service restaurant operators, some have an interest in using third-party aggregators, but the service isn’t currently available in their city. For others where it is available, many owners cited the high commission cost as to why they don’t use it.

Overall, delivery share of total foodservice sales have increased from 4.5 per cent for the 12 months ending February 2016 to 5.8 per cent for the same period ending 2019. One of the big shifts for restaurant operators is that digital delivery now accounts for more than half of all delivery orders (57 per cent) compared to 43 per cent for traditional telephone delivery sales.

Both quick- and full-service restaurants are experiencing a steady increase in digital delivery sales, largely driven by third-party aggregators.

So what makes third-party delivery successful for some restaurants and a challenge for others?

For those that use third party-aggregators, a majority of restaurant owners highlighted that they benefitted from expanding customer reach. They also felt the apps make it much easier for their guests to use, as well as making the ordering process easier for their business.

In contrast, 74 per cent of operators rated third-party delivery “poor” or “very poor” for high commission fees.  More than half (54 per cent) of full-service restaurants said they are struggling to convert third-party delivery to in-restaurant visits. And there is the issue of quality/service control.

Given the above, 55 per cent of operators felt that third-party delivery was only “slightly profitable” for their business and another “21 per cent” said that it was “not at all profitable.” Those that say it was “very profitable” found a way to make third-party delivery work for their business, or were early adopters and pay lower commission fees.

The biggest challenge comes from converting delivery into on-premise sales. Quick-service restaurants were more successful as a greater share of respondents said that third-party delivery had a positive impact on their on-premise lunch and dinner sales.  This could be due to offering a promotion with their delivery that included a discount for an on-premise visit. For new restaurants, guests would try their restaurant by ordering delivery first, and if they enjoyed the food, they would make an on-premise visit.

As stated earlier, full-service restaurants have struggled with converting third-party delivery sales to on-premise sales.  While 22 per cent of full-service restaurants said that third-party delivery had a positive impact on their on-premise lunch sales, 28 per cent were negatively impacted. For dinner, an equal share of 40 per cent were positively and negatively impacted by third-party delivery.  

Delivering the Future

In a survey of restaurant operators, 73 per cent of respondents agreed that over the next five years, third-party delivery will continue to grow at double-digit rates. But it doesn’t mean the demise of on-premise dining. In fact, an even greater share—88 per cent—agree that Canadians will continue to place an importance on social dining experiences at restaurants over the next five years. 

Delivery is a huge opportunity but also has its challenges. The consumer has changed, and operators need to capitalize on the ‘convenience economy.’ It will all come down to this: how does a restaurant keep a profitable regularly visiting guest from become a less profitable delivery customer? The restaurants that can successfully navigate this challenge will have the best chance of not only surviving but thriving in the convenience economy over the coming years.

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