4 Food Delivery Trends

Maia is a local restaurant owner. She spent 10 years building her business and curating a loyal customer base. 

Now, as the pandemic persists, she faces a huge dip in her business. Offering delivery services may be the only way to keep her business afloat. 

So, what is the best option for her small business? Should Maia join DoorDash, or create her own delivery network?

For most restaurant owners, the answer is unclear. 

With COVID-19 limiting the ability to offer dine-in experiences at restaurants, business owners are searching for alternatives to keep their restaurants open. 

Restaurants’ profit margins are slimming and fees accumulate as people move to food delivery during the pandemic. Restaurants acknowledge they must offer some form of delivery service to their customers, but joining a delivery app like DoorDash or Grubhub may not be worth the cost. 

Estimated to hit $200 billion by 2025 even before the pandemic, the online food delivery industry continues to disrupt independent restaurants’ success. High delivery app fees make margins slim for local restaurants trying to stay open. 

Still, people want alternative food options to buying groceries and have invested in using food delivery services for meals. 

The Manifest surveyed 501 people about their food delivery and dining habits during COVID-19. We found that most people have dined in at a restaurant during the pandemic and ordered online food delivery more than once. 

However, over half of people are uncomfortable eating at a restaurant, indicating that restaurants must continue to offer delivery and curbside pickup options. 

Restaurants face a huge dilemma on whether to invest in their own logistic services or join the food delivery app supply chain for a massive fee. 

1. Most People Ate at a Restaurant in July 2020

As people look for a larger variety of dining options, restaurants continue to use social distancing precautions and outside seating to ease diners' concerns. 

Almost two-thirds of people (63%) in the U.S. have eaten at a restaurant at least once in July 2020.

Meanwhile, 30% of people have eaten at a restaurant one to two times during the lockdown. 

As well, 6% of people have eaten at restaurants more than 8 times in July 2020, indicating they think the risk is worth the benefits of eating out. 

Still, while most people have eaten at a restaurant at least once during lockdown, restaurants struggle to remain open in the face of decreased demand during COVID-19. With 353,000 independent restaurants in the U.S., the loss of customers could close the majority of these establishments that depend on daily diners to stay open. The New York Times estimates up to 75% of restaurants could go out of business. 

Restaurants have taken extra precautions to ensure the safety of customers during COVID-19 and combat closures. Some of these precautions include: 

• Providing outside dining options 
• Requiring masks inside
• Separating dining parties by 6 feet 
• Limiting the number of patrons allowed at a time

Below is an example of a restaurant spreading tables 6 feet apart and only allowing 50% capacity inside. 

Source

Restaurants have also added curbside pickup for people who want take-out instead of delivery. 

Following WHO guidelines, restaurants try to maintain a safe environment for diners while also helping their business remain open with fewer customers.

Even with these precautions, restaurants are struggling to stay open. Large restaurant chains like Chuck E. Cheese and California Pizza Kitchen have lost so much business during the pandemic that they filed for bankruptcy. 

Fast food, however, has benefited from the pandemic. Domino’s reported in May that it received a 22% increase in business from April to May 2020, an enormous spike in demand for the public restaurant industry. People choose fast food because they can eat it safely in their homes while also receiving quick service. 

As most people switch from dining out regularly to ordering take-out and delivery, restaurants face permanent damage to their business. While 63% of people chose to eat out at least once in July, restaurants still face a huge loss in profit from customers who would normally eat out several times a week.     

2. Half of People Feel Uncomfortable Eating at Restaurants During COVID-19

People rely more heavily on grocery and restaurant delivery during the global pandemic, which means restaurants must offer an easy-to-use online food delivery platform to remain in business. 

Over half of people (58%) do not feel comfortable dining out with 36% feeling very uncomfortable dining out. 

Meanwhile, almost one third (30%) of people are comfortable eating at a restaurant with only 18% of people feeling very comfortable eating at a restaurant. 

During the summer months, restaurants have offered outside dining options for people who want to try eating out, but do not want to sit inside during the pandemic. Outside dining remains a popular option for people who want to enjoy the restaurant experience without increasing their COVID-19 risk by sitting for a long time indoors with minimal airflow to disperse airborne virus. 

Source

As the weather becomes colder, however, restaurants could lose even more of their business with people less likely to sit outside to eat. Considering 36% of people feel very uncomfortable eating out at all, limited outdoor dining may mean losing an even larger part of the restaurant business. 

Restaurants must turn to food delivery options to remain a viable business in the face of diminished customers dining in. With food delivery increasing during COVID-19, restaurants face the tough choice of starting their own delivery supply chains or joining one of the delivery apps, like Grubhub, Postmates, or Uber Eats. 

While food delivery can be a useful service for customers, switching to prioritizing delivery has hit restaurants hard. Restaurants see a decrease in profit margin by using delivery apps and setting up their own delivery supply chain can be difficult logistically. 

Food Delivery Apps Hurt Restaurant Profits

Delivery apps charge restaurants a fee, which is between 15% and 30% of their commission on every order. These fees put a large dent in restaurant profits, with most restaurants barely making any profit on delivery orders made through third-party apps.  

Instead, certain businesses have decided to set up their own delivery services using local couriers rather than delivery apps. While the delivery fees for customers tend to be higher than those on apps, the loss of a few customers is better than paying the delivery app fees. 

For example, Tito’s Tacos in Culver City, Calif., had a restaurant profit margin of about 3% to 4% in an average month. When delivery apps charged over 15% commission fees on orders, Tito’s had basically no profit margin. 

Since, using the delivery apps would put Tito’s at a loss, the owner decided to hire a local courier service to deliver orders instead. While Tito’s charges $10 for delivery, most loyal customers are willing to pay the extra money to receive their favorite tacos. 

Since so many restaurants now can only serve delivery due to pandemic restrictions, certain states have put a cap on how much delivery apps can charge restaurants. New York recently passed a law saying delivery apps can only charge up to 15% commission fees on orders and 5% for other processing fees in-app. 

While delivery apps appear to save restaurants from immediate closure, with such high delivery fees, many restaurants will still eventually have to close because their profit margins are too slim on these deliveries. 

While most people feel uncomfortable eating in a restaurant, restaurants search for new ways to support their business without going bankrupt. 

3. Most People Ordered Food Delivery from a Restaurant in the Past Month

People support their local restaurants by ordering food delivery services despite social distancing requirements that limit dining-in experiences. 

While restaurants search for ways to remain profitable and efficient with added delivery services, people support restaurants by continuing to order from them. 

Almost two-thirds of people (65%) ordered food delivery from restaurants in July 2020, indicating that people are looking for alternative food options besides groceries. 

Meanwhile 22% of people ordered delivery 1 to 2 times and 26% of people ordered delivery 3-6 times. 

When COVID-19 had just begun to sweep the U.S., meal delivery orders were already up by 70% in the last week of March. People want safe alternatives to eating out that go beyond buying groceries and cooking at home. 

In 2018, the Department of Agriculture reported the average American spent more than half of their food budget (53%) dining out, which is more than the average person spends on their grocery budget. 

Unfortunately, due to COVID-19, restaurants saw a 85% decline in consumers dining-in as many people shelter-in-place to stop the spread of the virus. Still, restaurants recognize that the demand for their food is there, but the supply chain may not be. 

As restaurants quickly adjust to the decrease in dine-in customers, they have also begun offering gift cards, groceries, and family meal kits to attract customers. By selling products they used to need for their business, restaurants build new markets for themselves to stay afloat like offering toilet paper, produce, and bread. 

Restaurants have seen an increase in online orders especially for delivery Curbside pickup, however, remains the best alternative for restaurants for dine-in customers as it does not include delivery fees. People, however, prefer delivery because they do not have to leave the house. 

Kristian Bawcom, owner of Four Corners in Chapel Hill, describes how he wishes people would consider curbside pickup rather than delivery when ordering. 

“All of these delivery services take almost 30 percent of the total sale for themselves,” Bawcom said. “You’re already operating on such thin margins and then you throw that in the mix and it’s brutal.”

You’re already operating on such thin margins and then you throw that in the mix and it’s brutal.

While customers may be saving restaurants by ordering delivery, they may be able to save the restaurant money by simply ordering take-out instead. 

4. DoorDash Is the Most Popular Online Food Delivery App

While restaurants see a decrease in their profit margins, food delivery apps have seen a huge increase in demand. 

Food delivery apps offer an easy interface and quick service to customers looking to browse restaurant delivery options in their local area. 

While people frequently order from individual restaurants, food delivery apps like DoorDash and Grubhub own 37% of the market. 

Almost half of people (43%) say they order delivery from individual restaurants rather than using a food delivery app. 

However, DoorDash and Grubhub remain the most popular food delivery service apps with 12% of people using DoorDash in the past month and 11% using Grubhub. 

Food delivery apps have also seen an increase in value due to the pandemic. Recently, DoorDash received $400 million in funding, which puts it at a valuation of $16 billion. 

Since COVID-19, DoorDash sales have skyrocketed and leads the way in market share. DoorDash owns 45% of third-party delivery orders, followed by Uber Eats at 28% and then Grubhub at 17%. 

While people may prefer to order locally from restaurants, the ease of using food delivery apps is a major benefit. Customers can log into one platform and find a multitude of restaurants that are willing to deliver to their door. 

People unsure of what type of food they want can also browse through food options instead of searching specifically for the restaurant they want to order from on search engines.

DoorDash may also be the most popular delivery food app because of where people are using it. DoorDash owns more than half the sales in two of Texas’s biggest metro areas, Dallas-Fort Worth and Houston while also dominating the market in the San Francisco Bay area. Meanwhile, Grubhub is much more popular in the Northeast metro areas like Boston and New York. 

As food delivery apps continue to rise in popularity, restaurants struggle to compete with these apps that have a larger supply chain and network of drivers. 

Restaurants and Food Delivery Apps Provide Safer and Convenient Dining Alternatives During COVID-19

Restaurants must decide whether to invest in their own delivery network or join a food delivery app to stay open. 

Most people (63%) have dined in at a restaurant during COVID-19 as restaurants use social distancing guidelines, increased sanitation methods, and outside dining options to encourage people to eat at the restaurant. 

However, as the weather becomes colder, people may choose to stay away from inside dining options. Half of people are uncomfortable with eating at a restaurant, which indicates that restaurants will need to look for other ways to stay viable. 

Considering 65% of people ordered online food delivery in July 2020, delivery services seem key to keeping a restaurant in business. 

Still, joining a food delivery app can have high costs for independent restaurants who must pay between 15% and 30% commission on each individual order. For most small food businesses who have slim margins, these food delivery apps can bleed the business dry. 

Consumers see the benefits of delivery apps though, because of their easy-to-use interface and large variety of food options. Food delivery apps have 37% of the restaurant industry market share with DoorDash being the most popular food delivery app. 

COVID-19 continues to remain a challenge for restaurants who must figure out alternatives to the traditional dining experience. While people want to eat their favorite restaurant food, the supply chain needed for restaurants to achieve success could be costly. 

About the Survey 

The Manifest surveyed 501 people across the U.S. about their food delivery habits.

The survey ran July 27-31, 2020.