Survival of the fattest or the fittest?

Why food delivery, the new ‘bricks and clicks’ phenomenon, could have major impact for the food and beverage market.

Last week saw an announcement by Amazon that they are entering the food delivery market in the UK with a free one hour delivery service for its Amazon Prime members who pay £79 a year for a range of services including free delivery.

amazon-prime-restaurants

It joins Deliveroo which was founded in 2013 and prior to its last fund raising of $275 million was valued at $800 million and is forecasted to have revenues of £130 million this year.

deliveroo

Uber has also launched a food delivery service called Uber Eats and this joins a wealth of other deliverers be they the restaurants themselves or the likes of Just Eat, Hungry House, Meal 4 you, Just Fast Food, and One Delivery.

ubereats

This also follows on the back of the rise in delivered meal boxes from the likes of Gousto and Hello Fresh to name but two. So it seems that 2016 is all about food but not just any food but food chosen online and delivered to my front door. This is not just limited to local restaurants or certain chains but includes Michelin starred restaurants, chains and many local outlets up and down the UK.

hello-fresh

So the market for food delivery has grown massively in the last two years. According to the NPD Group, 40% of UK meal deliveries are ordered online from 17% in 2010. Overall online retail sales are believed to now be at 14% so this is significant growth but is it sustainable especially when consumer confidence and spend is very volatile post the BREXIT vote?

Why is this so significant?

I believe it is significant for a number of reasons;

1. It follows what we saw 5 years ago with comparison goods in terms of the role of the shop.

The delivery revolution in hot food is one that might change the role of the restaurant and if more people order online and eat at home then will the number of physical covers in restaurants drop and to what effect on the profitability of the restaurants in question?

Will fewer restaurants be able to service a wider area via delivery. Will it be about hi tech kitchens in dense ‘chimney pot’ areas rather than high street units? The former is by far the cheaper and Domino’s is a good example of an operator who has done just this. Will we see a resurgence in secondary parades and other locations that are in close proximity to homes and offices?

dominos-pizza

How will restaurants adapt to this change and the balance between their dining in customers and their dining out customers? Who is the priority and how do you retain the restaurant experience with an endless stream of food couriers coming in and out of your restaurant?

2. Will this accelerate or slow down the food and beverage bubble that has been building for the last five years?

Analysis of LDC data from 2010 to 2016 shows some significant growth in the provision of food and beverage outlets on our high streets. Overall Leisure (in the main food and beverage) outlets across Great Britain have grown by 17% versus an average of 12% across all other use types. The traditional use of Comparison Goods retail is a good example of the change where the growth there has been a mere 6%.

If one looks at food delivery specific outlets such as restaurants, pizza takeaway, Chinese takeaway, Indian takeaway, caterers and fish and chip shops then an additional 9,000 new outlets have opened since 2010! 9,000 outlets is the equivalent of eight Cardiff city centres being filled!

More specifically restaurants of all types have grown by a staggering 23% with an additional 4,570 net new openings. To achieve this net number there have been many births and deaths along the way with a churn rate (openings and closures ratio) of over 90%.

The image below illustrates this growth and this is just looking at the top 20 largest fascia and their growth rates/locations.

restaurants-in-regions-across-gb

3. As with all deliverables how profitable in reality is it and how far and wide can you offer a profitable service?

Capacity, capability and cost are the key drivers here and will the end result be increased costs for the consumer which might in turn drive them out of their sofas into restaurants and public spaces? I suppose one upside which fashion retailers don’t have the benefit from is that returns will be low or non- existent whereas for fashion it can be as high as 40%.

So significant change is happening (again) in how we interact with physical places.

First it was shops and now it is restaurants.

The size of the market and the opportunity has not only captured many people’s imagination but also attracted serious backers. But will the nature of our physical places being about to radically change again as we choose to eat in our homes and not in the high streets, shopping centres and out of town parks?

Or is this just a service add on that will see profits squeezed further and result in increased churn in the sector as more operators fail?

The restaurant sector has always been a volatile sector and whilst what we see today is significant, I believe we have yet to see the impact as it is very London centric.

A quarter (26.2%) of the country’s restaurants are in Greater London so only time will tell when we look at the changes in Greater London versus other large cities and regions up and down the country.

LDC’s physical walking of the streets will be the key barometer of how the sector changes and indeed how our streets, shopping centres and out of town retail parks are changing.

Question…

How do you think the growth of food delivery services will impact our high streets?

Please feel free to leave your comments below.

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