$200 billion in restaurant sales are moving: Is your brand riding along?
Since becoming a new parent a year ago, I have become a major user of restaurant delivery. Around our house now, the question, "What's for dinner?" is now code for "Where should we place an order for delivery?"
Restaurants that don't offer delivery are no longer even among my potential options. Sure, I'm a sample size of one, but my experience over the last year is emblematic of the larger digital shift taking place in the restaurant industry as a whole.
"By most analysts' accounts, industry-wide restaurant same store sales were flat in 2017. But, restaurant industry analyst, Piper Jaffray projected that $200 billion — one quarter of all restaurant industry sales — will shift to digital ordering and delivery over the next five years."
Today's consumers now expect to engage with restaurants in an on-demand fashion, so restaurants must now either meet those expectations or lose business. The arc of the food business bends ever-more strongly toward convenience, and digital ordering for delivery is now the most convenient way to get food on the table.
What the digital ordering data says
By looking at growth trends in digital ordering and delivery, it's crystal-clear that both of these forces —digital ordering and delivery —are reshaping the restaurant industry by capturing an increasing share of the foodservice dollar. Though some industry leadership refuses to believe this is actually an increasing trend, the numbers and the theories behind consumer behavior indicate otherwise.
This is important to grasp for industry leadership because the rate of change has never been faster and the stakes have never been higher. Restaurant leaders who continue to deny the digital shift or fail to fully embrace it are doing their brands and shareholders a fatal disservice.
For instance, in 2017 the data shows three disruptive trends in the restaurant space:
• Unprecedented levels of consumer digital ordering.
• Growing use of delivery as a restaurant service model using third-party providers at the national level.
• Increasing prevalence of consumer delivery marketplaces among national chains after success in independent and small chain markets.
The $200 billion shift to digital
By most analysts' accounts, industry-wide restaurant same store sales were flat in 2017. But, restaurant industry analyst, Piper Jaffray projected that $200 billion — one quarter of all restaurant industry sales — will shift to digital ordering and delivery over the next five years.
Digital same store sales for the customer base at my digital mobile and online food ordering platform at Olo grew more than 26 percent on average in 2017. However, the shift to digital ordering and delivery favors brands that execute these functions well, while those that fail to do so, stand to lose customers and sales.
But at brands which have online ordering and delivery systems in place that do perform well, usage has spiked dramatically because customers are incorporating these restaurant tools into their daily lives. For example, at my company, the brands we serve ended 2017 with 75 million users of our platform. We are also now adding new users at the rate of 1 million every seven days.
Same-hour delivery: A force to be reckoned with
Beyond digital ordering for pickup, it's clear consumers now also expect same-hour delivery as an option at the restaurants they frequent. In fact, they're willing to pay extra for this convenience.
But this service could not have happened either without the presence of third-party independent contractors in the market. These contractors collect orders under a just-in-time service model from restaurants, then deliver it directly to customers at their preferred location, whether that be home, office or another easily mapped location.
"All brands must establish deep digital ordering and delivery expertise or face the consequences of being on the losing end of the $200 billion shift to digital."
Delivery marketplaces and the new Online Travel Agent
Consumer delivery marketplaces represent another consumer option. Under this approach, customers place restaurant delivery orders through third- party apps and websites, which then charge commissions to restaurants that receive the orders. However, these app and website operators don't share consumer data with restaurants.
These marketplaces exploded onto the big brand scene last year. They typically require that participating brands have a considerable level of business, technical and operational sophistication.
From a business standpoint, these services parallel those used by the hotel industry 14 years ago when online travel agents (OTAs), like Priceline and Expedia came on to the scene. Initially, hotel brands were thrilled to find services like these to fill remnant inventory with "incremental" bookings and reasonable commissions.
Over time, OTAs have come to represent 75 percent of booked hotel rooms, while commissions charged have gone up and up. These OTAs were fundamentally better at digital customer acquisition through search engine marketing, search engine optimization and other methods. Consumer delivery marketplaces are similarly outmaneuvering restaurant brands, far more advanced in digital customer acquisition.
2018 promises to be "the year"
Based on these three disruptive trends of 2017, we expect the volume of digital ordering for delivery to double again in 2018, while online ordering alone will also see far greater use. In fact, this change will take place in half the time required by those original digital ordering adopters — pizza brands — to do the same. That is, in fact, Moore's Law of digital ordering that states the second generation is twice as powerful as the first.
In short, restaurant leadership must understand that digital competency in this realm is now essential to business. That means all brands must establish deep digital ordering and delivery expertise or face the consequences of being on the losing end of the $200 billion shift to digital. To put it bluntly, these brands that don't participate just won't show up on the on-demand diner's radar any more.
That's why it is now crucial that restaurant brand leadership work to operationalize direct and indirect digital sales channels, while controlling capacity to maximize profits. For proof of this assertion, you need look no further than the hotel industry and the OTA world to see the future for the restaurant industry.
There are no more valid excuses for not engaging in these tools to meet the on-demand consumer's needs. After all, this is all part of a $200 billion restaurant industry shift to digital that now is a foodservice industry CEO's fiduciary duty to engage in, before it's too late.
Photo: iStock montage
Topics: Business Strategy and Profitability, Curbside, Customer Service / Experience, Delivery, Financial News, Hot Products, Italian/Pizza, Loyalty Programs, Marketing / Branding / Promotion, Online / Mobile / Social, Online Services, Operations Management, PCI Compliance, Staffing & Training, Systems / Technology, Trends / Statistics
Noah Glass Noah Glass is the Founder & CEO of Olo. Since 2005, Olo has helped restaurant brands increase revenue per square foot through faster, more accurate, and more personal service with digital ordering. www