Food on demand: Are mid-market restaurants and retailers delivering?
INSIGHT ARTICLE |
Remember the fine dining craze for culinary foams? Bulletproof coffee? Cupcake shops… everywhere?
For certain, tastes and food fads change, however, there’s one trend affecting restaurants and food retailers that’s not fading away: the continued insistence by consumers for on-demand food.
With the rise of technology tools, from apps to seamless third-party delivery solutions, mixed with increasingly busy lifestyles, on-demand eating is a way of life for consumers. Their mindset: one click to order shoes, movie tickets or eye glasses, another to order dinner. From restaurants and corner grocers to supermarkets and convenience stores (c-stores), food on demand, doorstep delivered or grab-and-go, fresh, fast and tasty is the preference.
To cash in on this fast-changing trend, middle market businesses must have a deep understanding of their customers, leverage appropriate resources and weigh fluctuating costs and margins. But first, how did we get here?
Today’s food retail marketplace represents the convergence of food channels, from supermarkets to subscription meal kits. The following trends highlight this new fight for dining dollars and a growing on-demand culture:
- Less than 60 percent of dinners consumed at home are actually cooked there (NPD Group)
- Generation X consumers account for 51 percent of meal kit spending (Nielsen)
- 55 percent of the millennial generation say convenience is the main driver when buying food (Food Information Council)
- The entire online delivery market is worth $20 billion; by 2022, that number will likely jump to $55 billion (Food and Wine)
- Consumers made nearly 4.9 billion visits to c-stores for prepared meals and snacks in 2016, representing a 15 percent increase since 2010 (QSR)
- 70 percent of consumers will be grocery shopping online by 2025 (Nielsen)
- In 2016, delivery transactions made up about 7 percent of total U.S. restaurant sales; this number could eventually reach 40 percent with an even higher percentage in urban areas and among casual restaurants (New Yorker)
- Ordering food electronically at restaurants has tripled over the past five years (Fortune)
What do these statistics point to? In addition to memorable experiences, consumers among various generations and demographics are also craving convenience, quality and affordability, and many restaurants and food retailers are stepping up to reach them. However, some businesses, including those in the middle market, are lagging behind instead of keeping up with these evolving on-demand strategies.
For instance, according to on-demand restaurant delivery service DoorDash, 80 percent of U.S. restaurants currently do not offer delivery to customers, even in the face of growing consumer demand. Likewise grocery stores are challenged with the ongoing need for updated online ordering and app technology as well as pick-up and delivery design logistics. In addition, c-stores continue to wrangle with shifting demographics and sales drivers while also addressing that data via store design, pricing, food offerings and complementary digital platforms. And all food retailers must be mindful of leading competitors like Amazon (especially in light of their Whole Foods acquisition) and their consistent churn of leading-edge on-demand initiatives to capture market share.
It’s a challenging space, but one that also has areas of great opportunity for restaurants and food retailers dedicated to understanding the needs and wishes of their consumers, while also being true to their brand and strategic in their operational efforts.
Taking on on-demand
As a restaurant or food retailer, what areas should be explored to initiate or refresh your existing on-demand outreach to your customers? Note the following questions to consider.
- Who are your customers? Are they on-the-move commuters, rural or urban, predominantly a business lunch crowd, fine diners, snackers, Baby Boomers, or millennials? Knowing who your customers are, their lifestyle preferences, convenience needs, experience expectations and more will give you the foundational data to determine what type of digital platforms, delivery resources and space design strategies are needed. Perhaps your data will reveal that on demand is not something your consumers need if you’re an exclusive, fine dining destination with established clientele and time-tested ambience and experience. It’s important to thoroughly understand your consumers before diving into any on-demand efforts to make sure this strategy is the right one for your patrons and your business.
- Does it make sense to leverage a third-party delivery service? What’s the pricing and margin impact? Will the third party align with your business’s existing brand experience? Selecting a third-party partner that is reliable, complements your business, but also doesn’t price you out of profitability is essential.
- How will space design need to change to accommodate on-demand strategies? In the case of grocery stores or c-stores, how will grab-and-go products be displayed? Will they be placed in the front of the store or elsewhere on the store perimeter? Will more coolers be needed to store fresh foods? Will center-of-the-store usage need to be redesigned or overall store size decreased in response to greater demand for delivery of center-store items and decreasing in store traffic? For delivery or pick-up, will grocery stores need designated parking for customers? And, for restaurants, will additional food preparation lines be needed in the kitchen? Will space be expanded to allow for more comfortable areas for customers to wait for takeout orders? Determining these particular needs will dictate usage and re-design needs, if needed.
- Will digital strategies need to be deployed or updated? Will you need app technology that offers customer rewards and incentives? Does the website need to be updated to make it more user friendly to place orders? Will you outsource your delivery or build your own platform? Restaurant operators, for instance, need to consider that when consumers access third-party apps such as UberEats, Postmates and others to order delivery, customer data is typically retained by the platform operator. Restaurants could be missing out on this key information that may be utilized to market directly to customers. For many restaurants, it may be impractical to develop their own delivery platform, particularly with today’s labor issues, therefore maximizing digital strategies to identify on-demand customers while also optimally managing third-party relationships may be the approach for on-demand business success.
- How will on-demand costs affect profitability? While your business may need to spend money on on-demand initiatives in order to make money overall, costs can’t outweigh expected profits. Evaluate your business’s operational costs, pricing, labor resources, inventory management needs as well as additional on-demand costs to ensure revenue growth is achieved. Weigh third-party tiered pricing, evaluate delivery radius costs and more to ensure your on-demand efforts are providing proven value to the business and your customers, and not draining potential profits.
In addition, consider adding corresponding services and experiences to add further value to your on-demand efforts. For example, while providing the c-store staple of auto fuel, some c-stores have also added electric charging areas, drive throughs, upscale restrooms, self-checkout, even casino gaming stations all to amplify the experience level for the on-the-go consumer.
Thoroughly weighing the above questions as well as adopting a proactive strategic mindset, and anticipating trends and consumer needs, can position your restaurant or food retail business on a successful on-demand journey with your customers. Merely reacting to marketplace trends or delaying your on-demand evaluation needs, however, could mean missed opportunities and potential on-demand patrons demanding to go elsewhere.
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