The Appetite for Fast
June 14, 2017
The future of the restaurant industry will be driven by consumers’ appetite for delivery, experience and speed.
Food delivery allows restaurants to tap into new markets that were not available prior to the expansion of technology. Third-party delivery services such as Grubhub, UberEATS, Postmates and Zifty are revolutionizing the restaurant industry. So, how are restaurants affected by online platforms, third party delivery services and hungry city-dwellers?
For urban consumers, the idea of ordering and having lunch or dinner delivered within 30 to 40 minutes is appealing. The National Restaurant Association states 30% of consumers say technology makes them opt to dine out or order takeout or delivery more often. The instant gratification of ordering food from mobile devices has eliminated the stress of going to the grocery store and preparing meals. A February article in FoodnBeverage emphasized that providing a positive in-house experience for guests increases the likelihood of delivery service success. But just adding a delivery option is not enough. Many of the elements so important to a restaurant’s brick-and-mortar success are equally important in delivery: food quality must equal that of the in-house guest experience and accuracy, speed and overall customer experience are critical to repeat business.
This tech take-out trend will continue to grow as millennials will have a large impact on the future of the restaurant industry. In 2016, CB Insights estimated that over $1 billion has been invested in food startups and projects.
“The [2017 American Express Restaurant Trade Survey] confirmed what we’ve long heard, especially from our Millennial diners: that consumers value being able to order the foods they love, on mobile or desktop, from their favorite local restaurants,” said Stan Chia, chief operating officer, Grubhub.*
Restaurant owners are realizing how digital technology can enhance their consumers’ experiences. According to Hospitality Technology, 7% of restaurant operators use some form of automated service technology such as kiosks or table-side ordering. This trend is expected to grow as more and more millennials are starting to prefer digital platforms instead of the traditional wait staff. And don’t worry, restaurants are taking notice.
Technology’s Effect on Restaurant Employment and Sales
Despite the increased demand for technology, restaurant industry employment is projected to rise. This year, restaurants and foodservice jobs in Georgia account for 10% of the state’s employment. By 2027, that number is projected to grow by 15.7% in Georgia alone. Based on the projected increase in employment in Georgia, restaurants are expected to remain the nation’s second largest private sector employer.
And sales? For the first quarter of 2017, Georgia restaurants posted negative sales, which were down 0.7% compared to the first quarter of 2016. The National Restaurant Association projects that sales within the restaurant industry will exceed $790 billion in 2017, a 4.3% gain in estimated sales compared to 2016.
In its first quarter earnings report, food delivery giant Grubhub stated 40% growth in year-over-year revenue and 21% growth on year-over-year daily average users.
However, Uber – on the other hand – is a different story. Uber Technologies Inc. reported a first quarter (2017) loss of $708 million. Since Uber is a privately-held company we are not able to analyze the performance of UberEATS and the effect it has on in-town dining. Despite Uber’s first quarter loss, the loss was encouraging as earnings were up 18% over the fourth quarter loss.
Restaurant Giants Jumping In
Putting the numbers aside, the odds of food delivery giants increasing their presence is likely. Fast-food chains are jumping on board with food delivery also. Wendy’s recently signed up with DoorDash Inc. to delivery in parts of Ohio and Texas with the intention of expanding nationally in a year. Another fast-food chain jumping on board is McDonald’s. Even though reports state 75% of the US population lives within three miles of a McDonald’s, the gold arches announced their partnership with Uber Technologies Inc. earlier this year.
Overall, restaurant owners and operations are positive about the future. More than half of restaurant owners or operators say revenues are up from one year ago. Nearly two-thirds of those who participated in the 2017 American Express Restaurant Trade Survey have plans for technology investments in the next year.
In our next article, we’ll discuss the often-overlooked sales tax rules that accompany restaurant delivery charges, catering delivery and mandatory gratuities.
If you have any questions and would like to connect with a team member please call 404-874-6244 or contact an advisor below.CONTACT AN ADVISOR
Subscribe to our newsletters to get inside access to timely news, trends and insights from Smith + Howard.