Food delivery is a big mess. Here’s how companies are coping.

On Feb 23, 2022

But there was a reason that many restaurants hadn’t focused on delivery before the pandemic: Delivery is a pain. It’s expensive, since restaurants have to hire drivers or outsource to third-party providers like DoorDash (DASH) or Grubhub (GRUB), which charge a fee that cuts into their already razor-thin margins. It’s also stressful for employees, who must balance taking care of in-store customers while filling increasing numbers of to-go orders. And when deliveries go wrong, the restaurants take the blame, whether or not it’s not their fault.

Customers, on the other hand, don’t see it that way. Delivery is convenient. It’s usually pretty fast, and perhaps best of all, they can do it through an app — without ever having to talk to a person.

Although dine-in restrictions in most places have eased, delivery rates remain higher now than they were pre-Covid. In 2019, delivery accounted for about 7% of total US restaurant sales, according to Euromonitor International. After a spike in 2020, it settled at nearly 9% in 2021, according to Euromonitor’s forecast for last year (The company’s 2021 foodservice data has not been published.)

So whether restaurant owners like it or not, delivery is here to stay.

“Consumers have become accustomed to getting products delivered to their homes,” said Joe Pawlak, managing principal at Technomic, a food service consulting company. Now, restaurants “have to figure out what to do to make it profitable.”

For restaurants, fixing delivery means not only making it work better, but also finding ways to convince customers to choose carryout or drive-thru instead.

The problem with delivery

During the pandemic, restaurants had to shift to a delivery or takeout model to survive, said Tom Bailey, senior consumer foods analyst at Rabobank.

“They didn’t necessarily do the most efficient adjustment,” Bailey noted.

For some restaurants, the economics of delivery simply don’t add up. Third-party providers charge fees which can be as high as 30%. Restaurants, particularly independent ones, already have thin margins. For some, delivery fees can mean operating in the red.

Certain measures have been put in place to help make delivery less expensive for restaurants. Cities have been capping fees at lower rates. Third-party providers have also started offering lower rates for limited services, allowing restaurants to opt into more affordable, if less extensive, services. Some restaurants are able to negotiate lower rates directly. Others pass costs onto consumers.

Another problem with outsourcing delivery is that when circumstances outside of a restaurant’s control go wrong, their own costs can spike. Starbucks (SBUX) CEO Kevin Johnson walked analysts through a recent scenario that increased costs for the coffee chain during a February call.

“Our third-party delivery providers had Omicron-related staffing shortages, impacting their ability to fulfill a portion of our distribution needs,” he said. “This required us to greatly increase the…