We continue to wonder what will happen to the local food delivery world once the pandemic recedes into our collective rearview mirror. We’re writing this from Washington D.C. where the lock-down and Covid restrictions will soon be over. This information came out of the D.C. Mayor’s office this week. It essentially makes June 11th re-opening day in the District of Columbia.
So what will this mean for the restaurant and food delivery scene in a place like Washington, D.C.? When walking around this city, one is amazed by some of the new outdoor dining venues. Some outside dining options are pretty uninviting. Throw up a tent that looks like something you’d see at a farmers’ market. Toss in a few picnic tables. And voila. Outdoor dining.
At the other end of the spectrum are places that have built terrific private outdoor dining rooms. These have two and four-top tables, plants, lights, and all the trappings of a full-fledged restaurant. As a consequence, when the restrictions finally come off on June 11th, many of these restaurants will be faced with a new problem. How will they fill their indoor and outdoor dining areas? We’d estimate that some restaurants in this town at least, have expanded their total capacity by 75% to 100%.
Nothing we’ve learned about D.C. or other major metros suggests that outdoor dining will go away once pandemic restrictions are lifted. And we expect to see some bitter fights, from New York to San Francisco, Seattle to Charlotte, over this topic. For now, we’ll leave that for city council members around the country to debate.
Was the 2020 Boom an Anomaly?
Ok, so many of these restaurants have now way more capacity than they had a year ago. And many have created what is likely to be a “new” version of the highly sought-after table. It’s just that it’s on the sidewalk or the street. So where does that leave the world of restaurant delivery? If we’re a restauranteur with now, let’s say 200 seats instead of 100, we’re pretty sure we’re going to want to put butts in those seats as often as possible. So notable places with double the capacity are likely to encourage the restaurant dining experience (inside or out) over delivery.
That may blow a hole in demand for food delivery. And we’re thinking an upscale restaurant that’s spent good money on building a compelling outdoor dining space will shy away from the delivery model if at all possible. The delivery model may have been a lifesaver for many restaurants during lockdowns. But under the terms that many restaurants have been operating under it’s a drag on profitability.
Last year, DoorDash and GrubHub owned up to losing $155.9 million and $145 million, respectively. And a new academic study suggests trouble ahead for the delivery apps.
A data analysis study by Daniel Minh McCarthy, an assistant professor of marketing at Emory University, and Elliot Shin Oblander, a Ph.D. student at Columbia Business School, suggests that the gains the industry experienced last year are largely the result of “substitution away from dine-in behavior.” McCarthy and Oblander found the pandemic created an estimated $19.3 billion in revenue for delivery companies. While food delivery growth was impressive in 2020, the pandemic growth represented something of a U-turn. Pre-pandemic customer acquisition was falling as was order frequency and growth was stalling. As the pandemic fades, will this pattern return?
Yet More Headwinds for Food Delivery
There are other headwinds facing the delivery operators. Regulators in cities across the country have been fielding complaints from restaurant owners about “unauthorized” listings in apps and fake websites. So as the regulatory bodies take a harder look at some of the practices restauranteurs found fishy and as demand returns to a more “natural” state, the big delivery operators will face challenges.
For example, GrubHub has apparently created 23,000 restaurant websites that looked as though they were operated by the restaurant owners. But they were really created by GrubHub. And when consumers unknowingly dialed the numbers listed on those websites, restaurant owners were charged a commission.
Another stiff headwind is the trend toward permanently capped commission rates. Many major metros imposed these measures during the height of the pandemic. Now many cities may make these bans permanent in an effort to support their beleaguered restaurant industries.
Money Bags or Doggy Bags?
Look, there’s no doubt that a segment of the population will continue to use restaurant food delivery platforms. Many who may have been occasional users before the pandemic will continue to be heavy users after the pandemic. It’s part of that wider discussion around which habits formed during Covid will endure well past its end. Ditto online shopping, work from home, etc.
But we think the food delivery diehards will be a small segment of the broader dining market. And don’t forget all those dogs that households acquired during the pandemic. Now with outdoor dining options far more plentiful, these new dog owners can take their new best friends along with them to their local dining spot. This won’t leave much for the big delivery guys. Except perhaps for a doggy bag or two.