Expect to pay more for meal deliveries

It’s snowing. You don’t own a car. You’re lazy and hungry.

At least a dozen companies are ready to deliver prepared foods to your front door, and the market for restaurant delivery is set to expand significantly in 2016, industry observers say, driven by greater availability and consumers’ growing willingness to pay big money for convenience. But with demand rising, analysts say prices will increase as companies test exactly how much you’ll fork over for a hot meal.

The table for 2016 is set: Multiple startups are already competing fiercely for a still-small section of the restaurant market and consumers are growing more aware of the options available to them via delivery.

Delivery accounted for 1.7 billion U.S. restaurant transactions in the 12 months that ended in September, or just about 3 percent of the 61 billion U.S. restaurant “visits” or transactions in the year that ended in September, according to The NPD Group.

Burger and sandwich delivery is leading the way in terms of growth, but all categories are growing except for pizza, said Bonnie Riggs, restaurant industry analyst at NPD. Delivery has seen steady growth in the last four years while business across the restaurant industry overall has been flat or down.

“For those consumers that want something different, now they have other options,” she said. “If it travels well and it’s unique or different, consumers are going to go for it.”

But expanding delivery services come with a unique set of problems: More delivery orders can mean in-store customers wait longer, or feel they’re not the priority, said Michael Whiteman, president of Baum+Whiteman International Restaurant Consultants. And if the restaurant prioritizes in-store customers, food intended for delivery can take longer to arrive and may rapidly decline in quality.

To avoid that, some restaurants have physically separated their delivery businesses from their in-store operations.

Chipotle Mexican Grill, which started delivery in Chicago through Postmates in April, added a second assembly line in the kitchen of nearly all their restaurants nationwide to handle delivery and catering orders. These second lines account for an average of $500 in sales per day, co-CEO Montgomery Moran said.

Panera took a more extreme approach: It’s testing “delivery hubs” that only handle delivery and catering. Executives say the new locations will help them catch the growing delivery market without harming customer service in its cafes.

Delivery has come a long way from the days when pizza and Chinese food were the only games in town. Technology has changed the market significantly in recent years. The evolution of online, and later mobile, delivery started in the early 2000s when GrubHub and Seamless were founded. In recent years, companies like Postmates, DoorDash and Uber have partnered with a wide range of new restaurants, from McDonald’s and Dunkin’ Donuts to high-end restaurants.

Uber launched its restaurant delivery service UberEats in Chicago in April, typically offering an entree from four restaurants for $8-$13, plus a $3 delivery fee. That compares with Postmates’ $5 and DoorDash’s $6, although service charges vary.

The company also launched UberRush in Chicago in October, which delivers a variety of products between businesses, but mostly delivers restaurant orders to other third-party delivery companies like Delivery.com and ChowNow. Uber positions itself as a way for delivery companies to get food to the customer faster, especially at peak times.

Uber’s Chicago general manager Paolo Lorenzoni says UberEats delivers food for four times the number of restaurants it did when it launched in April, featuring a total of almost 100 Chicago restaurants. He said UberRush has grown tenfold since it launched.

These third-party delivery providers allow restaurants to offer delivery without a lot of added costs, Whiteman said. But there’s a lot at stake for restaurants in deciding how delivery is managed. If a third-party delivery person grabs the wrong order or gives bad customer service, it reflects badly on the restaurant itself.

And for customers, delivery fees are expected to get even steeper, Whiteman said, because the market is still growing rapidly. Darren Tristano, president of research and consultant firm Technomic, forecasts the combination of delivery fees, service charges and up-charges for meals will reach as much as $20-$30 in some cases. Prices vary widely, but in some cases delivery can double the price of a meal.

“It will be an interesting experiment in speed and convenience,” Whiteman said.

Restaurants will also have to deal with possible backlash from a difference between in-store and delivery prices, Whiteman said. Postmates, for example, charges a $5 delivery fee but also a 9 percent service fee, plus “blitz pricing” during peak times.

This story was originally published January 5, 2016 at 1:11 PM with the headline "Expect to pay more for meal deliveries."