I recently wrote about how some restaurants are trying to pull back on their use of third-party delivery services due to high commission costs.
This is not exactly a surprise. Operators are focusing more on profitability after years of inflation, and delivery is an obvious place to cut back.
Consumers, on the other hand, can’t seem to get enough of it.
A much-discussed New York Times article on Americans’ delivery habits includes this jaw-dropping anecdote: A 34-year-old San Diego woman said she spends $200 to $300 a week, or a quarter of her $50,000 annual salary, on food delivery.
It’s an extreme example that serves to illustrate the article’s larger point: For many consumers, delivery is no longer a luxury, but a part of their lifestyle. As the headline puts it: “Food delivery is reshaping mealtime.”
The article has been met with disbelief and even anger. Don’t people know how to cook anymore? Or even just heat up a frozen meal?
And also: How can this possibly be sustainable?
It’s the same question we’ve been asking for the past five years, ever since the world emerged from COVID lockdowns and consumers were able to go out to eat again.
That moment did lead to a temporary slowing of delivery’s early-pandemic growth. But sales soon returned to their steep upward climb, a trend that actually accelerated last year, when consumers’ broader restaurant spending took a hit.
In the fourth quarter, Uber Eats’ gross delivery bookings increased by 9% over the previous quarter, their biggest sequential jump since the first quarter of 2021. Customers spent $25.4 billion on Uber Eats in the quarter, or about $193 million a minute.
So how can this wildly expensive, labor-intensive business be sustainable? Here's how.
Selection is an underappreciated element of both delivery’s appeal and its long-term growth prospects. It’s taken for granted that you can get anything your heart desires on a delivery app. But on Uber’s earnings call last week, CEO Dara Khosrowshahi said that in some countries, Uber Eats’ selection represents just 30% to 40% of the total market. In less dense markets in the U.S., its inventory still has room to grow. It is investing in salespeople to get more restaurants on Uber Eats.
“Our selection growth is accelerating, and as you grow selection, you have more items to sell,” Khosrowshahi said. “You have newer restaurants bring a new audience, and at the same time you increase conversion. So selection is number one. And we have plenty of selection to go through.”
OK, you say, sure, more selection attracts more customers. But after they use delivery once or twice, they’ll look at their dwindling bank accounts and stop, right?
That doesn’t seem to be the case. In fact, returning customers have been a major contributor to delivery’s growth on both the top and bottom lines. On the earnings call, Khosrowshahi revealed this notable stat: Nearly 50% of Uber’s gross bookings (including Uber rides) are coming from subscribers of its Uber One membership program. Members pay $10.99 a month in exchange for free delivery, discounts and other perks.
“These members are super sticky, whether it's ordering food or ordering groceries or getting a charger at Best Buy or getting an AV ride, these are very, very sticky members,” Khosrowshahi said. And there are 46 million of them.
DoorDash has said similar things about its subscription program, DashPass.
But you don’t even have to be a member to get a deal on delivery these days. Open up any delivery app and you’ll be bombarded by BOGOs and other promotions. According to a survey conducted for RB last year by Intouch Insight, about half of orders placed on third-party delivery apps included some type of offer or discount.
Some of these promotions are funded by the restaurants themselves, part of delivery apps’ growing advertising business. On its earnings call, Uber said it now believes ads could be a much larger business than it originally expected. For consumers, that likely means even more deals.
Grubhub last week made yet another appeal to customers' affordability concerns, announcing that it will now waive all delivery fees on restaurant orders over $50.
Even after all of that, delivery is still more expensive than going to a restaurant and getting the food yourself. And it should be. But consumers apparently feel that the overall value the apps offer is worth the cost, price-sensitive as they are. That or they just can't help it, as the Times story suggests.
To be sure, delivery still faces some challenges. Restaurants are apparently interested in doing less of it, at least through third-party marketplaces. Couriers also seem frustrated with their pay and working conditions. And the apps are facing challenges to their labor model in markets like New York City and Seattle, which have both instituted aggressive minimum wage laws for delivery workers.
But consumers just keep ordering delivery, and that has allowed the apps to weather some of those other issues. If you're a restaurant or a delivery person, it's hard to say no to all those orders.
During the pandemic, many people got used to the convenience and comforts of delivery. Since then, the apps have made themselves increasingly user-friendly. For a certain set of consumers, they are now as indispensable as Netflix and Amazon Prime.
So while some operators are pumping the brakes on their own use of delivery, don’t expect it to put much of a dent in the service’s progress overall.
Delivery, for better or for worse, is here to stay.