Profits Eat the App-etite for Delivery Services

The New Yorker: “In 2016, delivery transactions made up about seven per cent of total U.S. restaurant sales. In a research report published last June, analysts at Morgan Stanley predicted that that number could eventually reach forty per cent of all restaurant sales, and an even higher percentage in urban areas and among casual restaurants, where delivery is concentrated. Companies like GrubHub maintain that the revenue they bring restaurants is ‘incremental’—the cherry on top, so to speak, of whatever sales the place would have done on its own.”

“They also argue that delivery orders are a form of marketing, exposing potential new customers who might convert to lucrative in-restaurant patrons. The problem is that as consumers use services like Uber Eats and Seamless for a greater share of their meals, delivery orders are beginning to replace some restaurants’ core business instead of complementing it … And, as delivery orders replace profitable takeout or sit-down sales with less profitable ones—ostensibly giving restaurants business but effectively taking it away—the ‘incremental’ argument no longer holds.”

“DoorDash, an Uber Eats competitor, has started to experiment with leasing remote kitchen space to restaurants so that they can expand their delivery radii. If such practices catch on, it’s easy to imagine a segment of the restaurant economy that looks a lot like, well, Uber, with an army of individual restaurants designed to serve the needs of middle-man platforms but struggling to make a living themselves.”

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