Childhood memories of tucking into warm pizza at home suggest the home delivery market for the restaurant industry is not new. However, Deliveroo, Just Eat, Uber Eats and the recently launched Amazon Prime Now Restaurants are disrupting what was once quite a clean distinction between the ‘home delivery’ and ‘eat-in’ restaurant. Casual dining businesses like Tossed, Nandos and Barburrito are leading the charge in working with Deliveroo to solve the ‘last mile’ gap between hungry diners and restaurants themselves.
They are challenging the maxim that home delivery is a highly fragmented and costly area. These last mile companies are providing restaurants with a way in to the digital world. Retailers took a similar step many years ago; and the challenges in balancing the needs of online and physical customers have many similarities, and with it useful lessons for the restaurant industry.
From an operations perspective, additional revenue streams that don’t occupy physical space (covers in a restaurant), sounds great – just as online was for stores in the early days. However, capacity is the big watch out – how do you manage peak when it coincides in both online and physical worlds simultaneously?
Christmas provides a good parallel here. In the last week before Santa visits, grocers find themselves fully stretched both instore and online. As you never design for peak time, this requires careful planning when it comes to stock flows in to store and labour planning to ensure happy customers.
Equally, understanding exactly what the true capacity is at all times is crucial. Good models to manage this goes without saying. The model needs to be flexible, preferably linked to staff scheduling, and easy for management to use and understand – all things restaurants will need soon. You also need a Plan B - who do you prioritise if you hit capacity, your online customers or those looking for a meal in person?
All of this presumes trade patterns are consistent and predictable, which in retail is rarely the case.
Continuing the retail Christmas theme, online shopping has brought forward demand – big ‘store cupboard’ stores are more common in early December, and in non-food a surge in Christmas spend is now seen around Black Friday. On a more in-day change of trade, Click & Collect for groceries tends to peak Saturday morning, far earlier in the day than when the store got busy. Do people online customers get hungrier earlier or later than physical diners? Is there a difference? In the Click & Collect grocery example, this has meant a change in the grocer in-store operating model - picking for Click & Collect needed to be earlier (but what about home delivery morning deliveries?) and more staff manning at the Click & Collect points. Are restaurants geared up to see what the possible operational impacts could be and how they could flex their models?
Retailers see their customers shop in different ways in different channels. Grocers, for example, typically see customers shop more in commoditised products online, whereas for fresh products, they tend to want to pick a particular joint of meat, or particular fruit and vegetables. Fewer impulse purchases are typically recorded online too - space instore and marketing reflect these patterns. Will these hold true for restaurants? Do online and physical diners buy in to the same ranges, or are there differences in menu choices? Is the average spend similar?
When it comes to refreshing your menu, how do you cater for these diverging trends? You may see, for example, ‘premium’ dishes or ranges only offered on physical menus, or slimmer options online where customers do not shop in to ranges (such as desserts) but more options in the ranges where online diners focus their attention.
Now the space race is over, retailers are facing in to the fact they have lots of stores, some of which are too big or in the wrong location. While online sales help in some areas, they can also contribute to a decline in sales densities, cannibalising in-store sales.
As the market matures, will we see the same in restaurants? Will they need less covers as online sales grow at the expense of the physical? What will be the role of the physical restaurant in the future – a complement to the online, or something that focuses far more on the experience as the differential? After all, there are a finite number of people wanting someone else to cook for them, regardless of whether they have to make the effort to go to the prepared food, or let the prepared food come to them. Should the sales patterns differ online to offline, this could help reduce downtime in restaurants and increase sales in quiet periods.
There are many challenges that retail has already faced in to that the hospitality industry may draw lessons from – dynamic pricing, challenge to brand perception when your goods are delivered by someone else, ranging decisions and how to manage capacity. It will be great to see how restaurants react to these, and how they best serve their customers in the years ahead.