According to market research company NPD Group, the dine-at-home market is growing rapidly with the demand for ready-to-eat delivered food increasing ten times faster than dine-out.
Through online and app-driven channels, technology has offered the restaurant sector a means of growth that didn’t exist several years ago.
Presenting challenges and frequently requiring capital when businesses face many other cash flow pressures, this growth has, NPD Group suggests, caused disruption.
Continuing to run at around 2%, inflation in the UK is driving food and beverage prices up at a time when consumer confidence levels are still showing a downwards trend.
Real wages have contracted for the past ten years, the longest period of contraction since the 1860s. While customers believe in choice and convenience, value will always be a key factor in decision-making.
With the implementation of the increase in the national minimum wage, labour costs continue to rise.
Maintaining a large proportion of staff on zero-hour contracts, the hospitality sector is vulnerable to at least one major political party which has pledged to ban this form of contract entirely.
Fuelled by the recent flurry of high street businesses being either wound down or restructured via Administration or Company Voluntary Arrangement, notably including Jamie Oliver’s Italian last week, outrage over business rates is a crucial topic and has been so for years.
In the new economy, commissions payable to online food ordering platforms are typically in the range of 20% to 25% of the total order value. These commissions, taken with the loss of wet sales associated with delivered food, mean that owners must adapt to this fundamentally altered business model.
Conventionally, the production of a kitchen needed to account solely for the number of in-house covers. Today, a kitchen must overcome the capacity and staffing challenges created by online orders received at the same time.
The property market, NPD Group notes, is changing as a result. As landlords and restaurateurs look to maximise kitchen space and reduce under-utilised dining space in their properties, this has resulted in a move away from dine-in customers.
This in turn has meant that properties with a larger kitchen capacity, or with the potential for extension, are now attracting a premium as they offer the ability to meet the increased demand for the takeaway.
‘Dark kitchens,’ servicing only online delivery orders, follows the ‘dark store’ model operated by some supermarkets as they first navigated the demand for online grocery sales.
Currently, as with independent grocers who couldn’t compete with larger supermarkets, smaller operators do not have the scale or the capital to do this themselves. The difference, NPD Group suggests, is that aggregators are presently applying this model in conjunction with existing branded restaurant chains.
Aggregators could look to take additional margin by creating quality, white-label offerings to match branded restaurant food. Despite making their own products posing a risk, it also presents opportunities for the aggregators to exercise more control over output and reputation, with supermarkets a prime example of how quickly the private label caught up with name brands.
According to market analyst NPD, the food delivery market is expected to grow in value by 17% over the next two years, indicating it could be worth close to 5 billion by 2020.
Despite disposable incomes being low, consumers are increasingly deciding to spend their cash on experiences, including dining at a restaurant or at home via delivery.
The restaurant sector is undergoing a period of sustained metamorphosis with operators needing to balance the day-to-day cash flows in a challenging market against securing the vital capital investment required to shape the business for the future.
