Why the Rise in Food Delivery Matters to the CPG Industry
What does the rapid evolution in food delivery have to do with the CPG industry? In today’s dynamic interconnected economy, it only takes playing the business version of “Six Degrees of Kevin Bacon” to know that huge shifts in one market, can result in huge countereffects (most of the time unintended) to just about any other sector of the economy.
How the world eats is changing dramatically and that has huge implications within the CPG industry…
Food Delivery — “COVID-19 Effect”
The most mature food delivery markets worldwide (Australia, Canada, UK, and US) are now four to seven times larger than they were in 2018. Though restaurants have been forced to quickly scale their digital capabilities amid the pandemic, plenty of runway remains for digital growth. Adjusting their predictions up 70% higher than pre-pandemic levels, research firm Incisiv predicts that digital sales will make up 54% of all restaurant sales by 2025.
Food Delivery Apps
Lockdowns and physical-distancing requirements early on in the pandemic gave the category an enormous boost, with food delivery apps becoming a lifeline for the hurting restaurant industry. After two years of interrupted normal behaviors, consumers became more accustomed to doing everything online, including ordering their food. The use of mobile apps slowly became the norm among restaurant customers.
The U.S. food delivery market has three active players:
- DoorDash — 55% share of the market
- UBER Eats — 22% share of the market
- Grubhub — 17% share of the market
Many restaurants that quickly pivoted to leveraging online platforms were able to grow their delivery revenue throughout the pandemic era time period. Even so, their overall profits generally declined, occasionally resulting in negative margins. It’s important to mention that the food delivery ecosystem continues to expand and its economic structure is still evolving. The gap between delivery-fueled revenue spikes and profit declines was already an underlying issue before the pandemic.
Major Implications to the CPG Industry
The widespread adaptation within the almost $1T U.S. restaurant food industry will undoubtedly have major implications long-term to a number of adjacent stakeholders within the food and beverage CPG industry.
Food Types
Thanks to proliferation of delivery apps, we’ve got full access to just about any cuisine under the sun, but there’s a dark side to that: Without a doubt, some menu items just need to be eaten immediately and can’t travel well. Grubhub releases its annual “State of the Plate” report that usually can extrapolate which food and cuisine types are best suited for food delivery.
The deliverability of food has major implications to the CPG industry.
Consider this causality within this likely scenario…
- Food Delivery continues to be larger portion of total restaurant food sales
- Savvy restauranters shift away from opening certain cuisine types or offering certain dishes on the menu that have poor deliverability
- Consumers still want these cuisine types and/or beloved dishes that have poor deliverability
What then will start to happen?
- Consumers will choose to visit the physical restaurant location more often
- Consumers will look for other alternatives that fit their lifestyle
It’s in that second consumer behavior that provides opportunities for the CPG industry. The vast majority of consumers will replace those cravings through an at-home cooking occasion. That’s why CPG entrepreneurs should be paying close attention to the deliverability of restaurant food trends.
Note: Deliverability of certain foods could improve from various innovations that includes packaging and business models. I detailed some of those innovations in my YouTube video below that inspired this piece of content.
Beverage Concentrates
It’s maybe obvious that beverage brands reliant on foodservice as a source of revenue will continue to see pressure. Beverage concentrates, used in fountain drink dispensers, provide both a material amount of revenue and profitability to someone like The Coca-Cola Company. This is equally troubling problem for restaurants that rely on in-house diners to order high-margin items such as fountain drinks. These economics must evolve when in-house dining dwindles. With fewer in-house diners, delivery must cover a greater share of restaurants’ fixed operating costs. Knowing this fact, it could provide an opportunity for beverage brands to get creative with restaurant partnerships to offer packaged beverage promotions that can improve food delivery economics.
Meal Kits
Perhaps one of the most innovative food businesses developed over the past decade is the meal kit delivery industry. While sales sharply decelerated in 2021 from the meteoric rise in 2020, I strongly believe meal kits services have a place in the market. This is because meal kit services are extremely customizable and reply to the consumers’ request for more convenience.
That means CPG brands need to create strategic partnerships with meal kit services. You should be asking yourself…“how can your items be adapted and included in these kits.” Instead of Blue Apron instructing the customer to create a curried ketchup, The Kraft Heinz Company should include its new ketchup with a marketing insert that connects their product contextually to this eating occasion.
Sustainability
The boom of the food delivery market shouldn’t necessarily be seen as a huge net positive across all societal areas. Increased emissions from cars, unsustainable packaging, and excess food waste are a few of the environmental problems this industry poses. As these issues become more apparent, does it create consumer guilt, and does that consumer guilt get broadly applied to all packaging waste?
It’s hard to isolate if food delivery is having any material impact on this trend, but there’s no denying that sustainability is gaining traction with consumers. Since they no longer see sustainable products as simply an alternative, consumers have become a major pressure point. As conscious-consumption roots itself into mainstream culture, CPG brands need to adapt by reevaluating the message their packaging sends to consumers.
Final Thoughts
Yes…humans have an emotional connection to meeting places like restaurants.
Yes…humans have a strong desire to continue interacting together.
That said, each year that incrementally dilutes as the power of generational shifts take shape. Going forward, the food delivery space is poised for further expansion and evolution as the “next normal” takes shape. It’s important for CPG entrepreneurs to understand how huge shifts in one economic area create equally massive shifts in other economic areas.
