New food delivery apps are popping up at a feverish pace, and established players like Uber and Amazon have also entered the fray — yet the demand for food delivery is going largely unmet. That's according to a new study of the food delivery market by Morgan Stanley analysts, anyway: They say the food delivery market, currently worth about $30 billion, has the potential to be worth some $210 billion.
With online food delivery still in its nascency, though, analysts estimate that currently only a sliver of that potential goldmine is being addressed.
The restaurant industry is one of the largest in all of retail — currently worth nearly $500 billion. Approximately $210 billion of restaurant food is eaten off-premise, but the current delivery market is worth just $30 billion. Excluding pizza, that number shrinks even more, to just about $4 billion, or two percent of the total market.
Delivery still makes a pretty penny, to be sure, but analysts say it could make even more — billions more. The e-commerce industry, by comparison, does an estimated 10 percent of its sales online, while the travel industry makes approximately 40 percent of its sales online.
"Said another way, despite online delivery being around for 15+ years (Seamless started in 1999), online food delivery has 1/5th the penetration of e- commerce and [approximately] 1/20th(!) the penetration of online travel," say analysts.
Perhaps the best example of how delivery can dramatically change the food landscape is pizza. Morgan Stanley research suggests that online sales account for one-third of all sales in the category. For the Big Three — Pizza Hut, Domino's and Papa John's — online orders account for half of all sales. The leap from zero to 50 percent happened, say analysts, "despite the fact that the underlying category [pizza delivery] actually shrank by over 10 percent in the last decade."
A Morgan Stanley survey, conducted in conjunction with Alpha Wise, found that only about one-third of the population orders delivery that is not pizza. Demand is still high, though — nearly 60 percent of those surveyed said they have ordered to-go from a restaurant in the last six months, and demand is consistent in both rural and urban areas.
The key impediments to delivery, according to those surveyed, are price, availability, and delivery time. Morgan Stanley analysts say online delivery solves at least two of these — price and availability. Time, they say, can be easily combatted with software that allows users to track their order (similar to what Pizza Hut recently unveiled).
Another element impeding food delivery? Food quality. Pizza, say Morgan Stanley analysts, is an ideal food to deliver. "Pizza has been successful because cheese is a good insulator and the product can withstand a 20-minute delivery journey. The same goes for Asian, Italian, and sandwiches. Other categories don't fare as well. Coffee for example has some impediments, as do burgers and fries, which tend to get soggy quickly." They suggest new packaging technology can make non-pizza food deliveries more viable.
So what does the future of food delivery look like? The report suggests the best move for chain restaurants would be to build their own in-house delivery businesses rather than relying on third parties like GrubHub.
GrubHub is certainly trying to corner the market on food delivery, though analysts say the company must "continue to invest in delivery" in order to stay profitable. Increased competition in the food delivery space appears to be eating away at GrubHub's profits recently. Newer — and larger — aggregators like Amazon and Uber are still trailing the company in terms of restaurant selection, though they both offer brand loyalty that GrubHub can't match.
Consumer behavior is changing so rapidly, though, that Morgan Stanley analysts say restaurants can do more than just shift the share of food ordered for delivery. In fact, they say delivery could end up expanding restaurant demand as a whole. "Ultimately, we think the entire $210 billion of off premise food is up for grabs."