One of the fasting growing areas in retail right now has to do with the home delivery of food. Just about everywhere that you go to eat, you probably see stickers plastered on the window saying that if you wanted to stay home and eat this location’s food, you could do it by calling one of several different home food delivery firms. What a wonderful age we are living in! However, it turns out that for the product managers who work at these food delivery firms, all is not so good. They have a real challenge on their hands and they need to find out how to make their new business be financially successful.
The Challenges Associated With Delivering Food
Product managers need to understand that their customers have become spoiled. Thanks to the likes of Amazon and the other online retailers, our customers have become used to placing an order online and then having it show up magically at their door both quickly and inexpensively. This means that restaurant and grocer product managers are now rushing to satisfy the exact same demand. However, this is turning out to be hard to do.
It all has to do with money. A customer may order a US$10 sandwich and the promise from the food delivery company is that their order will arrive at the customer’s front door in no more than 30 minutes. However, the problem for the restaurant that creates the sandwich is that that each delivery costs about $5 after accounting for labor, gas and packaging. However, in order to avoid turning away customers, the restaurant continues to charge a flat delivery fee of $3 per order, which means they have to sell a lot more per order to absorb those costs.
Food delivery is proving to be expensive puzzle for restaurant and grocer product managers based on their current product development definition. Literally billions of dollars have been spent in a quest to build services that reliably move fresh food from one place to another, yet many wonder if they will ever get the economics right. The problem is that most delivery orders remain unprofitable. Product managers are willing to put up with losses, for now, because they aren’t seeing much growth inside their stores. Right now delivery currently represents only a tiny fraction of overall food-buying. However, in the future restaurant and supermarket companies expect people to increasingly shop that way. In the future this could look good on a product manager resume. Right now city dwellers remain the largest consumers of food delivery, but the phenomenon is spreading to suburbs and smaller urban areas.
How Food Delivery Companies Are Going To Be Successful
Online grocery sales are expected to grow to around $86 billion in 2022, up from $17 billion in 2017. Delivery and packaging fees take a big cut of restaurant profits, and deliveries often don’t include beverages, which can provide high margins. For now, it’s an expensive undertaking. Kroger Co. reported lower profit for its latest quarter, in part due to investments of hundreds of millions of dollars in online operations. And 85% of consumers have reported that they aren’t willing to pay more than $5 for restaurant delivery, according to a recent survey.
Many grocers have had to invest money to change their stores, install coolers for delivery orders, create dedicated checkout lanes for online-order shoppers and redesign backrooms and parking lots. Online orders draw down inventory in ways that grocers are still working to understand. This risks cannibalizing in-store sales. Unlike easy-to-ship household items, groceries must be packaged carefully and sent to customers in refrigerated trucks. That makes the “last mile” part of the delivery process—from the warehouse to the consumer’s door—a costly, often perilous journey. The average online grocery order contains dozens of items, each with different temperature and handling requirements.
The reason that home delivery is so attractive for product managers is because, at least for now, delivery is attracting diners who wouldn’t otherwise come to eat in and that the extra sales volume they’re generating from delivery offsets the cost. Also, when people order delivery, they tend to order for larger groups, so the average check can be higher than it is for dine-in orders. To help fulfill orders, many restaurants have turned to one of the delivery services, such as Grubhub Inc., the oldest and largest in gross food sales, as well as DoorDash Inc. and Uber Technologies Inc.’s Uber Eats. Third-party services currently handle 52% of the online restaurant orders. Some chains are trying to take a hybrid approach by handling the order-taking through their apps but outsourcing the actual delivery to third-party services, which saves them 10% to 15% in commission fees.
What All Of This Means For You
One of the fastest growing markets in retail is the home delivery of food. You would think that being a product manager for a restaurant or a grocery store who is participating in this market based on their product manager job description would be a great job to have. However, it turns out that it can be very hard to be profitable in this market and as of yet nobody seems to have figured out how to be successful. What will these product managers have to do?
Customers want their food and they want it now. However, getting that food to them is turning out to not be profitable for restaurants. However, the restaurant business is not growing very much right now so product managers are willing to put up with losses in the delivery side of the business. Companies are currently investing a great deal in their delivery business and that is starting to hurt the rest of the business. Stores are starting to change their layout in order to better support the delivery side of the business. However, getting the food to the customer is still tricky and expensive to get right. Home delivery does attract people who would not otherwise be customers. Restaurants are starting to use third party firms to perform the actual deliveries.
The newness of this market segment makes it hard to determine how this is all going to turn out. Right now the restaurant product managers have a real dilemma on their hands. They have a booming business, but they are finding it hard to make any money. If they can come up with a solution to this problem, then they will have found a lasting way to help their business grow. Let’s keep our eyes on these product managers and see if they are able to find a solution to this challenge!
Question For You: Do you think that adding home delivery to a restaurant is a critical thing to do these days?
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What We’ll Be Talking About Next Time
If there is one job that most product managers would not want to have these days, it would to be a product manager for an independent book store. I mean really, Amazon showed up several decades ago and pretty much put these guys out of business. Customers have become used to browsing for books on their computer and then pressing a button and either having a book show up in the mail the next day or having a Kindle electronic book instantly downloaded. Who needs to go out to a book store anymore? However, independent bookstores are still in business and it’s because of what their product managers have done that they are still around.