The Future of Food Delivery – Retailer Side: In-House vs. Third-Party

Demand for food delivery – both prepared restaurant meals and supplies from a grocery store – skyrocketed in 2020 due to the coronavirus pandemic. Most restaurants and grocery stores found that contracting with third-party delivery services such as Instacart, Shipt, DoorDash, Grubhub, and Uber Eats was the easiest way to get online ordering and produce delivery quickly. These services allowed outlets to get online fast without having to invest in an ordering platform or to hire and train shopping and delivery personnel.

However, as consumers found online ordering and food delivery or pickup to be convenient and something they will likely continue to do even after the pandemic ends, more companies are beginning to reconsider how they approach this side of the business. As the online food trend has legs beyond the immediate emergency period, companies are thinking that:

• They’d like to have more control over customer information and the customer experience.
• There might be better options, as orders that run through third-party service providers are less profitable or not profitable at all due to the fees charged.

Typical options for grocery stores and foodservice outlets have included:

• developing in-house e-commerce and delivery capabilities
• continuing to rely on third-party operators exclusively. Smaller outlets – which might have less time or resources to develop their own capabilities – are most likely to do this.
• developing complementary in-house services such as curb-side pickup while retaining third-party delivery contracts. Many grocery stores and restaurants have invested in curb-side pick up to a greater or lesser degree; customers tend like this option as it is convenient and reduces social contact at a lower cost than home delivery.
• acquiring a delivery service and bringing the capabilities in-house (e.g., Koninklijke Ahold Delhaize NV’s – a Netherlands-based owner of Food Lion, Giant, and Stop & Shop supermarkets – announced it would acquire a majority stake of grocery delivery company FreshDirect in November 2020)
• setting up warehouse spaces (dark stores) or separate commercial kitchens (dark kitchens) solely to prepare and fulfill online orders
• investing in automated or robotic fulfillment or other AI innovations

We expect 2021 to be a year of continued change in food delivery as efforts initially thought to be emergency responses become permanent operations and processes continue to be refined. The incorporation of electronic coupons, special pricing, and digital advertising, as well as and improvements in fulfillment technology and processes and in structural operations will help propel the category.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, including Global Foodservice, Foodservice Single-Use Products, Global Foodservice Single-Use Products, Retail Bags, and Global E-Commerce Packaging. Related reports from our sister publisher, Packaged Facts, include Food Carryout & Delivery, Food Carryout & Delivery: Special COVID-19 Consumer Insights, Consumer & Corporate Food Gifting in the US, US Food Market Outlook 2020: Home Cooking, Grocery Shopping & Food Trends in the Age of Coronavirus, Global Food E-Commerce, and Online Grocery in the US. Freedonia Custom Research is also available for questions requiring tailored market intelligence.