The Revolution Will Be App-etized

Delivery at the Speed of Software Will Transform Food Service

The coming decades promise to be an extraordinarily dynamic time for food and dining as climate change and population growth pressure global food production, younger generations place new focus on the role that food and drink play in personal and planetary health, and the rapid expansion of food delivery transforms how restaurants function — and which ones survive.

During the past decade, expenditures at restaurants in the US surpassed grocery spending for the first time in history. Spurred on by Covid, food delivery is growing at an explosive pace, signaling the start of a transformation of the restaurant industry. The driving factor: a bottomless appetite for convenience.

Gen Z will increasingly view food as medicine, and will pay a premium for ingredients that are nutrient-packed, regeneratively grown and part of a transparent supply chain. For the same reason, alcohol will continue to lose its luster. In the United States, the no-and low-ABV beer and spirits sector has grown fivefold since 2015, with similar trends seen in Europe. The nonalcoholic drinks category is expected to reach $30 billion by 2025.

At the same time as a growing portion of the population clamors for sustainability, equity and transparency in their food choices, emerging nations—with their roaring middle classes—will prioritize food costs. McDonald’s continues to exceed earnings predictions and remains the largest global restaurant company by a country mile. We wouldn’t bet against value and convenience as a formula for long-term success.

“An entire paradigm shift will happen where almost every restaurant will offer delivery, and the majority of food consumed will be delivered. As all of these things get to scale, the cost will get to the point where it’s inconsequential. You look at how economical it is to spend $100 on Prime and you can have anything delivered... I think food will be there, and you’ll have it down to delivery in minutes.”

—Rishi Nigam, CEO, Franklin Junction

GLOBAL FOOD DELIVERY

SINCE 2017

$150B

has more than tripled to $150B annually

2040

$400B

DELIVERY WILL TRANSFORM THE RESTAURANT INDUSTRY

Domino’s has been driving pizzas to American doorsteps since 1960, but the launch in 2004 of the food delivery marketplace Grubhub was the starting gun on a fundamentally new era for the hospitality industry: one where instead of going to restaurants, consumers expect restaurants to come to them. Today, we fire up DoorDash for an efficient desk lunch or a break from the dinner-prep hamster wheel. Tomorrow, expect predictive ordering technologies that realize you’re hungry for a Caesar salad before you do—then cue one up for you to order with a single click. As sales volumes hurtle ever upward, delivery will transform the restaurant landscape, shaping everything from menus to pricing to real-estate strategy.

INCREASING FOOD SERVICE VELOCITY

A newfound ability to summon dozens of different meal options at the touch of a button has permanently reset the bar for how consumers define convenience when it comes to feeding themselves. Delivered meals will continue to edge out not just ones ordered or eaten in person, but also those cooked at home. Look at what’s happening with breakfast, which historically has been mostly sourced at home: in 2021 alone, delivery apps have seen spending on breakfast items more than double.

In 10 years, digital-first, quick-service eateries will dominate the restaurant landscape, taking market share from sit-down restaurants, as customers increasingly place orders via smartphone, either teeing up a frictionless pickup or paying a little extra for delivery. Chains will expand via locations that are smaller, but more numerous, as dine-in seating areas vanish. The drive toward more convenient formats is so strong that one Washington, DC, newspaper is now hiring a food critic to focus specifically on carryout food. And the trend is global; witness the phenomenal growth of food delivery players Meituan in China, Rappi in Latin America, Just Eat Takeaway, Delivery Hero and Deliveroo in Europe, and Swiggy and Zomato in India.

RESTAURANTS: A 21ST CENTURY LEXICON

GHOST KITCHEN

A commercial kitchen with no storefront used to prepare delivery orders placed online; often multiple restaurant brands share a single facility.

VIRTUAL RESTAURANT

A food-service brand that exists only on delivery platforms, with no walk-in locations; orders may be prepared within existing restaurants, underused commercial kitchen spaces or ghost kitchen facilities.

NATIVE DELIVERY

Orders placed directly with a restaurant, via the restaurant’s phone, website or app, which result in lower costs for the restaurant than those placed through a third-party service.

TAKE RATE

The fee—ranging from 15 to 30 percent of a total sale—that third-party marketplaces charge restaurants on each order they handle.

THIRD-PARTY MARKETPLACE

An online service—like DoorDash or Uber Eats—that lists restaurant menus, accepts orders and delivers food in exchange for a fee paid by the restaurant and its customers.

THE FUTURE IS ALREADY HERE DEP’T: NEXTBITE

Nextbite, which launched in 2019, is a leader in the fast-growing arena of virtual restaurants. The company develops new brands—18 and counting—listed exclusively on delivery marketplaces, and partners with hundreds of restaurants across the United States to prepare the orders during off hours in their existing kitchens, using existing labor, with a modest list of extra ingredients on hand. Nextbite has already scooped up $120 million from SoftBank to continue its expansion. In 2021, the company had 90 employees; a year later, it reached 330.

WILL VIRTUAL RESTAURANTS CATCH FIRE, OR FLAME OUT?

A new wave of delivery-only brands has exploded onto the restaurant scene in recent years. Fifteen percent of restaurants operated a second “virtual brand” from their kitchens before the pandemic; by the middle of 2020, 51 percent had at least one. There are now as many as 15,000–20,000 virtual restaurants operating in America.

The sudden frenzy of new entrants has led to some wild claims about their potential future. By one account, virtual restaurants could account for 50 percent of all off-premise orders by 2030, amounting to $325 billion globally. Another figure puts the impact of virtual restaurants at $1 trillion by 2030; that’s about a third of today’s global food-service sector. Within the next five years, virtual restaurants will grow to own their own substantial piece of the (ever-expanding) food-service pie. But their generic offerings and opaque nature make it unlikely that any single concept will break loose to become America’s next megabrand.

More likely to win out in the long run? New or existing brands that are digital-first, optimized for a takeout and delivery future, but with a significant street-level presence. Think Sweetgreen, Domino’s and Chipotle. E-commerce companies from Casper to Warby Parker have already demonstrated the importance of brick-and-mortar for building brand loyalty, and we expect this to be even truer for food service.

THE FUTURE OF VIRTUAL RESTAURANTS: IT’S COMPLICATED

TAILWINDS

• Business model built around delivery cost structure, versus legacy restaurants struggling to absorb high fees.
• No set real-estate footprint means little capital needed to scale.
• Menus are optimized for delivery, and can be designed using data on what people are searching for and ordering.
• Digital-only marketing makes it easy to add and remove menu offerings based on trends, memes, etc.

HEADWINDS

• Low barriers to entry will lead to virtually unlimited competition from other upstarts.
• Operating through a network of independent restaurants makes product consistency challenging.
• Difficult to create brand loyalty and grow sales without physical locations, compared to years (or decades) of brand recognition and trust built up by established brands.
• Algorithmically designed menus can lead to food that’s generic; the “Amazon Basics” of burgers or grilled cheese.
• Potential for unionization of gig workers that delivery services rely on, or changes in labor laws, resulting in higher costs associated with delivery.

“On-demand drone delivery offers a faster, more agile and more sustainable way for people and businesses to get the products they need, when and where they need them. Already, we’re seeing the impact it can have on supply chains, delivery times and ultimately user experiences. As airspace management evolves in the months and years to come, we’ll see this technology take off in a big way across industries like retail and hospitality in the US and around the world.” 

—Anne Hilby, SVP of External Affairs, Zipline

REDUCING THE COST OF DELIVERY

Today it costs Uber Eats or DoorDash around $6, plus tip, to get an order from the restaurant to your front door— not great math for delivering a Big Mac Meal. A number of innovations will converge to drive this cost down over the next decade, further expanding demand for delivered food.

SCALE

Despite its massive growth, delivery still accounts for less than five percent of restaurant spending globally. There’s still a lot of headroom left. As volumes increase, couriers will be able to more efficiently batch orders, decreasing the effective cost of each delivery.

AUTOMATION

Driverless bots, like the ones produced by Starship and Nuro, have billions in funding behind them, and are already active in a few small markets such as college campuses. They are likely to be in widespread use within five years for last-mile delivery. Thanks to major investments by Amazon, Alphabet and others, drones will increasingly play a role, too, though they face substantial regulatory hurdles in the urban areas where food delivery is concentrated. But being able to get a six-pack delivered to the beach: probably not far off.

GHOST KITCHENS

Colocating several food brands in a single kitchen—of the kind owned by startups Kitchen United, CloudKitchens and Reef—makes it easier for a single courier to batch multiple orders for delivery. To date, 1,500 ghost kitchens have opened in the US, at least 7,500 in China, at least 3,500 in India and 750 in the UK. With big funding at the ready, these numbers are growing fast.

THE MIDDLEMEN ARE HERE TO STAY

Restaurant owners revile third-party delivery players like DoorDash and Uber for their high fees and their control over customer data. But at this point they also can’t live without the middlemen. Customers gravitate to the online marketplaces they provide, and their on-demand courier fleets work out better for restaurants than employing in-house delivery staff. Recent years have seen increasing consolidation— DoorDash bought Caviar, Uber acquired Postmates, and Grubhub sold to the Dutch company Just Eat Takeaway— and that trend will continue. In 10 years a small handful of players will control the global market, each vying to be the Airbnb of food delivery.

Beginning in the spring of 2020, many US cities instituted fee caps to limit what third-party services can charge restaurants. Uber, Grubhub and Door-Dash have already begun litigating these caps. It’s widely believed that the laws will either be struck down or that delivery players will find loopholes— such as flat fees, or separate charges for marketing—that maintain substantially the same economics. So, will consumers in 2040 have every last breakfast, lunch and dinner bagged up and brought to them? Not quite. 

Budget will be a limiting factor. Cooking isn’t easy to automate, which is why prepared meals are still more expensive, on average, than those shopped for piecemeal and made at home. That price gap could grow if labor costs increase faster than advancements in kitchen tech can offset them.

Consumers love the convenience of delivery, but they will be increasingly sensitive to the environmental impact of the packaging waste and transportation emissions. By 2035, most restaurants will shift to compostable delivery materials— but optimizing food quality in transit will make it an expensive change.

Pizza, wings, salads—some foods can take a 15-minute journey on the back of a bike and still arrive tasting great. But anyone who has ordered steak frites to go knows that others simply don’t stand up well to delivery, no matter how spaceage the packaging. Unwillingness to compromise on quality will always drive some volume of in-person dining.