How Meal Delivery has transformed the Foodservice industry - c
In 2020, the Out-of-Home (OOH) meal market shrunk to 1/3 of its 2019 value. Despite this now being in recovery, by Q2 of this year the market was still...
How Meal Delivery has transformed the Foodservice industry
COVID-19 has caused a paradigm shift for both operators and consumers in the Out-of-Home meal market.
In 2020, the Out-of-Home (OOH) meal market shrunk to 1/3 of its 2019 value. Despite this now being in recovery, by Q2 of this year the market was still only 75% of the value it was in 2019.
But it’s not just value that’s changed. The OOH channel composition has also had a significant shake up. On-premise, which accounted for 70% of OOH spend in 2019, shrank to 20% in 2020. Even in 2021, it still only represents 45% of total spend, while Take Away and Meal Delivery combined has risen from 16% in 2019 to 40% in 2021.
The shrinkage of the Foodservice industry would’ve been even more substantial if it wasn’t for the growth of Take Away and Meal Delivery. These channels have helped keep the frequency of how often we use the Foodservice industry to levels relatively to pre-pandemic.
Usage still varies significantly across the world - from once every few days in Asia (every three to five days in Indonesia, South Korea, Thailand and Chinese Mainland), right up to once every 10 or 11 days in France, Spain, Mexico and the UK.
On-premise accounted for just 30% of occasions (i.e. how we consume OOH, including Meal Delivery, On the Go, Take Away and On-premise) in the last 12 months, with the only exception being in Spain where On-premise is still significant due to the importance of independent bars and restaurants.
When we look at Meal Delivery specifically, we see that penetration has increased across all markets – with the exception of South Korea where penetration was already at 99%. Despite Europe still having lower penetration than Asia and Latin America, France, Portugal and the UK all saw a gain of 10 points or more.
Young shoppers are particularly keen on Meal Delivery, with 70% penetration among under 24s. But the biggest growth in Europe came from older consumers (over 50s), where penetration rose from 28% to 40%.
Frequency of use has also increased, with the proportion of heavy buyers (people who use Meal Delivery once a week or more) increasing across all markets. Consumers today use Meal Delivery over 30% more compared to the same period a year ago.
It’s clear that the structure of the Foodservice industry has changed. The good news is that it’s in recovery. And while we’re still yet to reach the levels of 2019 in terms of value, we have the continued growth of Meal Delivery and Take Away to thank for stopping the industry from having declined even further.
In the chapters that follow, we’ll look at:
- How home meal delivery is helping to satisfy different demand moments
- The strong competitive advantage shown by Quick Service Restaurants
- Our thoughts on what happens when restrictions ease - and the implications for the industry
More buyers and changing demands
As Meal Delivery continues to attract more and more shoppers, how are different channels satisfying different demand moments?
Maybe it’s a treat for a special occasion? Or perhaps it’s as simple as being the most convenient option at the time? There’s a reason behind every Meal Delivery.
As Meal Delivery buyers grow in number, we’ve taken another look at why people order. And there’s been an interesting shift in the last twelve months.
In 2020, 59% of Meal Delivery buyers used the service for a treat, with the rest using it for convenience. But this year the split has become 50/50 - with convenience growing everywhere, with a particular spike in Europe as ordering for convenience becomes more normal.
If we dig a little deeper into the demand behind each moment, we can see that Meal Delivery is made up of four different types of occasions:
- Shared Enjoyment occasions
- Table for One occasions
- Away from Home occasions
- Convenient Lunch occasions
In 2019, 50% of occasions were for Shared Enjoyment, 25% Table for One, 15% Away from Home and 10% Convenient Lunch.
When we compare this to the last 12 months, we see that Shared Enjoyment has dropped to 35%, while Convenient Lunches have doubled to make up 20% of Meal Delivery occasions. Table for One occasions also increased, now making up 30% of occasions.
And this shift significantly impacts menu choices. Certain foods do particularly well for different occasions, and other products such as drinks or desserts tend to be more present depending on the Meal Delivery demand space. For example, the Convenient Lunch occasion has a strong over index with salads compared to Shared Enjoyment, where consumers are more prone to choose pizza, burger or sushi – and perhaps enjoy a savoury snack or ice cream on the side.
Understanding the demand moments behind a specific Meal Delivery occasion is key. As On-premise consumption continues its recovery, FMCG manufacturers have an opportunity to look to add drinks, snacks or desserts to these occasions.
Not all channels are created equal
The different channels which consumers can use for Meal Delivery all have their own strengths and weaknesses when it comes to the four different demand moments.
Full Service Chain Restaurants and Quick Service Restaurants both perform well for the Shared Enjoyment and Convenient Lunch occasions, while being comparatively weaker for the Table for One occasions.
In contrast, Full Service Independent Restaurants are strongest for the Away from Home occasions, while Hot Counters within grocery retailers have a significant over-index for the Table for One occasions.
By capitalising on specific demand within each type of occasion, each channel has an opportunity to develop and win more occasions based on these strengths and weaknesses.
Watch the webinar with the main findings of this report in English or in Spanish
The ultimate level of convenience
There are only so many potential lunch and dinner occasions in a week. On average in Spain and the UK, three and a half occasions take place OOH, with the rest taking place in-home. And of these remaining occasions, seven are home-made meals, three are ready-made meals, and the remaining ½ is a delivery.
And if we also consider that half of consumers are using Meal Delivery for convenience, we can see that this service isn’t just competing with the On-premise meal occasion - but more and more with the traditional FMCG food brands as consumers perceptions steadily shift to see it as the ultimate level of convenience.
Tiger Bang Chilli Sauce – the ultimate meal delivery accompaniment
Founded in 2015 in the Chinese Mainland, Tiger Bang is a chilli sauce brand that came into being as online meal delivery started to boom.
The Chinese Mainland chilli sauce market was already dominated by The Godmother’s (Lao gan ma) with 50% market share. However, with tastes and eating habits differing significantly by region, there was no clear #2 nationally - and Tiger Bang wanted to seize this opportunity.
To avoid direct competition with The Godmother, Tiger Bang leveraged the online meal delivery growth and started working with a host of restaurants. Instead of selling their products in retailers, Tiger Bang positioned itself as an accompaniment in meal delivery at a price point low enough to entice consumers to ‘try before they buy’.
And it’s thanks to this route that the brand is now the second biggest chilli sauce brand in the Chinese Mainland and serves as a great example of how an FMCG brand can win via focussing on the meal delivery sector.
Quick Service Restaurants and Aggregator dominance
Not every channel shrunk over the last 18 months. Quick Service Restaurants have shown a strong competitive advantage - and is the only channel to see its value sales grow.
The OOH Foodservice sector is still just 75% of the size it was in 2019. But one channel has grown not just its market share, but its actual value sales too. Quick Service Restaurants (QSR) is the only channel to have done so when looking at Q2 2021 vs Q2 2019.
What are the reasons behind this growth?
1. Affordable – usually, the QSR spend per trip is one third of what we spend in Full Service Restaurants. Promotions are a key tool for QSR – 40% of QSR buyers that have used a promotion are new to the channel.
2. Innovative – operators focus on limited editions and continued changes to their menus. One such example was the Rebel Whopper, with 45% of its buyers in Spain being new to Burger King.
3. Crossover – QSR penetration is higher among younger consumers, but the channel’s ability to persuade families is one of the most important parts of its success.
4. Versatile – 30% of QSR trips are at breakfast or mid-afternoon. For example, we’ve seen a big push by McDonalds in developing their snacking offering thanks to McCafé.
5. Accessible – QSR was already the best adapted to the multi-platform reality. 46% of 2019 spend came through collection and delivery, which has risen to 75% today - significantly higher than any other channel.
Multi-platform capability is a must to ensure future growth
As more Meal Delivery operators pursue a multi-platform strategy, the digital landscape becomes more and more competitive. Third-party aggregator (e.g. Uber Eats and Deliveroo) penetration is already over 80% across markets in Asia, and outside this region most markets have seen grow of over 20% penetration-points. Put simply - third-party aggregators are booming.
As Meal Delivery becomes more digitally-driven and accessible, the competition is increasing exponentially.
Household names are pivoting to take advantage of this new digital market. For example, during the pandemic the largest Full-Service Restaurant chain in France, Buffalo Grill, launched a digital brand of burgers, taking advantage of its existing structure of restaurants and acting as a ‘dark kitchen’.
And the commitment to Meal Delivery has even reached haute cuisine, such as the collaboration between delivery partner Goxo (Glovo) and luxury restaurant La gran Familia Mediterranea in Spain, which has helped generate an even greater diversity of occasions while raising the average price in the sector.
Watch the webinar with the main findings of this report in English or in Spanish
But the digitialisation of Meal Delivery comes with its own challenges:
1. Loyalty – consumers only dedicate 5% of their Foodservice budget to the top five venues, whilst the average loyalty to the top five grocery operators is 20%. This is even a bigger issue when consumers use third-party aggregators, where promotional offers are even more evident.
2. Availability – pizza and burgers represent 65% of Meal Delivery occasions, but just 15% of On-premise occasions. However, the fall in Shared Enjoyment occasions is putting more pressure on these menu options. As restrictions to On-premise made operators temporarily reduce their options, consumer choices multiplied for Meal Delivery, adding more stress to the industry.
3. Profitability – only 25% of Meal Delivery orders include a drink, while only 20% of them include a snack or dessert. This likely explains why the average spend per occasion is 30% lower compared to On-premise occasions.
In Asia, meal delivery is more developed than the rest of the world, forming a weekly habit for consumers. Which is why it makes sense to look here for inspiration from brands which are taking the meal delivery experience to the next level to drive profitability.
Hai di lao is the leading Hot Pot brand in Chinese Mainland and is now expanding throughout the rest of Asia and the US. Customers can order their hotpot from the official website and App, or third-party meal delivery Apps. If they order a meal over 198 RMB and pay an extra delivery fee (normally 28 RMB), the delivery man will help set up the table for customers and come back the next day to pick up the container. It’s an added touch of convenience that sets the brand apart.
This example not only helps increase the profitability of each delivery, but continues to raise the convenience of Meal Delivery, as consumers no longer need to worry about cooking or cleaning.
What will happen when restrictions are over?
The past 18 months have shaken up the priorities of the Foodservice industry. How can operators futureproof their offering to meet the needs of different occasions?
Unsurprisingly after being in and out of lockdowns, consumers are looking forward to going back to On-premise. Over 70% of consumers in Chinese Mainland, France, Portugal, Spain and the UK said that Meal Delivery will never replace going out to a restaurant.
And this suggests that some of the short-term Meal Delivery growth achieved during lockdown will be at risk once all COVID-19 restrictions are lifted. We’ve already seen Meal Delivery begin to slow down as OOH outlets reopen and the shared enjoyment occasions being the first to recover, especially in Full Service Restaurants. However, despite this slow down, Meal Delivery is still over three times bigger than pre-COVID.
However, it’s important to note that 77% of Meal Delivery growth came via switching from On-premise occasions during the pandemic. As locations begin to open again, we’ve seen Meal Delivery growth returning to similar patterns as before the pandemic, with it being incremental to On-premise.
This supports the notion that Meal Delivery is considered a different occasion than going out. Whether it’s a special treat or for convenience, this steadily increasing habit is here to stay.
If we compare August and September 2021 (without restrictions) with August and September 2019 (pre-pandemic), we see that the total in-and-out food and drink market value is already 2% higher thanks to Meal Delivery, with grocery purchasing 1% lower and On-premise yet to fully recover.
In the coming months we can expect the total market to be bigger than pre-pandemic thanks to the positive incremental impact of meal delivery and the imminent recovery of on-premise.
As we’ve seen throughout this paper, COVID-19 has intensified the growth of food tech and the make-up of different occasions for meal delivery. But whether these changes stick will depend on a number of factors:
1. The level of socialising and type of occasion – how quickly will we return to restaurants vs sharing moments with friends at home? Which will continue to be a key occasion for Meal Delivery?
2. Working from home – this habit looks set to remain to varying degrees, so we can expect convenient lunch occasions to remain higher than pre-pandemic.
3. Convenient cooking – with the rise of Meal Delivery being used for convenience rather than a treat/reward, this is now the ultimate level of convenience – blurring the lines of competition for retailers and brands in this sector.
4. Multi-platform & digitalisation – we’ve seen some of the challenges faced by the growth of consumers using third-party aggregators. As the strong growth of Meal Delivery over the last few years has meant that these challenges haven’t been much of a problem - but as the growth slows to more normal levels, these challenges will become a reality for players in this space.
Learnings for Manufacturers
- Have a portfolio that’s suitable for all occasions if they want to compete in the new Meal Delivery landscape
- Develop convenient options for immediate consumption from almost anywhere
Learnings for Operators
- The best example of multi-platform success and adding new buyers has been through price-promotions and innovation
- Aggregators have democratized meal delivery beyond Quick Service Restaurants and Fast Food – competition is only getting fiercer in this space
Learnings for Digital Aggregators
- Loyalty is and will continue to be the biggest challenge - promotional efforts and loyalty schemes will be vital
- Profitability must be put at the center of digital platforms through Integration, Speed and Experience
Food for thought
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