Food Spending Soars With the Rise of Digitally Enabled Home Dining

Food Spending Soars With the Rise of Digitally Enabled Home Dining

Food Spending Soars With the Rise of Digitally Enabled Home Dining

John Carroll

John Carroll

John Carroll is a writer and editor at TSYS who follows and writes about the payments industry. He has more than 20 years of experience writing and editing content for various news, marketing and technical channels.

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Just two years ago, the top merchant category for online transactions was food and drink, accounting for 14 percent of all online transactions and generating $15 billion in sales. Since that time, it has remained the top category by transaction, with sales increasing to more than $16 billion, according to GlobalData, which conducted the survey.

One reason may be that the emergence of third-party food delivery companies has grown exponentially. Driven by the internet, mobile payments and consumer demand, stay-at-home diners are increasingly ordering restaurant food through apps on their smartphones and paying in-app.

There's DoorDash based in San Francisco. Delivery Hero based in Berlin. Just Eat in London. Takeaway in Amsterdam. Grubhub in Chicago and iFood in Brazil. In India, two of the biggest food delivery apps are Swiggy and Zomato.

There are roughly 200 third-party food delivery companies just in the United States, according to Barry Friends, a partner and consultant at Pentallect Inc., a food research firm based in Chicago.

Some are small, some are global. Some regional apps include Waiter, based on the West Coast, and Waitr in the Southeast. There are also niche apps like Tapingo for college students and Square-owned Caviar for fine dining to go.

There's no doubt food delivery is on the rise around the world. Online food-delivery platforms are expanding choice and convenience, allowing customers to order from a variety of restaurants with a few taps of their mobile phones. Although they don’t actually make the food, these middlemen provide speed, ease of use, convenience and customized offerings.

"It's a huge industry and growing fast," says Friends. "And it's just getting momentum as the industry is still in the early adoption stage for consumers and restaurants."

Move over, pizza

The food delivery business, which was once the domain of pizza, has changed dramatically since the introduction of smartphones, food apps and digital dining. More people are ordering food online from their favorite restaurants like never before. In fact, 58 percent of all food delivery orders will be online by 2020, up from 11 percent in 2013, according to a research report by McKinsey & Company.

Disruption and opportunity in the food-delivery industry has caused some restaurants to redesign their physical locations to better accommodate delivery channels. Other eateries have modified menus to focus on food that holds up well during travel.

"There's a shift away from visiting a physical restaurant," says Friends. "Growth in the restaurant industry is coming from those who are dining at home. People are staying at home and ordering food on their phones."

Food Spending Soars With the Rise of Digitally Enabled Home Dining Infographic

Restaurant revenue up

Restaurants that have partnered with third-party delivery companies are seeing a lift in revenue and profit, according to most reports. In the last five years, revenue from restaurant food deliveries has jumped 20 percent, according to the NPD Group, a market research firm based in Port Washington, New York.

Other research reveals an industry on the rise. In 2017, the number of food orders placed via mobile apps skyrocketed by 50 percent in the United States By 2025, 30 percent of all restaurant revenue is expected to be generated through digital channels, according to a study by Kount and PYMNTS.com.

"The power of convenience and smartphone-enabled technologies are driving the food delivery market," says Friends.

Only 13 percent of consumers have used a third-party food delivery app in the past month, according to Pentallect. But that number should rise, says Friends, as awareness increases.

In the meantime, third-party food apps are building brand loyalty with consumers by providing great delivery service and quality food in a timely manner, and also by offering rewards programs, incentives and discounts.

At least that's the plan. With so much competition, not all of the apps will survive. Many have already gone out of business, says Friends. And more will. And others will be acquired like when Grubhub bought Seamless in 2013.

"We will see more consolidation in the market," says Friends. "In time we will see a shakeout. Companies are already buying each other."

Hooked on Grubhub

A younger generation tends to lean more toward ordering food through a third-party app, according to Friends. Smitten by smartphones and motivated by convenience, the millennials (roughly age 23 to 37) and Generation Z (22 and below) are changing the food delivery sector, he says.

"Most were raised in a digital world and they're at home watching Netflix or some type of streaming media," says Friends. "Grubhub is their restaurant or some other app."

Grubhub, one of the largest food delivery companies in the United States, had $1.1 billion in annual sales in 2017. Traded on the New York Stock Exchange, the online and mobile food-ordering company has more than 85,000 restaurants connected in more than 1,600 U.S. cities and England.

Clash of the titans

Other tech giants, such as Amazon and Uber, also have a stake in the food delivery sector. Uber Eats recently aligned with McDonald's to boost the chain's fast-food business. And Amazon Restaurants has a slice of the crowded culinary courier market.

Read more about how the global market spends money online on food and beverages.

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by John

John Carroll

John Carroll is a writer and editor at TSYS who follows and writes about the payments industry. He has more than 20 years of experience writing and editing content for various news, marketing and technical channels. His articles have published in the Atlanta Journal-Constitution, the Columbus Ledger-Enquirer, the Daily Report and Georgia Trend.

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