Sue Mitchell
January 16 2018
AFR
Fast-food retailers need to embrace online aggregators such as MenuLog and UberEats or build their own delivery teams to take advantage of a seismic shift in the way consumers buy pizza, burgers and Thai takeaway.
Online takeaway food orders are forecast to rise from about $1.5 billion, or 10 per cent of the fast-food market, in 2017 to $4.2 billion, or 23 per cent of the market, by 2025, according to a major report by Morgan Stanley.
Time-poor consumers who can’t, or won’t, cook are spending more of their food budget on takeaway options.
Online fast-food sales are expected to grow almost five times as fast as the total takeaway market, around 14.3 per cent a year between 2017 and 2015 compared with 2.9 per cent a year for online and offline sales.
“People want to buy online because it’s convenient and that’s no different in takeaway food,” Morgan Stanley retail analyst Tom Kierath told The Australian Financial Review on Tuesday.
“Australia is still under-penetrated in online delivery and you have a bunch of new competitors coming in,” he said.
“It’s great for consumers and it’s going to grow pretty strongly over the next five to 10 years [but] if you don’t have an online offer you’re at a big disadvantage,” he said. “The key message is they have to go online no matter how small they are.”
While major chains such as Domino’s Pizza, which has a strong online presence and its own delivery teams, stand to increase online sales, online aggregators who have set up shop in Australia in recent years will take a larger slice of the pie.
Morgan Stanley estimates that aggregators such as MenuLog, UberEats, Deliveroo and Foodora will lift sales from $600 million in 2017 to $2.4 billion by 2025 as more consumers and restaurants shift online and as aggregators expand into new markets.
Smaller fast-food retailers will come under increasing pressure to sign up with aggregators or risk missing out on sales, which will come at a cost.
Morgan Stanley estimates that restaurants typically pay a 35 per cent commission on order value to aggregators who provide delivery services and 13 per cent commission to Menulog, which generates orders but does not handle deliveries.
“Our analysis of the economics shows that restaurants need more than 50 per cent of sales to be incremental or else suffer lower profits after signing up with an aggregator,” Morgan Stanley said.
Larger chains who signed up with aggregators risked losing control over pricing, delivery quality and customer data and were better off building inhouse e-commerce and delivery capabilities.
“The largest efficient players that are integrated will continue to thrive because the economics are better than using a third party … and you have control over your pricing and menu and you keep the customer data,” said Mr Kierath, who expects Domino’s share of the online market to slip from 46 per cent to 38 per cent by 2025.
In the US, restaurant chains using aggregators for delivery are already starting to see the risks to their businesses and are adopting a hybrid approach, using aggregators for incremental orders while sourcing orders through their own apps and websites and building their delivery capabilities.
Morgan Stanley said the aggregator model would only succeed if aggregators were able to provide reasonable returns to shareholders over time, restaurants enjoyed higher sales or lower costs, consumers enjoyed reasonable delivery fees, quality of service and convenience, and delivery drivers received appropriate payment.
Morgan Stanley estimated that the average UberEats driver in Australia earned between $12 and $18 an hour (two to three deliveries an hour, $6 delivery fee) before taking into account costs such as fuel, insurance,and vehicle maintenance.
“This falls well short of the minimum pay rates under the Fast Food Industry Award 2010 of $A25.10 for adult casuals,” the report said.
” Clearly, regulation is difficult given that drivers opt in and opt out depending on their schedules, the weather and the likelihood of getting work, but we think that as these kinds of operations become more mainstream, regulation will follow … and aggregators will be forced to offer minimum terms which will, over time, push up their delivery costs.”
Follow us: @FinancialReview on Twitter | financialreview on Facebook
Subscribe to our free mailing list and always be the first to receive the latest news and updates.