Off-premise initiatives

Even as dine-in restaurant sales begin to bounce back after pandemic disruption, many chains are still seeing steady growth in off-premise and digital transactions. Off-premise traffic made up 70% of restaurant traffic industrywide in July 2020, and increased to 80% in July 2021, Hudson Riehle, SVP of the National Restaurant Association's research and knowledge group, said during a virtual conference in October. Chains like Chipotle and Yum Brands are posting billions in systemwide digital sales, making it difficult to ignore the shift toward more off-premise business. 

QSR chains responded to this opportunity with new store designs and prototypes. These new designs showcase off-premise assets including multiple drive-thru lanes, mobile order pickup and smaller dining rooms. How do they compare? Check out the latest redesigns below. 

Taco Bell

From its Cantinas to its Go Mobile restaurants, Taco Bell has long been at the forefront of creating store concepts that can satisfy the different priorities of its customers. The latest iteration of its digital-friendly Go Mobile design, dubbed Taco Bell Defy, takes this design a step further.

The two-story model, which was created with Taco Bell franchisee Border Foods and Minneapolis-based design firm Vertical Works, will have four drive-thru lanes, including three lanes that will be designated for mobile or delivery order pickups. After scanning a QR code, the customer will pull forward and receive their food through a lift system. A fourth lane will offer a traditional drive-thru experience with face-to-face interaction with staff members. 

The store, which broke ground in August 2021, is expected to open in summer 2022 in Brooklyn Park, Minnesota. 

Panera

Panera's new double drive-thru design will provide one lane dedicated to Rapid Pick-Up orders, digitized drive-thru menus, updated ordering kiosks and automatic loyalty identification. The stores will be 20% smaller than its current cafés and accommodate indoor and outdoor dining, according to Business Insider. Additionally, baker ovens will be in full view of diners who can watch the baking process. 

The first location with this design will open in November 2021 in Ballwin, Missouri. Each new Panera unit or remodel will use this design going forward. Most of these locations will be in suburban markets that can accommodate drive-thru lanes.

Del Taco

The fast food chain's "Fresh Flex" design offers third-party delivery pickup stations, double drive-thru lanes for mobile and delivery order pickups and a parking area for guests to park, eat and go. The prototype, which was designed by MY Studio ID, is part of the company's redesign strategy called "Menu of Venues." This program allows franchise developers to choose between various build out options ranging from 1,200 to 2,400 square feet. Operators can also choose between a drive-thru-only model, drive-thru endcap model, store conversions or standalone sites. 

Del Taco's first Fresh Flex restaurant will be a company-operated location in Orlando, with more slated systemwide for 2023 as new and existing franchisees adopt this model, Del Taco CEO John Cappasola said during the company's Q2 2021 earnings call. 

Dunkin'

Dunkin' opened its first digital-only restaurant in Boston during the summer of 2021. The store lacks a dining room and only services orders that are placed in advanced on Dunkin's mobile app or in-store at digital kiosks. Guests can pay with cash, credit card or gift cards and collect food in a designated pickup area. The store design is similar to Chipotle's first digital-only store, which opened in 2020 and services delivery and pickup orders without a full-service line.

El Pollo Loco

El Pollo Loco completed the first three restaurant remodels that feature its L.A. Mex design in March 2021, with more than scheduled to open over the next few years. This design, which includes double drive-thrus, highlights off-premise channels with the addition of GPS-enabled curbside pickup and Pollo To Go digital order pickup cubbies. There are two versions of these store models — one includes a takeout window, dual drive-thru lanes, curbside parking spots, patio seating and no indoor dining. The second includes a dual drive-thru, curbside pickup parking and a smaller dining room that opens onto a patio area with garage style doors. 

This redesign initiative is part of the company's effort to bring the company back to 5% annual new unit growth in the U.S. by 2023, El Pollo Loco's former CEO Bernard Acoca said in a press release. 

When 22-year-old YouTube celebrity MrBeast, aka Jimmy Donaldson, opened a restaurant in November 2020, he paid people to try his burgers. Before the restaurant opened for the day, the 1,000-car line led the police to shut down a mile of traffic. Giving away money to drive-thru customers is certainly an unusual business strategy, but it put the restaurant concept on the map. 

The delivery-only brand initially launched in 300 existing restaurant locations through a partnership with Virtual Dining Concepts in December 2020, and within three months, MrBeast Burger sold 1 million burgers, generating at least $32 million in sales. He was able to parlay his success as a social media influencer and his nearly 50 million followers into a viral restaurant brand. Since then, its network has grown to over 1,000 locations nationwide.

While this internet sensation appeared to be an overnight success, launching a virtual-only brand takes a lot of strategy, experts said. Still, many other celebrities —  including George Lopez, Mariah Carey, Mario Lopez and Wiz Khalifa — are jumping into the virtual restaurant trend alongside legacy chains. Some analysts wonder whether virtual brands can be sustainable in an already saturated industry. 

"I think a few of these [virtual restaurant brands] have been very interesting where [they] are getting attention from investors and operators because of the velocity at which they are able to scale," Daniel Fleischmann, vice president of growth equity investor Kitchen Fund, said.

While MrBeast Burger garnered initial buzz, its Yelp reviews have been in the two- to three-star range, which isn't ideal for a restaurant, Fleischmann said. Many reviewers complained about food quality and the small portions.

"I think this underscores the complexity of the training, the supply chain and, broadly, the operational elements of trying to, at scale, bring consumers a great product consistently and ...  at a good price point as well," Fleischmann said.

Celebrity partnerships and strategic marketing can help virtual brands gain traction

Any operator wanting to launch a virtual brand, or even host one, shouldn't expect a million dollars in sales and immediate success, Geoff Alexander, Wow Bao CEO and president, said. Wow Bao is leaning heavily into expansion through partnerships with other restaurants that sell its buns, potstickers and bowls out of their existing kitchens. 

"Anybody can start up something tomorrow and turn it on [on] third-party [sites]. But there are headaches involved with that that I don't think everybody thinks about, such as [figuring out] branding, packaging, [company] name, recipes, R&D," Alexander said.

Nextbite, for example, has created over 15 brands over the past few years after careful research, creating marketing and food packaging that support delivery-only business. 

The company has also harnessed celebrity star power to highlight its platform. Nextbite partnered with George Lopez in 2021 to develop George Lopez Tacos, leveraging the actor's influencer audience, said Alex Canter, CEO of Ordermark and co-founder of Nextbite. Concepts backed by celebrities and influencers help get consumers excited to try the brand, allowing host kitchens to maximize their benefits, Canter said.

The popularity of virtual brands is creating crowding on third-party apps, Canter said. He estimates there are twice as many restaurants on third-party delivery platforms compared to a couple of years ago, but restaurants should be wary of the challenges that come with growing an online-only diner base.

"It is really important to dive in on what it takes to market these brands directly to reach the audience and maximize the placement and the SEO on these different platforms and market outside of the app," Canter said. 

Nextbite has spent a couple of years figuring out what works and what doesn't, what sort of promotions are going to get people to try the food for the first time and how often they should be posting about it. In September 2021, George Lopez Tacos used a taco truck and traveled to four locations in Denver giving away free tacos and offering $10,000 in cash giveaways to help promote the brand in Nextbite's hometown. The event had strong social media reach the four days the taco truck was available and 2,000 customers tried the menu items.

Nextbite helps its host kitchen partners prepare and market food from its brands, and also monitors the host restaurant's performance to ensure food consistency. The company aggregates reviews across different platforms to provide real-time feedback for the facility partners to ensure they are meeting certain standards, Canter said. For example, the company has a secret shopper program where it pays consumers to try its restaurants. Shoppers fill out an extensive questionnaire and upload pictures of food to make sure everything arrives the way it is intended. 

"I think there are a lot of people out there that are just kind of throwing brands around and not really thinking about how important the food quality is," Canter said. "And that is something that a ton of consumer behavior and the use of a lot of data can determine what kind of brands we should be building in the first place."

Companies that invest in the right packaging, figure out what kind of food delivers well and have been thoughtful about the experience itself are going to make a difference, Canter said. 

For example, when Nextbite launched the George Lopez Tacos across several markets, it created a deconstructed, build-your-own taco kit that comes with a stack of tortillas, a pile of meat and the sides and sauces. This provides not just an interactive experience, but a better-quality meal, Canter said. Even if the kit has been sitting in a car for 20 to 30 minutes, it would be in better shape than pre-prepared tacos. 

"I think right now is the Wild West of virtual brands. We don't know what will work and what's not going to work until we try it," Canter said. "So we are going to continue to experiment and launch different types of collaborations and partnerships to really try to dial in and figure out what's going to move the needle for our restaurants. And that includes a lot more partnerships [with celebrities] in the future."

Are virtual brands viable in the long term?

Experts agree that not all virtual brands will see long-term success. These concepts don't have the long histories of success that traditional restaurant chains can lean on, proven recipes or consumer recognition. Because of this, virtual restaurant brands are likely less sustainable than traditional ones, Rishi Nigam, CEO of Franklin Junction, said. The host kitchen facilitator works with a growing list of existing restaurant brands, like Nathan’s Famous, that are looking to expand their digital presence.  

Many virtual brands last only about six months because they generate a ton of sales initially, but don't often receive repeat visits and then die out, Nigam said.

"If we wanted to talk about sustainability and the ability to generate new revenue or incremental profits, I think the jury's still out," Nigam said. 

Buck Sleeper, head of retail experience consulting at EPAM Continuum, said he believes virtual brands weren't meant to last a long time. 

"I think that's actually their role," Sleeper said. "That might require a mindset shift from how we look at brick-and-mortar right now. … The cycles are so much quicker with a virtual brand because you have so little physical infrastructure."

Existing restaurants that launch their own brands within their kitchens can run into trouble too, experts said.

"If your new virtual brand is built using the same items that are already in your kitchen and you're just wanting to highlight them under a different name, arguably you are probably cannibalizing some of the revenue from your incumbent brand in that delivery market," Nigam said.

Maintaining the same amount of marketing for virtual brands as traditional brands can also become costly.  

"What you have to understand is those brands have to be propped up from a marketing perspective. It's going to be expensive to not only get off the ground, but to maintain it going forward," Darrin White, COO at Frisch's Restaurants, said. Frisch's has worked with several virtual brands as a host kitchen with Franklin Junction. 

Still, there are virtual brand success stories. It's Just Wings, owned by Brinker International, grew to over $170 million in sales in its first year and has created a strong brand identity, White said. But as the business becomes less incremental, Brinker will have to figure out what its marketing plan will look like going forward for this brand, White said. 

"It's not going to get any easier to stand out on a DoorDash right now. It's not going to be any easier to get customers to use your app," Michael Schaefer, global lead of food and beverage at Euromonitor International, said. "I'm not going to use an app for every single restaurant I like."

It may take a few years to see which virtual brands are successful, especially when it comes to those that have the best value proposition to consumers, Fleischmann said.

"I am not very bullish on the idea of 'Hey let's keep throwing virtual brands out there and they're all going to work,'" Fleischmann said.

How delivery-only brands will evolve in the future

The most successful virtual brands will likely be the ones that are the most transparent with customers, analysts said, especially since most diners weren't aware these concepts existed before the pandemic. According to a Datassential survey of consumers, 55% believe it is dishonest for restaurants to sell the same food under a different name, while 60% said they want virtual brands to share their locations and explain that they are digital only. Yelp added tags for operators to state they are delivery-only brands in September, which could help better transparency. Nextbite also says on the website for its virtual brands, including George Lopez Tacos, that the concept is a virtual restaurant. 

Chuck E. Cheese learned the hard way that transparency is a key ingredient in virtual brand marketing when it launched its delivery-only Pasqually's Pizza & Wings concept in 2020. The eatertainment chain used the brand to expand into delivery during the pandemic, but many customers who thought they were supporting a local pizza chain were angered their food was actually coming from Chuck E. Cheese and felt deceived. 

Chuck E. Cheese denied it was trying to deceive customers, previously telling Food & Wine that the addition of Pasqually's was a way to add delivery to its operations and provide a more premium option with pizza that had a thicker crust and extra sauce. 

"I think that's actually an opportunity to put the customer back in control and have a voice in what the future of Pasqually's is in the same way that they look for customer input on their core brand," Sleeper said. "I think if you're not demonstrating or asking for that transparency, you're missing an opportunity to tailor the experience."

Other opportunities exist for collaboration between virtual brands and host kitchens. Sleeper said he would love to see incubators for developing brands where host restaurants can help fine-tune the brand's offerings and provide more feedback. This model could lead to a profit-sharing relationship that is more strategic than the standard host kitchen arrangement, he said.

"I think understanding from the host what's working, what's not, what’s necessary, what isn't is a really great way for the brand that's occupying that space to understand how they need to tune their business model and how they might take some of those learnings back to other properties they own or their brands that are in their own kitchens," Sleeper said. 

Virtual brands can also provide a level of experimentation and a way to introduce new brands, Schaefer said, adding that he expects food and drink players to experiment with more virtual brands in the future. Wingstop launched its virtual-only brand Thighstop during the summer as a way to test a chicken thigh menu, for example. It did so well with customers that Wingstop brought the items onto its core menu and has since been winding down the brand. 

"I don't think [virtual brands are] going away, but I also don't think we're going to see a future of primarily virtual brands," Schaefer said. 

The evolution of direct-to-consumer retail brands may hint at where the virtual brand market is headed, Schaefer said. Many direct-to-consumer retail brands that generated initial excitement five years ago have since shuttered, such as Brandless and Shoes of Prey, because it is so expensive to advertise an online-only concept, he said. Other stores, such as AdoreMe and Casper, have adopted a hybrid presence, offering both physical retail outlets and online stores, he said. 

"I suspect we could see the lines blurring between what we think of as host kitchen facilitators, what we think of as third-party ghost kitchen operators and as restaurants," Schaefer said. "If you have a virtual brand that is sufficiently big, I think it's only a matter of time before one of the ghost kitchen operators might say to them, 'You know we have a lot of space and maybe we can become a part of this as well,'" he said. 

The post-pandemic environment will also make the restaurant more multi-faceted.

"A lot of restaurants did this out of desperation. They were just trying to keep the lights on. So as business starts to come back, there are more options. We're going to see a lot more models and a lot more permutations in terms of how to make this work," Schaefer said.

Whether the term used is “fast food” or “quick service,” the very name of the category implies a promise—food at the ready at the customer’s whim. It is more important than ever, given the rapidly changing world we now live in and the focus on “now,” with consumers getting more accustomed to summoning virtually anything they want on demand. But are restaurants delivering this type of experience?

“Wait times and speed of service are key benchmarks that dictate whether a potential guest chooses your establishment or goes to another,” says Deloitte’s US Restaurant & Food Service Leader Jean Chick, citing Deloitte’s Restaurant of the Future Survey, which found that 80% of respondents said wait times impact their decision to choose a restaurant. 

To better understand the impact of customer experience on restaurant profitability, Rakuten Ready undertook the 2020 ROI Study to learn more about how shifting order mix toward Order for Pickup can become a revenue growth opportunity. Data collected across four major QSR brands confirmed that mobile Order for Pickup offers the shortest wait times–up to 2.4 times faster—than other service methods.

The study also confirms Order for Pickup is an efficient channel. As operators invest more into building out the necessary infrastructure and promote Order for Pickup, they will gain a number of benefits, including increased ROI. By shifting the mix towards Order for Pickup, brands gain operational efficiencies and cost savings not available with other order channels including:

• Improved profits from needing less staff to capture orders and payments.
• Shorter customer wait times, which increases order throughput and drives more revenue.
• More opportunities for upsell, since the mobile app can automatically suggest items like beverages and desserts to help drive incremental revenue.
• Additional revenue from new customers who want to use Order for Pickup but didn’t know it existed or previously went elsewhere due to the long lines.

But first, operators must address the perception of customers when it comes to Order for Pickup, compared with In-Store and Drive-Thru channels.

Perception Vs. Reality of Wait Times: The Disconnect Could Be Costing Restaurants

The Rakuten Ready study found that nearly 70% of frequent QSR customers perceive the In-Person and Drive-Thru channels as faster than mobile Order for Pickup during peak periods.

However, the reality is that mobile Order for Pickup actually offers a considerable time advantage; it was on average 2.4 times faster than In-Person ordering and 1.7 times faster than Drive-Thru. 

The challenge is for restaurants to change customer perceptions so they will shift their behavior towards mobile ordering – thereby allowing restaurants to increase their profitability by capturing revenue otherwise lost because customers deemed it too busy or just stayed away altogether.

Tips To Create A Successful Shift Toward Mobile Ordering

While the hallmarks of a seamless mobile Order for Pickup experience will vary by brand, vertical and location, there are several best practices restaurants can implement. The common themes are clearly marked and dedicated pickup locations and/or pickup lines and windows and ensuring that product is made just in time to minimize waste and provide food at peak quality. And communication is key, through an app that informs the customer when their order will be ready or allows the customer to let the restaurant know when they will be onsite for pickup. 

“Technology has improved customers’ ability to order on their terms and have their items waiting for them when they arrive,” Chick says. 

And the “right” technology is a pivotal component of this shift, most notably prioritizing the app experience and adopting other innovations like predictive arrival technology. That’s key to a program’s success, given that three-quarters of customers say that skipping a long line is the top reason they would choose Order for Pickup, and nearly the same number would choose Order for Pickup if they were confident their order would be ready when they arrive.

Reaping the Rewards

The Rakuten Ready research concluded that shifting the mix to promote more Order for Pickup offers a number of benefits, including:

• Increased operational efficiency that leads to more throughput
• Improved margins through more satisfied existing customers and new customers, who combine to bring in more profit
• A more convenient customer experience with less interaction that leads to a better brand impression

By shifting the customer order mix towards Order for Pickup with a frictionless order experience, restaurants can reap the rewards of improved customer loyalty while improving profits and revenue.

Download the full Rakuten Ready 2020 ROI Study here.

Kitchen United was one of the first major ghost kitchen operators when it launched in 2017. Now, with the segment driving off-premise innovation and drawing investor dollars, Kitchen United looks towards an omnichannel future.

Atul Sood, Kitchen United’s chief business officer, describes his company’s approach to ghost kitchens as a “no-brainer.” 

“[A restaurant] can get started in 30 days for under $30,000. And then you save about 50% of labor costs,” Sood said.

When the company first launched, its model consisted of a large warehouse facility that housed multiple delivery-only kitchens. Operations like this are a baseline for ghost kitchen providers today, but market offerings — and Kitchen United’s model — have evolved as the segment has grown, said Michael Schaefer, global lead of food and beverage at Euromonitor International. 

“[Kitchen United has] expanded like a lot of other players into the adjacent occasions around [off-premise service],” Schaefer said. 

The company currently operates seven ghost kitchens in major metropolitan areas, each housing between 10 and 14 kitchens and around 16 to 20 brands. Although these facilities focus primarily on delivery, they also offer additional ordering channels, including kiosks for takeout. Three of their facilities also have seating for customers. The labor savings, low capital costs and access to dense, metropolitan markets are all draws for operators.

For Fresh Brothers Pizza, Kitchen United’s promises have held up. 

“We opened our first ghost kitchen with Kitchen United in 23 days and we did it for $30,000,” Geoff Goodman, CEO of Fresh Brothers Pizza, said. 

Comparatively, opening a brick-and-mortar store would cost Fresh Brothers Pizza around $400,000, Goodman said.

The 22-unit, California-based pizza brand opened its first ghost kitchen with Kitchen United in downtown Pasadena in May 2020, at a moment when much of the restaurant industry was contracting sharply. Now, that location rakes in about half a million dollars in annual sales, or about one-third of the volume of a traditional Fresh Brothers unit. Goodman doesn’t think this location has reached its full potential, either, and Kitchen United’s expansion strategy could bring additional opportunities. 

“They are going after sites in places where restaurants would normally go,” Goodman said. “They've selected spots that although it would be too large for us ... if they [had] smaller square footprint[s], would be spots that we would consider opening up a unit in.”

Though Goodman partnered with the ghost kitchen provider at the height of the pandemic, he said the decision wasn’t related to the COVID-19 crisis, but rooted in consumer trends he had observed.

Experts agree the ghost kitchen market still has a lot of room to grow. Although delivery demand has proliferated in the last two years, it still only represents about 8% of restaurant traffic in 2021, according to data from the NPD Group. Carryout represents 38% of restaurant traffic, and drive-thru makes up 34%.

Facility operations are designed to support brands, delivery drivers

This limited market size could put pressure on delivery-only kitchens to add new channels. Kitchen United, for instance, has begun offering direct ordering at its locations. 

“Each of our centers has a front of house where we have kiosk-based ordering,” Sood said. “The whole idea is to give the consumer choice, whichever channel the consumer wants to go through, let them go through that.”

Kitchen United is looking to expand the types of ghost kitchens it builds, Sood said, and more units will have seating in the future. He characterized the units under development as omnichannel.

Some of Kitchen United’s new units will open through a partnership with Kroger, a major grocery chain that owns several other supermarket banners, including Ralph’s. Fresh Brothers Pizza will open its second ghost kitchen with Kitchen United at a Ralph’s store in Los Angeles later this year.

In addition to offering partner restaurants multiple ordering channels, Kitchen United also manages day-to-day operations at its centers.

“The restaurant cooks,” Sood said. “But we do all the other back-of-house labor that is required to actually run the restaurant … from cleaning and sanitization to running food from the kitchen to the customer or delivery driver."

Goodman said this model benefited Fresh Brothers Pizza by allowing the restaurant to focus on attracting back-of-the-house talent.

“From our end, all we have to do is take the order, make the product and hand it off to a Kitchen United employee,” Goodman said. From there, the food goes to a delivery driver or a customer collecting the order on-site.

Sood emphasized Kitchen United’s support of third-party delivery drivers, who frequent Kitchen United facilities regularly thanks to the number of restaurant brands they house. This frequency gives Kitchen United staff the chance to build relationships with drivers, according to Sood, and the company also offers couriers coffee, water and access to bathrooms.

“[These amenities] might sound simple, or meaningless, but they’re absolutely not,” Sood said. “[They’re] super important.” Sood worked as a delivery driver between his time as a business development director for McDonald’s from 2015 to 2017 and his tenure as Kitchen United CBO, which began in 2017.

“Drivers are a representation of our brand [and] the restaurant brand. They need to be treated with respect and dignity,” Sood said.

Acquisitions position Kitchen United for growth

Kitchen United’s growth trajectory may mirror larger trends in the ghost kitchen space.

In early October, the company announced it was buying Zuul, one of the first ghost kitchens in the New York City market. With Zuul’s technology — optimized for large orders from New York high-rises — and its longtime experience in the market, Kitchen United gave its 2021 launch of its East Coast operations a pre-emptive boost. 

After several years of consistent growth and experimentation, ghost kitchens like Kitchen United have emerged as major players and are now ready to buy up competitors and scale up production.

“So much about being a third-party ghost kitchen operator is just finding real estate. And so scale is pretty important there,” Schaefer said.

As companies scale, Schaefer said, they attract more investment capital, eventually exerting a gravitational pull on the rest of a segment. He predicts there would be more acquisitions and mergers within the ghost kitchen segment in the next few years.

“We've seen that play out across a lot of industries,” Schaefer said. 

Other major players in the ghost kitchen space have expanded dramatically in the past few months, with C3 raising $90 million since July, and Reef Technology’s kitchen operations signing deals to add hundreds of units with Wendy’s, 800 Degrees Pizza and TGI Fridays.

In the near future, Schaefer said, companies will have to figure out which ghost kitchen models are profitable.

“We are seeing that the existing production processes and sales processes, which have just kind of had delivery grafted on top of them, don't fully work,” Schaefer said. “[There are] a lot of different bets on the model that [it] is going to ultimately be profitable enough to continue.”

Goodman, despite Fresh Brothers’ success with Kitchen United, said profitability could be a problem for some parts of the ghost kitchen segment. 

“With pressures on supply chain, it's harder and harder for all those different parties who are involved in a ghost kitchen transaction to actually be profitable,” Goodman said. 

Still, Schaefer said, ghost kitchens face the same fundamental questions as all restaurants. 

“We think about it in terms of, is the food good? Is it hard to get here fast? Can I afford it?” Schaefer said. “If you look at Domino's Pizza, that is functionally a ghost kitchen. In the U.S., it has significant takeaway business, but in other countries it has a lot of outlets that are essentially delivery only.”

Sood, meanwhile, is confident the future is bright for delivery-only concepts. He pointed to international markets as examples of the potential of ghost kitchens like Kitchen United.

“There are hundreds upon hundreds of ghost kitchens in India and China,” he said, adding that in some Middle Eastern markets, more than 50% of restaurant sales are delivery sales. “There is just a lot of potential for growth here in the U.S." 

Over the past two years, third-party delivery aggregators made a feast of the pandemic environment that threatened so many restaurant operators with famine. 

Delivery accounted for 8% of restaurant sales at the end of Q3 2021 — a ratio experts predicted would shake out in 2025, NPD Group senior vice president and industry advisor David Portalatin said. Five years before the COVID-19 crisis, that percentage hovered around 3%.

But this elevated growth, which analysts said was driven by an increase in repeat customers, isn't likely to last.

"I don't think you're going to see a restaurant industry that is ever 20% delivered," Portalatin said. 

Sales had already started to slow down at DoorDash and Uber Eats in Q3 2021, Lyle Margolis, CFA and senior director at Fitch Ratings, said. DoorDash's financial guidance also suggests it is going to flatten this year, Margolis said.

"We're not going to see that kind of meteoric growth we saw over the next couple of quarters," Margolis said. 

As the space continues to evolve, aggregators are working to deepen their relationships with restaurants and find ways to make delivery work for them. Since 2020, these companies have added white label online ordering for restaurants, offered more flexible pricing and implemented subscription programs to boost retention among restaurants and diners. 

Restaurants weigh the cost of delivery

As diner traffic returns to pre-pandemic levels, some restaurants are starting to rethink their delivery capabilities, especially since the channel is often less profitable than dine-in and takeout. A handful of operators within Darden, Cheesecake Factory, Dine Brands and First Watch have begun shutting off delivery during high in-store traffic times, for example. 

But from a data standpoint, Marty Hahnfeld, chief customer officer at Olo, said the company has never seen this decision made at the top level of a brand.

"What we've seen are individual locations that are maybe in a bind looking to slow the pace a little bit," Hahnfeld said. "We can count on a couple of hands the number of times that's happened that we're aware of across our 75,000 restaurant locations. I think it's a great headline. I don't think it's really a trend that’s reflective of anything." 

Even if these incidents are rare, they are an example of how operators are trying to balance delivery costs with delivery gains, especially as diners continue to demand the offering.

"There's a lot of tension between independent restaurants and third-party [aggregators]. It's expensive and where's that cost coming from? I'm a big believer that ultimately when the consumer demands something in the marketplace, there will emerge a solution that is palatable to all parties," Portalatin said. 

Delivery companies have extended various incentives, including direct cash and subsidized rates, for independent restaurants over the past two years. But the dark side of aggregators' track records, including lawsuits and complaints over practices like high commission rates, are still top of mind for restaurants, Raj Joshi, vice president and senior credit officer at Moody's, said.

Still, delivery can be very beneficial for certain types of restaurants, such as operators that don't have their own delivery channel or others that have excess capacity and aren't fully utilizing their kitchen resources, Joshi said. But many restaurants may not need third-party delivery in a post-pandemic world, he said.  

A wave of new product and service offerings

While delivery orders increased during the pandemic and the channel remains popular, about 44% of consumers are more likely to order directly for delivery from a restaurant. Comparatively, 17% of diners order from aggregators, according to a PYMNTS and Paytronix Digital Divide report, which surveyed 2,213 U.S. consumers from Sept. 2 to Sept. 9. 

Delivery aggregators have responded to this consumer behavior by offering tools and resources that help restaurants create online ordering capabilities. 

In 2020, Uber Eats added tools that allow restaurants to offer online ordering directly from their websites for pickup or delivery. Uber Eats' manager platform also lets operators view customer analytics and orders in real time. The insights provide suggestions of how to boost customer retention or orders. If a location has a 15% retention rate, which is lower than average, the manager platform might suggest the operator test a loyalty program or reply to reviews, Yadavan Mahendraraj, Uber's head of merchant operations in the U.S. and Canada, said.

"We're not only giving them more data, but also [we're] giving them a better way to parse that data," Mahendraraj said. 

Grubhub added its Grubhub Direct product in May 2021, offering independent restaurants the ability to create customizable ordering websites, manage customer relationships and access diner data.

These online ordering capabilities also give restaurants the opportunity to access delivery customer data, which has been a longtime interest of Grubhub's restaurant partners, Theresa Dold, vice president of agency services and product at Grubhub, said. 

DoorDash launched its turnkey, digital storefronts in 2020 as part of its Main Street Strong Initiative. DoorDash found that a large portion of small and midsize businesses didn't have access to online ordering on their websites, and saw an opportunity to create that tool, which helped expand its offering from a marketplace to a broader platform, Ryan Parietti, DoorDash's senior director of merchant strategy and operations, said. 

"All types of restaurant technology providers are figuring out, if they're not already playing in this branded online ordering space, how to get there," Dold said.

In-house online ordering systems also allow restaurants to avoid the commission fees that come with being on a third-party delivery marketplace. Grubhub Direct, for example, charged a monthly hosting fee for the website of $49 and a one-time set up fee of $99 until October, before it removed the fees entirely. Restaurants aren't charged for marketing commission fees. DoorDash's Storefront offering is also commission-free, and Uber Eats charges 29 cents per order placed through restaurant websites supported by its Webshop feature."

"[Restaurants] are going to want a platform that allows them to run a specific promotion for their branded online ordering site that might be distinct from what they’re running on [the] marketplace because of the profit margins they are trying to maintain," Dold said. 

Grubhub Direct is also part of the company's long-term strategy to become a one-stop shop for restaurant partners.

"As a restaurant has evolving needs in terms of how they want to grow their digital business online, we believe we can plan an even more fundamental role in that journey outside of being just a marketplace for our restaurant partners," Dold said. 

Delivery companies have also implemented different pricing structures to allow restaurants to pick and choose the kinds of services and fees that best suit their business plans. They have also been offering restaurants that do self-delivery ways to outsource the actual delivery fulfillment to aggregators in order to expand their reach and capabilities. 

DoorDash launched its merchant pricing plans in April 2021 to provide more flexibility in different models, while Uber Eats did so in September 2021. Both now offer tiered pricing depending on the types of services restaurants require. 

"What I think you'll see most of all [is] it's not one-size fits all. I think you'll see all the platforms evolve to really give merchants that flexibility to make whatever choice they need that works for them," Mahendraraj said.

Both Grubhub and DoorDash also added self-delivery products in 2021, allowing restaurants to use third-party couriers alongside in-house delivery to complete orders and help expand their delivery reach. 

"[Grubhub has] invested quite a bit in a product offering that will allow those restaurants to expand their delivery radius," Dold said. "That is something that I think will be really, really fundamental to Grubhub's growth and the success of our restaurant partners."

DoorDash also launched a nationwide shipping program last fall to allow customers to order items from local merchants across the country. 

"We're really excited about that type of feature that really shows the deeper partnership … that we can build over time," Parietti said. 

Retaining customers with subscriptions

While aggregators have expanded their products and services for restaurants, they have also boosted diner loyalty through subscription or membership services for a set monthly price, which is helping with customer retention and order volume. 

"[Third-party aggregators] are going to become subscription services to some extent where it's going to make it that much easier for people to get delivery because they've already prepaid, which is going to help bring down some … costs," Matthew Goodman, senior equity research analyst at M Science, said. 

Grubhub's subscription program, Grubhub+, has grown to 2.5 million members since its launch in 2020, and these subscribers now account for about 30% of its current orders, Adam DeWitt, Grubhub CEO, said in October during Just Eat Takeaway's Capital Markets Day.  

"Because of our better supply, and … subscription loyalty program, diners are sticking around longer and ordering more," DeWitt said. "Our new diners are 20% to 30% more productive than [customers acquired in] 2019."

During Q3 2021, DoorDash increased its DashPass membership to 9 million. M Science's data shows that about 25% of all DoorDash users at that time were DashPass subscribers.

In Q3 2021, DashPass subscribers spent $650 to $800 per quarter on average compared to non-DashPass users who spent $200 to $300 per quarter, Goodman said.

Uber Eats members increased their trips per month by over 50%, Uber CEO Dara Khosrowshahi said during the company's Q3 2021 earnings call in November. Basket size for members was 10% higher than for non-members, he said. 

In November 2021, Uber also launched a membership program called Uber One that bundles its rides, grocery and food delivery services for a cost of $9.99 per month or $99.99 per year, and includes 5% off eligible rides and delivery orders, among other incentives. 

"I think the more categories you expand to, the more perks and benefits you can layer into a program like that, the broader the appeal," Tom White, senior research analyst at D.A. Davidson & Co., said. "Just as Amazon over time added more value over time to its Prime membership beyond just free delivery, the industry will see companies like Uber continue to expand into new categories to enrich their membership offerings," White said. 

Deepening restaurant relationships

Delivery aggregators have expanded their account management and sales teams as well to improve their relationships with operators and so they can better provide actionable data to their partners. Grubhub has been aggressively expanding its sales staff to bring on more restaurants in its stronghold cities and surrounding suburbs, and in some areas it has tripled its resources, DeWitt said.

"We want to be a one-stop-shop for all our restaurant partners' needs," Dold said. "As a restaurant has evolving needs, in terms of how they want to grow their digital business online, we believe we can play an even more fundamental role in that journey outside of [Grubhub] being just a marketplace for our restaurant partners."

DoorDash rolled out its Merchant Experience Partner program to provide better account management of its partners. Operators can reach out with questions related to menu updates, account settings and banking and reconciliation issues, for example. 

DoorDash's Restaurant Advisory Council, which is effectively a group of restaurants and small business owners from the U.S. and Canada, also advise the company on key initiatives and give ground-up feedback on what restaurants need, Parietti said. DoorDash also brought on Chef Stephanie Izard as its chief restaurant advisor in May 2021 to bring another voice of the industry to DoorDash. 

"I think keeping a tight feedback loop with our merchant partners allowed us to understand what the need was and then move really quickly into action," Parietti said, adding that its newest programs were piloted with a small group of merchants to make sure they were fully supported before they were launched on a full scale. 

Uber Eats has hired hundreds of sales staff and account managers in local markets. By making staff that also live in these local communities more available to Uber Eats partners, the provider has been able to have longer and broader conversations with its merchants. 

Uber Eats has more than tripled its workforce of account managers working directly with its partners, which gives them more time to learn about the partner's business, including what their goals are, how it can work with these partners and how they can help these partners achieve their goals, Mahendraraj said. That could mean helping them figure out what pricing structure works best for the partner or offering free credits on advertising that can help get the brand off the ground, for example. 

"We've had almost a hundred conversations at this point with different merchants across our platform with our products teams and with our internal teams to just get a good sense of what is working, what is not. And as we look toward what we're going to build in 2022, you'll see that a lot of that comes from the asks they have made," Mahendraraj said. 

These internal aggregator reviews, and subsequent product and service launches, bode well for the restaurant-delivery relationship, especially since analysts predict off-premise demand will hold steady. 

"It's hard to imagine that there are any restaurants coming out of the pandemic that don't view online ordering and delivery as really a mission critical thing that they have to get right," White said

 

YouTube comedian and personality Danny Duncan is known for performing antics with his friends, such as driving a tank, shooting off explosives and driving an ATV through a ring of fire. The 29-year-old also uses his channel to promote his retail line of hoodies, shirts and shorts. But soon he'll be promoting a delivery-only food brand through a partnership with Creating Culinary Communities (C3) to his over 6 million subscribers.

C3 has launched a division focused on developing new virtual restaurant brands with top digital creators, YouTubers and gamers, the company announced Wednesday. C3 will oversee day-to-day operations, growth and decision making for each collaboration.

This venture is expected to result in about $1 billion in revenue by 2025, reaching 165 million Gen Z consumers through the creators involved, according to an email sent to Restaurant Dive. This community of creators will provide C3 with an opportunity to reach 500 to 1,000 kitchens and generate a minimum of 15 to 20 orders per kitchen per day.

C3's expansion into virtual brands with the backing of online influencers will help the company expand beyond its popular delivery-focused brands, such as Umami Burger, Krispy Rice and Sam's Crispy Chicken. Social media influencers come with a built-in audience and can help promote their virtual brands. Initial partnerships with content creators also include deals with YouTubers Preston and Briana Arsement, Matt Stonie and Rosanna Pansino. 

Other virtual brand companies, such as Nextbite and Virtual Dining Concepts, have also been working with celebrities and media influencers to create delivery-only concepts that come with built-in followers. 

C3 rolled out its first three creative partner brands on Wednesday and expects to debut three more by the end of December, C3 founder and CEO Sam Nazarian said, adding that more will come during the first half of 2022. Instead of doing one-off deals with different entrepreneurs around the world, the company felt that it needed to become an incubation hub for these creators in order to develop more sustainable, long-term brands that can create revenue for its partner restaurants, Nazarian said.

The company partnered with leading multimedia talent management companies including Loaded, which manages some of the world's prominent gaming content creators and influencers, and Tastemade, a media company that creates video content and original programming about food, travel and home and design. 

C3 so far has exclusive deals with six or seven entrepreneurs, which have a 50/50 revenue partnership with C3. The company is also talking to some of the biggest gaming companies in the world that want access to these brands and to create a market collaboration, Nazarian said. 

Tapping into younger demographics

Celebrity partnerships will allow C3 to connect with Gen Z consumers, a cohort that is expected to have income reaching $33 trillion by 2030, according to the press release. 

"What I think is new is the demographic that is now looking for their news, looking for their content, looking for their entertainment completely in the worlds of gaming and YouTube," Nazarian said. "You can spend a ton of marketing in traditional channels, but authentic marketing is the most important for demographics [like millennials and Gen Zers]."

These partnerships will enable customers to integrate food with their entertainment. If they're watching YouTube, they can order food from the YouTube personality they're viewing and continue to watch that content, he said.

"It's a really powerful connection," he said. "The most important part of this business [and] the most expensive part of this business is customer acquisition."

Younger demographics also tend to have different ordering times than traditional restaurant operating hours, often wanting food between 11 p.m. and 3 a.m., Nazarian said. Serving a virtual brand to younger customers during a restaurant's off-hours, or during dayparts it doesn't normally offer, such as breakfast, can create incremental revenue without added capital expense, Nazarian said. 

C3 is also building an expanded direct-to-consumer marketplace that allows C3, restaurants and consumers to benefit from lower costs. Brands placed on a third-party marketplace typically incur expenses associated with marketing and commissions, and operators don't receive any data about the consumers, just the orders. But directly accessing tens of millions of people who watch online media more than commercials and movies brings in a wealth of data and a direct line to customers, he said. 

The direct-to-consumer channel is becoming the fastest-growing segment of digital ordering, Nazarian said. Offering an online marketplace through C3's Go by Citizens app brings customers in not only to view products by influencers like Danny Duncan, but also to find other like-minded brands, which can generate a huge amount of traffic for C3 and its partners, he said.

"It's ultimately all of our restaurant partners and licensed partners and partners like Reef and TGI Fridays — all this amazing scale that we have built around the world — can benefit from this direct channel," he said. 

C3, which received $80 million in funding in 2021, has been aggressively growing its restaurant partner ecosystem. The company partnered with Chowly last year to bring its virtual brands to Chowly's network of 10,000 restaurants. It also expanded its partnership with Reef from 500 kitchens to 800 by the end of 2025, and has partnered HOA Brands. C3 currently has 800 digital brand locations in the U.S. and has a pipeline of well over 1,000.

The company also has been opening brick-and-mortar locations around its digital brands. It opened food halls in New York City and Miami which showcase the concepts, Nazarian said. C3 is working with the Graduate Hotel system, which has 45 hotels around major college campuses, as well. This partnership will be a great way to bring these creator brands to younger demographics, he said. 

What goes into creating a sustainable virtual brand

Creating brands that can reach these demographics and keep them engaged long-term is also becoming a high priority for virtual brand builders. The market has been flooded with burner brands that come into the restaurant segment as people see new opportunities based on viral trends, but these creators often have little experience in creating sustainable brands compared to restaurant professionals, Nazarian said. 

C3 builds its brands in a very strategic manner, Nazarian said. The company goes through a rigorous research and development process to understand the market, how these brands need their food to be cooked and the kitchen equipment that’s needed. Then it hand picks restaurant partners that become fulfillment and licensing partners, he said. Restaurants also receive a tablet that is preloaded with C3’s tech stack to help them get started quickly.

C3 initially meets with internet influencers and asks what they are passionate about, and what their ecosystems are passionate about. The company then strategizes with its culinary, packaging, supply chain and graphics and branding teams to create a successful product with quality and consistency that can be replicated in its own kitchens and within its restaurant partner system. 

The company uses its data to place virtual brands with restaurants in markets where the brands are popular, he said. Consumers in an urban market have different ordering patterns than those in a suburban market, for example, and different concepts would be placed accordingly. 

The company also has brand, marketing, digital and SEO teams to make sure that operators are paired with the right brands for their markets.

"We have enough IP to be able to identify where the opportunities are, and then tactically put those brands in there and start generating a very, very strong revenue," Nazarian said.

C3 will incorporate these new celebrity brands and menu items into its Go by Citizens app, which allows consumers to order from multiple brands with a single cart. The company plans to strengthen the app experience with targeted content, curation and connectivity between digital creators and their audiences, according to the press release. 

"We created a real division that is not only going to continue being the hub for the industry of people that want to come work with us, which we found to be unbelievably exciting, but also to make sure that those brands stay relevant and the brands are good, the brands you want to eat," Nazarian said. "I think we have a pretty good formula not to overextend ourselves, but also [with] the brands that we do [to] make sure that they have a framework of success."

Uber Eats reached a significant milestone in 2021. In the third quarter, the company's U.S. restaurant delivery segment reached profitability on an adjusted EBITDA basis for the first time. DoorDash has also kept its adjusted EBITDA margins positive since the quarter ending June 30, 2020. For both aggregators, increased off-premise demand from diners and restaurants played an important role in improving business.

"The pandemic was obviously a terrific opportunity for the food delivery platforms to pull forward years and years of future customer acquisition to the present," Tom White, senior research analyst at D.A. Davidson & Co., said. "[They] were able to do it super efficiently. They didn't have to spend money to acquire these customers. Customers were seeking out these platforms because they were stuck in their homes and they wanted to eat."

Today, aggregators continue to expand into new businesses, like retail and grocery, and boost their courier counts, allowing them to reach more customers and increase order volumes for their core restaurant business. But maintaining profitability could become more difficult when marketing spend returns to pre-pandemic levels — especially as municipalities nationwide roll out laws to regulate the delivery market, such as permanent commission fee caps. 

The hunt for profitability

Over the past two years, a surge in demand meant delivery firms didn't need to spend big on marketing and customer acquisition — factors that played an important role in companies' ability to generate a profit, analysts said. But this could change in 2022. As on-premise dining traffic starts to return to normal, third-party companies and restaurants will likely revert to traditional advertising spending strategies to attract customers to delivery, said Lyle Margolis, CFA and senior director at Fitch Ratings.

"I do think that we'll see some pressure on margins on the restaurant side but also on the third-party delivery side," Margolis said. 

Delivery has been an unstable, competitive environment for some time, said Raj Joshi, vice president and senior credit officer at Moody's.

"I think it's difficult to say that the industry has reached or is close to sort of permanent profitability. I don't think that’s the case yet," he said. 

Further consolidation between restaurant delivery firms will be inevitable as these companies seek to boost profitability, Joshi predicts. But while recent years were marked by major transactions, such as Uber's acquisition of Postmates and DoorDash's purchase of Caviar, increased regulatory scrutiny over M&A makes these types of deals harder to come by, Joshi said. 

"That's why all the major providers are basically looking at foreign acquisitions," Joshi said. 

DoorDash bought European delivery company Wolt in 2021, for example, which opened up 27 new markets for the aggregator. 

Regulations squeeze delivery providers

Delivery companies will also face harsher regulatory oversight over their business practices, especially when it comes to commission caps, experts say. 

While many recent commission fee caps have been tied to pandemic pressure and subsequent dining room restrictions, many have been phased out. But some cities are making these commission caps permanent, including San Francisco and New York City. Cities are also looking to enforce rules that protect delivery workers by creating standardized minimum pay and giving them access to restaurant bathrooms. Some municipalities are supporting restaurants by requiring aggregators to share customer delivery data with corresponding eateries. 

Sharing customer information can be risky for delivery platforms since it could allow restaurants to potentially see that only a small percentage of customers actually use delivery, for example. Restaurants could also take that customer data and try to encourage those diners to order from their business directly, White said. However, DoorDash, Grubhub and Uber Eats have all challenged New York City’s data sharing law, and the city paused enforcement following DoorDash's lawsuit. 

"The pandemic was sort of the catalyst for the restaurant industry to take a harder look at the value provided by these delivery platforms," White said. "Just because the pandemic is going away, I don't expect that [restaurant organizations] will stop pushing for their own self interest."

It may be too soon to see the overall impact these types of regulations will have on delivery segment profitability, since caps are expected to be litigated in court for some time. All three top delivery providers have challenged delivery commission fee caps in court. 

In a post-pandemic world, Uber Eats will focus on engaging with regulators to make sure regulations preserve flexibility for all parts of the marketplace, Yadavan Mahendraraj, Uber's head of merchant operations in the U.S. and Canada, said. This means ensuring merchants have access to different pricing structures, for example. 

"We do believe that those controls set a pretty dangerous precedent and actually can harm the businesses that they're meant to protect. We understand the intent behind the price controls, but believe they're a counterproductive tool," said Ryan Parietti, DoorDash's senior director and head of merchant strategy and operations. 

The company has been focusing on offering restaurants a wide range of options so they can pick the plan that supports their business goals versus having a one-size-fits-all solution, he said.

Grubhub felt the biggest impacts from fee caps in New York City, which is one of its largest markets and has implemented the most aggressive delivery commission restrictions in the U.S. While losses related to fee caps peaked during the first half of 2021 as many caps have since expired, Grubhub continues to see a significant impact on its business in New York, Adam Dewitt said in October during the Just Eat Takeaway Capital Markets Day.

"We believe all fee caps, which are effectively price controls, are illegal," Dewitt said. "We abided by the emergency orders introduced during the pandemic in order to help restaurants that were in the firing line of the pandemic closures. But we will vigorously fight any permanent fee caps, which are essentially arbitrary government interference in the private contracts."

A Grubhub spokesperson said the company will continue to focus on supporting restaurants.

"[Fee caps] have negatively affected how independent restaurants can effectively market themselves to drive demand, which severely impacts how many customers and orders are driven to these restaurants," the spokesperson said. "As a company, we are focusing on markets where we can build upon our existing strength and leadership, and expand to new verticals that will drive growth for the company and our restaurant partners."

Municipalities are also exploring whether to classify delivery drivers and couriers as full-time employees. Such classification would change how these workers are paid, and put delivery aggregators on the hook for employee insurance and other benefits. 

"Until we have autonomous drone deliveries or autonomous vehicles, driver-related costs are likely just going … to go up," White said.

While Prop 22 in California kept drivers classified as independent contractors but gave these workers some benefits typically enjoyed by full-time employees, driver classifications could still evolve and threaten delivery firms' margins. In August, however, Prop 22 was overturned by a California judge. The law will remain in effect while the Protect App-Based Drivers & Services Coalition (backed by DoorDash and Uber) appeal the ruling. 

There has been a lot of discussion in Washington, D.C., about trying to codify the role of independent contract drivers, Joshi said. 

"To the extent that the regulatory environment remains supportive and doesn't become a major headache, I think there is a role for these delivery companies, and they are going to expand into delivery of a lot of things," Joshi said. 

Expanding beyond restaurant delivery

While aggregators try to find ways to work with regulators, they are also expanding into new verticals and revenue streams to diversify and create additional profitable platforms. DoorDash, Uber Eats and Grubhub have all begun exploring or entering segments like convenience stores, alcohol and various areas of retail. DoorDash launched a suite of advertising offerings to help restaurants and CPG brands reach consumers on its platform in October, as well. Uber Eats began offering sponsored restaurant listings in 2020. 

"We expect [aggregators] to continue to pull those levers as the restaurant delivery business starts to mature," Margolis said. 

In addition to helping boost profitability, new verticals also attract new customers. Over the past year, Uber Eats has expanded into retail with the addition of Bed Bath & Beyond to deliver baby essentials and Him & Hers. It also acquired alcohol delivery platform Drizly in 2021 and launched grocery delivery in 2020.

"One of the things that we see is that a customer who orders from a new vertical actually orders two times more on the platform as a whole," Mahendraraj said. "This is not only an additive behavior in terms of extra things they get, but [it] increases overall engagement."

Uber Eats' new verticals team is almost like an incubator for the business, Mahendraraj said. The team will look at how consumer behavior changes when Uber Eats introduces new segments to ensure they aren't distracting or confusing to consumers, though that hasn't been the case so far, he said. Between September and early November, delivery gross booking grew 8% despite global restaurant reopenings, Uber CEO Dara Khosrowshahi said during the company's Q3 earnings call. The company reinvested in its new verticals in Q3 thanks to Uber Eats's profitability that quarter, CFO Nelson Chai said. 

"We've continued to see sustained consumer engagement on delivery, lending further support to our belief that increased demand for all types of fast delivery is structural and will grow for the foreseeable future," Khosrowshahi said. 

DoorDash recently expanded its grocery presence and entered the convenience segment, launching ultra-fast delivery through DashMart in New York City's Chelsea neighborhood in December. It added more grocery partners in 2021, including Albertsons, Schnucks and Farmstead, and expanded alcohol delivery into 20 states. 

"It's an opportunity to serve customers with a variety of occasions and provide the ability to order multiple-use cases," Parietti said, adding that DoorDash can now support different types of merchants, such as flower shops.

These channels also benefit its core restaurant partners by driving more customers to the marketplace, which then helps boost order volume on the platform over time, he said. Uber Eats leaned into that kind of consumer behavior by rolling out its Pickup and Go feature last spring, which allows rides passengers to order and collect meals and groceries while driving to their destination. 

Grubhub has diversified its delivery offering by bringing about 6,000 convenience stores on its platform, and the company is testing its own convenience product in Brooklyn with a limited inventory. He expects the company to ramp up inventory and marketing over time. 

Delivery on college campuses has also become a growth area for Grubhub. The service allows college students to use their meal plans to order from campus dining rooms and kiosks through the Grubhub app, Dewitt said, adding that it’s currently integrated on campuses that cover 3 million students. 

"These students become great marketing targets for Grubhub during school and after they graduate," Dewitt said.

Grubhub has also taken its campus strategy and applied it to hotels and stadiums. In 2021, Grubhub partnered with Las Vegas Resorts World and FedEx Field, and is already seeing some initial traction, Dewitt said. 

"This is a potential great source of new diners for us who order at the hotel or stadium, but then have a Grubhub account set up… that they can use to order Grubhub from their phone," he said. 

New verticals can also attract new drivers.

"The more products you can offer consumers, the more consumers come to that marketplace. … The more consumers and the more volume that comes to the marketplace, the more opportunities there are for drivers. There's more margin and revenue that the delivery platform can invest in attracting more drivers if need be," White said. 

Improving the delivery experience

Boosting courier counts has become an increased focus for aggregators, especially with staffing shortages potentially hurting the overall delivery experience. 

Using Uber's logistics, Uber Eats is able to better calculate how long it will take for a driver to arrive at a restaurant and can figure out when the best time would be to send a courier to pick up the food when it is ready, Mahendraraj said. This requires being strategic about which courier to dispatch to the restaurant and how far in advance. Couriers might be sent out even before the restaurant starts preparing the food, for example, because the restaurant is quick and may take only two to three minutes to complete an order, he said. 

"We can be thoughtful about how the different pieces of that puzzle work so that there's as little wasted time as possible," Mahendraraj said. 

Uber Eats has invested heavily in the courier side of its business to create better delivery outcomes for consumers as well as merchants. That means making sure a courier is there to pick up the order from a restaurant in a timely manner so operations flow smoothly. Uber Eats has seen an 80% increase in couriers on its platform since January. 

DoorDash added a SafeDash feature in November for its drivers to boost security for these couriers while they are on the job. It includes access to ADT staff, who can contact 911 on the drivers' behalf. The company had over 3 million couriers during Q3 2021 and earnings increased 9% compared to the year-ago quarter, according to a shareholder letter. 

"As we've gotten into other categories, this is even offering Dashers even more choice and more flexible opportunities, whether it's doing grocery deliveries, convenience deliveries, etc.," DoorDash CEO Tony Xu said during the company's Q3 2021 earnings call. 

Delivery is only going to expand and become a larger part of the e-commerce economy, analysts said. Delivery will become more than just one vertical and an area where consumers can get anything, Mahendraraj said. 

In Asia, which has a more mature delivery segment, platforms have become super apps offering a wide range of services, White said. A lot of these companies now offer digital wallets and even financial products, which could be a future permutation for U.S. aggregators.

"It will be very interesting to watch whether that kind of concept works in the U.S. or gains traction with users or not," White said.