The Restaurant Dive Outlook on 2022

Though many of the market forces that shaped the restaurant industry in 2021 were closely linked to disruption from the pandemic's onset in 2020, the new year will bring new challenges — and opportunities. 

Unprecedented labor and supply chain pressure will drive most of the restaurant trends that will define 2022, analysts say. This instability will push operators to trim costs by shortening menus and invest in labor-saving technology in order to free up cash for wage increases. 

"Where menus are relatively simple and include fewer options, the opportunity for automation is almost endless,” said Brian Warrener, associate professor of food and beverage industry management at Johnson & Wales University's College of Hospitality Management. "And five years ago, who would have thought there [would be] such a thing as a robot bartender? … I certainly think this kind of technology marches on. Maybe robots [will] become more capable of doing even more complex tasks and maybe we do see more replacement of people with machines."

Restaurants will also explore delivery options beyond costly third-party partnerships, and hike delivery menu prices to make the channel more lucrative as off-premise demand holds steady. 

"The actual act of delivering is being operated by lots of different companies that really have no interest in what [restaurants are] doing. They just want to get out there and get their money… you're trying to be transformational, and they're being transactional," said Stephen Zagor, principal of Steve Zagor & Associates and assistant professor at Columbia Business School. "You want to create an experience with your delivery moment. How do you do that?"

Though these forecasted obstacles would be staggering for restaurants big and small, the year may still hold bright spots for business, experts predict. A swath of cheap commercial real estate could allow food halls, which were becoming a popular and profitable format before the COVID-19 crisis, to grow and offer outposts to independents looking to expand.

Increasing diner interest in plant-based fare also poses a robust sales opportunity for restaurants that have yet to offer meat analogues or would like to offer alternatives to proteins that have grown scarce and expensive due to supply chain delays. 

Learn more about the seven trends analysts predict will shape the restaurant industry in 2022:

More investments in emerging labor-saving technology

As restaurants brace for continued labor struggles, more operators will invest in technology that makes them less reliant on employees, minimize costs and maximize efficiencies, experts said. 

Half of U.S. operators plan to adopt automated, labor-saving technology in the next two to three years, according to a "Global State of the Hospitality Industry" report from Lightspeed. Forty-one percent of U.S. operators also report they are working with less staff than they require, and 87% of operators, owners or managers believe technology adoption has been key to business survival amid the pandemic, per the report. 

Warrener predicts in the near future the restaurant tasks that will be automated by machines will still mostly consist of simple, back-of-house responsibilities like dishwashing. 

"The restaurant industry has historically been very behind technologically," Jim Balis, managing director of strategic operations at CapitalSpring, said. "I think you're going to see a lot more with respect to robots. … The best example was probably the coffee space, where it's a combination of liquids, powders and ice that can easily be executed by a robot or some form of automation."

Balis said this same kind of technology could be applied to preparing smoothies and bowls, a trend the industry saw gain traction in 2021. 

Jamba, for example, debuted an automated smoothie kiosk in a Walmart store at the end of 2020, and expanded this offering to additional locations last year. Sweetgreen also acquired automated restaurant company Spyce last year, with plans to implement the technology at its restaurants to improve food quality and store efficiency.

"A robot doesn't call in sick, typically, works on weekends, it's not having an affair with another employee," Balis said of the appeal labor-saving technology holds for cash-strapped operators. 

Balis also expects to see more voice-based artificial intelligence at the drive-thru, specifically, since this channel has performed so well throughout the pandemic and continues to see strong traffic. Drive-thru bots can improve throughput and also create upsell opportunities, he said. 

"I [recently spoke] to a company … that's doing facial technology. So you walk up to the drive-thru, it recognizes who you are and what you've ordered in the past, and then you actually pay with your face," Balis said. "So I think more and more so, you're gonna see that."

Labor and supply chain disruption keep simplification on the menu

Supply chain problems, rising food costs and a lack of available labor have led many restaurants to cut menu items. By the end of Q3 2021, total restaurant menu items offered had fallen 10% from a pre-pandemic high, according to Technomic. As the economic disruption of COVID-19 drags on, it is possible menus will continue to shrink. 

Alec Haesler, a director at Carl Marks Advisors, said it is likely operators will shift between proteins if one protein source is experiencing sustained price inflation or shortages.

Meaghan Brophy, a retail content producer for Fit Small Business, said restaurants are likely to trim menus to simplify production processes for off-premise orders and organize kitchens more efficiently.

Simplified menus are likely here to stay, according to Rick Camac, dean of restaurant and hospitality management at the Institute of Culinary Education. Labor pressure will make it hard for restaurants to reintroduce menu items shed during the pandemic.

"I don't miss the monster menus that I don’t think we’re going to see anytime soon," Camac said. "Smaller, tight menus are definitely another trend that are here to stay. I don't see us all going back to these monstrous, multi-page menus anytime in the near future."

Shorter menus can introduce labor cost savings and reduce waste. According to the National Restaurant Association's annual survey of major trends, menu streamlining will likely continue through 2022.

At the DoorDash Mainstreet Strong Conference in October, Hudson Riehle, senior vice president for research and knowledge at the National Restaurant Association, said 8 out of 10 restaurants offering table service had to shorten menus due to supply chain issues, while about 7 out of 10 QSRs trimmed theirs. 

"However, certain commodity groups, particularly the proteins beef, chicken, pork and eggs are running to double digit [wholesale price inflation]," Riehle said. "Looking ahead once again to 2022, it will not be as high. But, in particular, in the first six months, there is no relief."

Changing customer expectations may also push chains to shorten menus, especially at QSRs. Recent analysis from Oracle indicates customers may expect shorter drive-thru times, and some chains have responded already by simplifying drive-thru offerings. Burger King eliminated some complicated items from its menu to speed up its service after the pandemic triggered a surge in off-premise ordering, which pushed drive-thru times up across the board.

Major chains fuel plant-based growth, while operators offer more options to save money

Last year ushered in a number of plant-based meat launches at major restaurant chains, including McDonald's test of its McPlant products (made in partnership with Beyond Meat), an Impossible Foods ghost kitchen partnership with Dog Haus and Starbucks' test of a 100% plant-based menu at a Seattle store. 

Recent analysis from Peter Saleh, managing director and restaurant analyst at BTIG, suggests McDonald's plant-based investments are paying off. BTIG estimates that several of the chain's eight test restaurants sell as many as 500 McPlant sandwiches a week, or roughly 70 per day, compared to BTIG's initial forecast of about 20 to 25 McPlant sandwiches per day. 

"Anything plant-based is going to blow up over the next couple of years," Camac said. "I'm involved in raising funds for both public and private funds for two different [plant-based] companies. …When we peel through the curtain … the numbers that I’m seeing are just absolutely tremendous in terms of not only their growth recently but their future projections."

Zagor predicts both plant-based meat analogues and vegetarian meals will grow in popularity until they eventually become ubiquitous across restaurant chains.

"There's two ways of looking at it. There's the plant-pretender products, the products that generally are not plant products but suddenly are now made out of plants, like chicken and beef and pork and shrimp and sushi," Zagor said. "Then there's the plant possibilities, where you're really eating plants that are plants… [where] we're going to do something a little different with your beet and your asparagus to make it special."

Camac believes the impact of major chains offering plant-based items will significantly speed up adoption of plant-based fare across the broader industry.

"When mainstream gets a hold of that the trend is just going to go through the roof as opposed to it growing at a slower pace, which is what it's really done until, in my opinion, the last year," Camac said. 

Plant-based items could also help restaurants build their menus at a lower cost without losing diner interest, Camac said, which could help operators struggling with price hikes on meat, for example, due to supply chain shortages. 

Wage hikes will continue to entice scarce talent

The labor woes plaguing the restaurant industry are likely to continue into 2022, as U.S. Bureau of Labor Statistics data shows anemic gains in employment compared to recovering restaurant sales. The low labor force participation rate and high quit rate indicate employers will likely have to raise wages throughout the year to attract talent who is unwilling to work at the prevailing wage for restaurant positions.

"You're going to see an increased reliance on wage and benefit growth to attract new labor and improve employee satisfaction metrics and work-life balance and things like that to try and minimize attrition," Haesler said. 

The continued prevalence of COVID-19 will drag the labor market. A similar effect took hold in the fall when the delta variant wiped out most of the employment gains of the first half of 2021, according to Elise Gould, a senior economist at the Economic Policy Institute.

"These jobs have gotten qualitatively worse because of the pandemic," Gould said. New cases are still high. The last week of December shattered records for daily cases, 486,428 on Dec. 29, the last day for which the CDC has announced case numbers. All this means the lingering effects of the virus on workers are unlikely to go away.

"People are less willing to put themselves in the kind of risk that a restaurant job entails," Brophy said. "So [they're] pivoting into other industries, like catering and things that offer lower risk and also higher wages."

These factors have led to a persistent decline in restaurant employment. About 750,000 fewer employees worked in foodservice in November 2021 than in February 2020, according to seasonally adjusted BLS data. That scarcity has contributed to an upward trend in wages, BLS data shows, with restaurant wages topping $16 an hour on average in October 2021.

Cristin O'Hara, managing director for Bank of America, said the industry's best hope might be recruiting and retaining younger workers while offering them a chance to move up. 

"If we can keep some of these teenagers in the system and working and continuing to contribute, my guess is that will be the savior for 2022 and beyond, as they get trained up and get more experience, because there's a dearth of assistant managers and regional managers and managers of any kind," O'Hara said.

But Camac said he expects this worker shortage to hold steady.

"There's no magic bullet," Camac said. "There's nothing else I see that's going to make [labor market recovery] happen anytime soon, except that slow, gradual, painful drive toward building new prospects again, getting people interested again and changing your model so that people are most interested."

These pressures have driven restaurant companies from Darden to Starbucks to raise hourly wages. Inflation, however, has eaten up all of the wage gains throughout the economy, according to BLS data. While wages may nominally be up in 2021 versus 2020, real incomes are actually lower. 

Food halls will fill empty commercial real estate

Even before the pandemic, food halls were popular among younger diners, and many developers designed these concepts to anchor large office or multifamily projects. Food halls typically offer quality food at an affordable price point as well as a social experience, according to a Cushman & Wakefield report. Since 2016, the real estate firm recorded 223 food halls operating in the U.S. and another 165 in development.

Though the COVID-19 crisis stalled food hall business over the past two years, developer interest is rebounding. Camac said several companies are creating large food halls that highlight different types of cuisine, like French or vegan food. 

"Food halls are growing at a tremendous rate," Camac said. "One of the reasons for that is available real estate. There's just massive properties out there that are going for better rates than they've ever gone for in many, many years."

Many developers that started planning projects prior to the pandemic are now left with large spaces they can't fill, which is creating more opportunities to build food halls, Camac said. 

Cushman & Wakefield found that food halls were more resilient compared to other retail categories during the pandemic, with 75% able to stay open by pivoting to a ghost kitchen model. At a food hall in Omaha, Nebraska, for example, vendors came together to offer a "World Food Tour" with takeout packages to provide a sample of each of the concepts. Many food halls also have expansive outdoor patios or rooftop gardens, Cushman & Wakefield said. 

Food halls can offer security to landlords because they wouldn't have to manage a large vacancy if a food stall goes out of business. This could be a real advantage as over 10% of restaurants have closed during the pandemic, and many more are still unsure of their futures. 

Delivery menu prices to rise as restaurants consider options beyond third-party partners to make the channel lucrative

Because dining rooms were closed in many markets for the better part of 2020 and some of 2021, restaurants turned to delivery to reach customers. But as dining room traffic recovers, operators will reevaluate their strategy around the channel going forward, analysts said. 

Over the next 12 to 24 months, restaurants will review what business tactics are profitable, as well as how they can drive customers back in-house, Haesler said. For some operators, that could mean pushing customers to use takeout instead of third-party delivery.

"Obviously, the margins on third-party delivery are not great," Haesler said. "I don't think that's a viable option as a main driver of cash flow, but as a mix-and-match approach combined with everything else. I think it's still an important facet of the business."

To make things at least margin neutral, many chains have been increasing delivery menu pricing, which hasn't necessarily resulted in customer drop-off, said Saleh.

"So long as consumers want it and are willing to pay for it, which both clearly seem to be the case, I think [delivery] will evolve and continue to grow," Saleh said. 

Some restaurants might consider ways to form their own company or cooperative to facilitate delivery instead of relying on transactional relationships with these diners through third-party partners, Zagor said. 

"The whole delivery model is going to evolve. I don't necessarily think in the year 2022, but I think the seeds will start to get planted for a much more proprietary and a much more relationship-based delivery program," Zagor said. 

Operators will phase out rudimentary curbside pickup offerings or invest in time-saving pickup lockers and shelves

As off-premise demand holds steady, restaurants will also focus on expanding their digital platforms.

"[Digital ordering] for pickup is actually a larger behavior than delivery and both are growing very rapidly," David Portalatin, SVP and industry advisor at The NPD Group said, adding that many consumers are taking ownership of the last mile and picking up their food to make off-premise more affordable. 

Diner interest in cheaper off-premise options is one of the main reasons why restaurants are doubling down on drive-thru lanes, including ones dedicated to digital order pickups. Operators are also changing workflows to provide dedicated pickup areas inside restaurants, Portalatin said. 

Curbside pickup, which gained popularity during dining room closures, will likely be phased out, however, said Balis.

"It's a combination of the consumer having less fear about coming into the restaurant to pick up their food and the labor challenges we're facing. As we try to be more efficient with our labor, curbside is very inefficient," he said.

Curbside is convenient for the guest, but it takes a restaurant team member away from taking orders or preparing food, he said. 

Restaurants that choose to maintain curbside pickup can make the channel more efficient by offering pickup shelves and lockers. But interest in high-tech lockers that offer heated or refrigerated interiors may wane, since these products require integrations with third-party delivery partners and WiFi, Balis said. By contrast, standard shelves that are organized by last name don't require any extra technology and are easy to install. Operators, however, have to weigh the risk of food being stolen or a customer picking up the wrong order, he said. 

"That's the sort of up and down trade of that technology. I think you're going to see [pickup lockers], but I think [adoption is] going to be slower than one would anticipate for those reasons," Balis said.

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.

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, 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, charges a monthly hosting fee for the website of $49 and a one-time set up fee of $99. Restaurants aren’t charged for marketing commission fees. 

"[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 to provide more flexibility in different models, while Uber Eats did so in September. 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, 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, 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, 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 last May 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

David Nayfeld didn't want to risk reopening Che Fico, the independent Italian restaurant he co-owns in San Francisco, for most of the pandemic. Labor was hard to come by, and there was no guarantee new COVID-19 variants or restrictions wouldn't gut the business. 

Before the coronavirus crisis, Nayfeld's operation employed about 100 workers. When it finally reopened fully in late October, that number was closer to 60. Nayfeld was unable to bring staffing up to previous levels because it takes a long time to find workers who fit the restaurant's culture and have the soft skills needed for their jobs. 

Then from December to January, a quarter of his workers contracted the virus.

"The worst thing possible has happened," Nayfeld said.

New variants stalled the recovery

For many restaurateurs, labor and sales recovery stalled out in the second half of 2021, according to Hudson Riehle, senior vice president of the National Restaurant Association's research and knowledge group.

"When you look at restaurant industry sales growth in the second half of 2021, that sales level basically remained essentially flat from July on," Riehle said. "The same is also true for restaurant industry employment." 

The delta and omicron variants have dealt the restaurant industry a serious blow. The surge in coronavirus cases in late December drove down sales by more than half at nearly 60% of 1,200 restaurants surveyed by the Independent Restaurant Coalition. OpenTable data also shows a gradual fall in on-premise dining traffic in December compared to the same period two years ago. 

Labor in the foodservice space has similarly dragged. About 650,000 fewer workers are currently employed in foodservice than in January 2020, and the sector has seen only gradual increases in employment since July 2021, according to U.S. Bureau of Labor Statistics data.

Meanwhile, the NRA expects consumers' disposable income, adjusted for inflation, to shrink in 2022 in the absence of further stimulus from the federal government. This decline in spending power would lead consumers to be choosier, even though diners still want to go to restaurants, Riehle said. Flat sales and flat demand, he indicated, could mean flat employment.

Elise Gould, a senior economist at the Economic Policy Institute, expects the headwinds caused by the omicron variant to be less persistent than what followed the delta variant, as case loads may fall faster, and omicron is likely milder than delta. Despite increased turnover, Gould noted, hiring has also kept pace with separations.

"We've seen record high numbers of quits in the last couple of months," Gould said. "And yet, hires are keeping up."

The number of workers employed in foodservice increased by about 40,000 between November and December, according to BLS data. Gould said the impact of the omicron variant on jobs would not be fully clear until BLS data for January comes out next month.

"We're gonna see [declining to flat jobs growth] in January, and maybe even February, because of omicron. But I hope that we will get on the other side of that and continue to see job growth over the months following," Gould said.

2022 is likely to see a gradual increase in the number of workers employed in foodservice, driven by recovering sales and improved offerings from restaurant employers, said Ted Lynch, managing director for restaurant banking at Bank of America. 

"There'll be a gradual pickup, the bodies will come back online, [labor] expenses will come back up on a per person, hourly basis," Lynch said. "But hopefully there'll be a natural process where things get smoothed out." 

Nayfeld is less optimistic. Independent restaurants, especially those that did not receive Restaurant Revitalization Fund grants, have faced mounting supply costs and rising rent —  pushing many to take on large amounts of debt just to stay open. The uncertainty of the labor market will hurt independents more than major brands, Nayfeld said.

"We are dealing also with a historically challenging labor force," Nayfeld said. "People are worried about our industry. People genuinely think to themselves, 'Should I go back to work at a restaurant? What if that restaurant has to lay me off again?'"

Benefits, wages and safety are key to retaining workers. But many operators are struggling. 

High turnover, a relatively low unemployment rate and the reluctance of workers to enter the restaurant industry has put upward pressure on wages, with many restaurants turning to wage hikes or new benefits to attract and retain talent. Chili's parent company, Brinker International, is boosting hourly pay to $18 an hour including tips by 2023, and is focusing on filling managerial roles with internal candidates. Starbucks has accelerated ongoing wage increases, and other major chains have rolled out signing bonuses and new benefits. 

A combination of increased compensation and better benefits could attract more hourly workers, but that's a tall order for many independent operators. And many workers are looking for employers who offer something beyond higher pay, according to Lynch. 

The companies that are succeeding in attracting new workers, Lynch said, are those trying to create a fun work environment and build a shared company culture alongside opportunities for professional growth. 

Sekou Siby, president and CEO of Restaurant Opportunities Centers United, a nonprofit focused on organizing restaurant workers, agrees that wage gains alone haven't been sufficient to draw workers in.

"Workers are not benefiting from the wage increase because prices are actually going up," Siby said. "It is driving the workers out of the restaurant industry."

Siby said restaurants are competing with other employers for low-wage workers, including Amazon, which offers $15 an hour. The risks of contracting COVID-19 has also made some employees wary of returning to work in restaurants at the prevailing wage, Siby said.

"Businesses are not thinking, restaurants especially are not thinking, of increasing wages based on the amount of risk," Siby said. 

Nayfeld argued that without a refill of the RRF — which closed to applications in May — it will be difficult for independent restaurants to prioritize worker safety and do right by employees if businesses shut down due to COVID-19 case surges.

"Sometimes things are bigger than the business," Nayfeld said. "People's safety is bigger than the business. But that's … why we need the federal government to step up and do their part to allow us to continue making good choices."

Employers who respond to the shortage by asking more of their workers may risk driving people out of the industry, Gould said.

"If they're … making people come to work when they [are] positive [for] COVID-19 or [have] COVID-19 symptoms because they're concerned about not having enough workers, then maybe they should be doing other things to attract and retain workers," Gould said. "Maybe they can attract other workers to fill those slots, and pay more and provide better working conditions and paid sick days."

Companies that have historically managed to keep turnover low have performed the best during the pandemic, Lynch said. Nayfeld said his restaurant has managed to retain some of its workers largely thanks to goodwill he accrued by offering paid sick leave, covering the cost of health insurance for laid off workers and paying for his employees’ COVID-19 testing. Research from One Fair Wage indicates that paid sick leave, better health insurance and other benefits could keep workers from leaving the foodservice industry.

A shift toward off-premise dining and labor-saving technology could improve labor productivity or reduce staffing needs, Lynch said. The cost savings that come with these pivots have allowed the industry as a whole to remain profitable.

"Everybody was forced to make themselves more profitable," Lynch said. "It'll be baby steps to get back to where we were, in terms of real full employment."