The Uber effect: Food and beverage retail property’s big shake-up

The Uber effect: Food and beverage retail property’s big shake-up

Total Property - Issue 3 2018

Until now, restaurants and cafes had a fool-proof safeguard against the internet – you had to physically visit them to enjoy their offerings. But now online food-delivery businesses are bringing change to the hospitality sector and the commercial property market.

Shifting trends within the food and beverage sector have already underscored the need for those in the industry to refresh and refocus.

Millennial tastes are driving much of the change.

Instead of the traditional dining experience, millennials are increasingly looking for a meal that doubles as an experience. This can include eating in the dark, eating in a space where you can see the chef preparing the food, or enjoying a meal that has a story attached to it. Millennials also want to be able to enjoy their favourite restaurant dishes at home and are by far the largest users of food delivery apps, such as UberEATS.

Food delivery services are the latest in the long line of disrupters, and they have the potential to influence the commercial property decisions of the sector.

They allow consumers to order food for home delivery from restaurants that were previously without a traditional take-away service. As they grow in popularity, food and beverage providers’ property requirements will begin to change, in terms of location and capacity for pick-up services.

Operators will increasingly need to factor in food delivery services when making leasing decisions.

Properties that have good street frontage to attract customers and can accommodate parking for delivery bikes and cars will be in demand.

Food delivery apps will also increase development options for secondary space close to major arterial routes as digitally-savvy operators look to establish ‘ghost restaurants’ – kitchens set up solely to service delivery customers, and which don’t have tables and chairs for them to eat in-house.

The growing food delivery market – tipped to reach $74 billion worldwide by 2020 – will be a catalyst for further change within the sector.

For many food and beverage businesses, food delivery apps have allowed them to reach customers who wouldn’t normally eat out in restaurants or eat out at all.

Typically, food delivery companies fall into one of two categories. The first category covers businesses that collect restaurant options and menus through an online portal for customers, but which usually require the restaurants to handle the delivery themselves.

The second is full delivery services like UberEATS, which take orders via an app and deliver the food for restaurants.

The restaurants generally pay a fixed percentage of the order to the service.

UberEATS, which is available in more than 120 cities worldwide, launched in New Zealand in March 2017, delivering food from approximately 70 restaurants to customers within Auckland CBD and central Auckland suburbs. Uber has since launched the service in Wellington and Christchurch and as of last month Hamilton. There are now nearly 700 restaurants on the UberEATS app across New Zealand.

In Auckland alone, UberEATS offers more than 24,000 menu items from more than 400 eateries across 20 hours of the day and covers a delivery area of 316m2. Customers place an order on the app for delivery within 30 minutes.

They can track progress as the food is prepared and delivered.

First Retail Group managing director Chris Wilkinson says food and beverage operators will increasingly need to have a food delivery plan to remain relevant.

“UberEATS, Deliver Easy and other ‘digital marketplaces’ have transformed consumer behaviour and expectations. Food operators – particularly quick-service restaurants and takeaways – need to have a delivery solution, either provided by a third-party service or managed by themselves,” he says.

“Restaurants are using the likes of UberEATS as a way to stay on the radar in their marketplace. Their online offering is often a pared-back or edited menu, so products travel well and taste good on delivery. For most, it's about profile – especially given the margins home delivery operators charge, which does challenge profitability for many restaurants, whose operational costs are already high.”

The opportunity to capture food delivery sales should be at the forefront of restauranteurs’ property requirements. Operators could risk losing out on a growing revenue stream if the location of their business is not within 30 minutes’ drive of their target market or in areas not covered by delivery services such as UberEATS.

This could lead to a clustering of food and beverage businesses in high-custom locations that offer easy access to motorways and major arterial routes.

Partnering with food delivery companies is a way for restaurant businesses to diversify their revenue streams, and, ultimately, make more money, which is better for landlords and investors.

UberEATS and services like it are unlikely to change the property requirements of restaurants at the upper end of the market, though. “Quality restaurants can rest easy, as UberEATS is unlikely to change the needs and expectations of their customer base. Their property needs will likely remain unchanged – for them, high-profile locations still have the power to creates awareness and stimulate walk-in custom,” Mr Wilkinson says.

“However, in Australia, several popular restaurants have created dedicated facilities entirely for pick-up services. This is to ensure their existing operations and goodwill are not compromised.”

Some operators may decide they don’t need to have prime real estate to capture business any more. Domino’s Pizza has already shown that space has becoming less important to certain food and beverage businesses.

The service could have the effect of increasing demand for commercial kitchen space.

Restaurants or individual chefs could decide to skip the storefront and set up their kitchens in more affordable properties in areas close to their target market.

Ghost restaurants allow operators to run a viable business with a minimal footprint. A kitchen-only operation doesn’t have to devote square metres to customer seating and waiting areas, further reducing operating costs.

Mr Wilkinson believes the New Zealand market is big enough to sustain kitchen-only operations. “Ghost restaurants could very much work in Auckland and Wellington - particularly as more consumers look to the convenience of home- or office-delivered meals,” he says.

Read more market insights from Total Property

Subscribe to receive the latest commercial news and insights from Bayleys Total Property