RESTAURANT DISTRIBUTION:

by Prof. Sherri Kimes, Emeritus Professor, Cornell University

This short (8 minute) presentation is an educational session on Restaurant Industry distribution, in other words, distributing table reservations or food to be sold or booked online.  Professor Kimes starts off with an-depth discussion about the way that restaurants are distributing their products post-COVID.  Things changed a lot during that period.  She will then relate the status of the industry now and how restaurants can avoid getting into the same situation that they are in for Rooms Distribution.

Fascinating viewing for those involved in Distribution or Restaurants.

Hi this is Sherri Kimes.

I’ve been doing a lot of research on restaurants and looking at pricing and distribution. Today, I just want to focus in on restaurant distribution because it’s so similar to the hotel industry and some of those lessons that can be learned and also some things we might be able to learn from them and so I’ll talk first about restaurant industry distribution. Then hotel distribution and then the lessons learned to apply to restaurant distribution. What’s really interesting with this is how quickly it’s growing. I mean and why I mean and yes you could say it grew a lot because of covid but that’s not just it. I mean, it was already growing look back here in 2017 and 2019. Covid helped it but why is this growing well?

Customers love it! It’s just like with OTAs. It’s just something that’s so convenient for customers and then there’s some major third party providers, again very similar to OTAs right? And the restaurants hate it because the commission is about 25 – 30%. Sounds familiar doesn’t it? The global distribution delivery market: it’s already worldwide, I mean it’s in Asia, it’s in Europe., i’s in the USA and you could see how this has been growing, and is expected to grow over the next five years. Again, the reason is that people are are ordering and this is based on research.

I’ve done Reesearch both in Singapore and in the US: its the convenience, they don’t want to go out. They don’t want to cook and in the US, this is from a study done by the National Restaurant Association that shows that 54% of adults say delivery and takeout are essential to their lifestyle and 60% of people say that they order delivery and take out more than pre-pandemic. Is this a short-term trend? I don’t think so and this is something that you should be aware of with your hotels.  So, some of the major providers you can see around the world, just like in singapore. You’re going to have Grab and Food Panda who deliver in China, Macau and in the US, it’s Doordash and Ubereats GrubHub, not so much.  You know there’s a variety of them depending on where you are.  You know the different things that restaurant operators can do about the cost of commission. There’s a big move afoot right now to try to get direct orders again. Sound familiar? This has been kind of like hotels. Not so. I mean it works sometimes, not so much the loss of control. This is something that’s really an issue for restaurants that we don’t have in hotels is that somebody else is delivering the food.

It would be like somewhat like if we had gig workers to do our hotel housekeeping for us so they could do some self-delivery too.  The problem with this is they would have to hire the people, and have all of the vehicles to be able to deliver the food.  This is also having a huge impact on their operations and with this one, I mean they basically have all of the demand comes in for delivery and takeaway around the same time as their customers come in and so many times the kitchen can’t handle it so they have to adapt their operations again much more challenging than what we have in the hotel industry and so again this is deja vu all over again. It’s so similar to what hotels went through about 20 years ago and you could see this in the lodging industry.

The percentage that’s grown online that’s being booked online, you can see how the rise of intermediaries has come in and how they’ve been concentrating; and what you could also see here too is that with the lodging share of online revenue booked. We’ve been trying to get this to come directly to us but that’s leveled off now. This is in the US but is in the same in Europe.

Again, customers like the convenience of the OTAs just like they like the convenience of the delivery providers, and so how have hotels tried to adapt well. I mean we’ve all tried to do Direct Bookings “come book with us, it’ll be so much better”. We’ve tried to do it with pricing but then there’s a whole issue of rate parity which by the way in the restaurant industry, that’s not an issue and so we would try to do some things with intermediate rate parity and trying to have fences so that you have to be able to get a specific rate.  You have to meet a certain condition, or you have to be a member of a loyalty program, and then also offering the best deal direct and so we might be throwing some other packages. Some other things on our website that aren’t available on the OTA.  Exactly the same thing is starting to happen in the restaurant industry, and so what can operators learn from this?  Well, they’re still in the “we hate these delivery companies”, “we hope they’d go away” mode which is how hotels have been. I think hotels have adapted to that and looking at it more as a marketing intermediary, rather than as a cost.

One of the other things that they’ve got to be learning is understanding the fulfillment, and the delivery. Because this is something again. It’s more challenging for them than it is for the hotel industry because many times they don’t do the delivery, and so it’s kind of like losing control of your brand.

You could offer value for your direct bookings. So if you look at what we do in the hotel industry. Restaurants could also start to offer maybe their special dishes that are available for regular that people who make their make their booking or make their order direct those sorts of things and promoting the brand in any way that they can, just like we have done to try to get customers to order directly from the Hotel.  Some of the lessons to be learned,

1. Lesson #1: Like in the hotel industry, the Restaurant industry is increasingly going to operate in an online environment, the change is going to be faster than what hotels went through because of the times we’re in.
2. Lesson #2: you’re going to see a lot more increase in consolidation and a demise in independents.
3. Lesson #3: Rising Market Power and Consolidation of OTAs.  This chart is from a Singapore company that’s been doing some phenomenal sorts of work with this, so you can see here (here is in China) and look at Meituan is now more than 60% and with ELA Me, that’s 90 of the 95 percent of the Chinese market and in the US, the same thing is happening with Doordash and Ubereats, again think of what’s happened with OTAs. Very similar.
4. Lesson number 4:, like in the hotel industry, increased access and development of technology allow for better customer service and reduced costs.  Now, we’re still working on this, particularly with the integration but there’s so much potential
5. Lesson number 5: everybody’s kind of trying to get the same customers and keep the same customers. How are we going to do that? It’s the same thing for the hotel industry and we’re not looking at the OTAs. We’re trying to battle with other hotels. Same thing is happening in the restaurant industry.  When it comes down to HSMAI and ROC, there’s all sorts of opportunities for pricing and revenue management and distribution management education.  

Conclusion

Some of the things that we’ve learned in the hotel industry have complete applicability to the restaurant side and so in conclusion. It’s a  fascinating area for me to study. Things are going to be moving at a faster pace than we saw in the hotel industry. Independent restaurants might have some problems, more consolidation just like we’ve seen with OTAs and then looking at the technology.

The competition for customers and a lot of opportunities for revenue management, and so again the key thing here is adapting to the changing industry. Structure: take a look at what’s going on. In this field. It’s exactly like what hotels did it, but with some some differences.

If you have any questions about this please feel free to contact me. Here’s my email address and so thank you again.

Contact Proessor Kimes at www.sherrikimes.com

Summary for: https://youtu.be/wRwZboaUXhU by Eightify