Food Delivery Businesses Tinker With Recipe for Success as Costs Skyrocket

As demand for restaurant and grocery delivery continues, businesses that rely on the channel are facing new challenges, as ongoing labor difficulties are compounded by rising food and commodities costs.

In addition to the most popular, well-known delivery channels, such as restaurant aggregators like DoorDash and Uber Eats and grocery delivery marketplaces like Instacart, there are a range of other food delivery businesses. For instance, unlike these on-demand options, there are subscription services such as Nestlé-owned meal delivery service Freshly and Kroger-owned Home Chef.

Moreover, there are delivery options that deliver straight from chefs and home cooks to consumers’ doors, such as homemade food delivery marketplace WoodSpoon and so-called “Chef-to-Customer Platform” CookUnity, which offers pre-scheduled meal delivery from award-winning professional chefs.

Akhtar Nawab, chef and owner at restaurants in New York, New Orleans and Washington, D.C., spoke with PYMNTS about the challenges and opportunities of the CookUnity home delivery model. He noted that, by selectively choosing markets in which to offer his items to the platform’s customers, he can expose new consumers to his food and his company, creative consulting and management group Hospitality HQ.

“I don’t think that to-go and delivery business that we created [in the pandemic] will dissolve,” he said. “We’re trying our best to maintain that level of execution through delivery [and] other fulfillment means at the same time as still growing our in-house dining business.”

On the other hand, the economics of the channel are difficult. Nawab explained that the model is “very sales- and volume-driven,” which can become more difficult as prices rise. CookUnity provides the ingredients, supplies and equipment, while chefs handle the labor piece of the business.

“There’s a lot of moving parts that have to be very, very well aligned at all times in order for this to work,” Nawab said. “So, that’s not always easy.”

He noted that, as the prices of food and commodities rise on the one hand, and as labor becomes more expensive on the other, sales are not rising commensurately with these increases, and cracks are beginning to show in the revenue share model.

The Consumer Price Index for All Urban Consumers (CPI-U), reported by the U.S. Bureau of Labor Statistics (BLS) Wednesday (July 13) revealed that food prices rose 10.4% year over year in June. Additionally, the prices for nonfood and nonenergy commodities rose 7% year over year.

“I think it’s getting tougher and tougher in the current climate,” Nawab reflected. “That means that the revenue share has to increase. … I think that conversation will reveal itself.”

Specifically, he said he believes that the model could be more sustainable in the long run if it used a sliding revenue share that offers a greater percentage to those who bring in greater sales and a lower percentage to those whose volume is lower.

Ultimately, the demand for delivery is there. The July edition of PYMNTS’ ConnectedEconomy series, “The ConnectedEconomy Monthly Report: The Rise of the Smart Home,” which drew from a May survey of more than 2,600 United States consumers, found that 43% of consumers reported having ordered food for same-day delivery from a restaurant aggregator in the previous month. Similarly, 40% reported having ordered groceries online for home delivery.

Get the study: The Rise of the Smart Home