Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?

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Remember when restaurant delivery options included Domino’s, Pizza Hut, or Papa John’s? No longer! These pizza restaurants still have a majority share of the restaurant delivery market. However, GrubHub, Eat24, DoorDash, UberEats, and other restaurant delivery platforms are expanding users’ choices beyond just pizza.

This analysis examines the Restaurant Delivery Game: Who are the Players and what are the issues?

Players

See Figure 1

Restaurants

  • Traditional (Dine-In) Restaurants
  • Takeout/Delivery Restaurants

♦ Takeout/Delivery Only (Virtual Restaurants)

♦ Dine-in or Takeout

Diners

  • Restaurant Diners
  • Takeout Diners
  • Delivery Diners

Restaurant Delivery Services Providers

See Figure 2

  • Fully Integrated Prep and Deliver: Meals Services Providers. These providers tend to focus on a niche market, such as Chef-Prepared Food (Munchery) or organic, vegan, or sustainable food (Green Tiffin, Kitava). These providers cater to niche groups of customers.
  • Partially Integrated Preparation and Delivery: Delivery Providers offering kitchen space to Virtual Restaurants. Provide delivery services both for Virtual Restaurants to whom they let space and for other Restaurants as well. These restaurant delivery services providers are analogous to Amazon and Netflix video content services providers. Some of their offerings are generated in-house and are exclusively available through their own delivery channels. However, these providers also offer non-exclusive delivery services for meals prepared by other Restaurants. That is, these other Restaurants may offer their meals through multiple delivery services providers.
  • Pure Delivery Services Providers: These services providers pickup prepared meals from Restaurants and deliver them to Eaters. These restaurant delivery services providers are analogous to generic Over-the-Top (OTT) video content services providers on the internet who provide users with non-exclusive access to third-party content. These delivery service providers cannot compete on the exclusivity angle. To be successful, they will have to offer some other valuable service to users that users cannot get from the exclusive delivery services providers. For example, UberEats is using historic customer ordering data to find unmet market needs, then approaching Restaurants to fill these needs.
  • Food and Non-Food Delivery Services Providers: These services providers pickup prepared meals from Restaurants and deliver them to Diners. These services providers also pickup non-food items from other Providers and deliver them to Customers. These delivery service providers cannot compete on the exclusivity angle. So they must offer some other valuable service to users that users cannot get from the exclusive providers. Perhaps users want to use a single service for all their food and non-food delivery needs.
  • Traditional Pizza Delivery Providers: Domino’s, Pizza Hut, Papa John’s

Figure 1

restaurant delivery game2 

Figure 2

restaurant delivery services providers 

Issues

Differences in Costs and Benefits for Restaurants

  • Takeout/Delivery-Only Restaurants

♦ Can locate in low-rent area

♦ Don’t incur costs for servers (hostesses, waiters, bartenders, etc.)

♦ Don’t incur costs for dining area (floor space, furniture, cutlery, etc.)

♦ Benefit from data analysis to determine which meals work and which don’t. From Rajeswari Jayaraman, “Are Virtual Restaurants the Future of Dining?”:

Furthermore, with the data collected from online ordering, the restaurants can play with dynamic pricing based on traffic times and do a cost analysis on a particular dish to see if it’s worth keeping on a menu. This new leverage offered by the digital data can be used to drive businesses by bringing in data-driven dishes.

♦ Dependent on Delivery Services Providers to promote their businesses. From Christopher Mims, “These Hot Restaurants Aren’t on Maps, Only in Apps”:

Tech companies are happy to provide the infrastructure to support virtual restaurants, but working with them means handing them a great deal of power over your business, the Star’s Mr. Seabury says. With a traditional restaurant launch, location and old-school marketing can drive traffic, but in launching the Star, he says he found the number of orders depends heavily on how much its delivery partner, DoorDash, promotes it.

♦ Virtual Restaurants are a way to use excess capacity efficiently. From Lisa Jennings, “UberEats nudges operators toward virtual restaurants”:

But rather than adding fried chicken his pizzeria’s menu, UberEats worked with Mikhail to create a new concept, dubbed Si’s Chicken Kitchen, which was available only through the app as a virtual restaurant without any brick-and-mortar presence.



The virtual trend is part of an effort to generate more revenue from within a restaurant’s four walls, said Sean Huggard, director of operations for multiconcept group Concept Restaurants, based in Denver.

Huggard approached UberEats earlier this year with an idea for a virtual concept.

“I realized we had portions of the day when we might not have people working to their fullest production level,” he said. “We were looking for new ways to generate revenue.”

  • Dine-in Restaurants

♦ Benefit from walk-in traffic

♦ Make high margins on alcohol

♦ Sell full course meals

  • Implications

♦ Takeout/Delivery Only Restaurants can offer lower prices than Dine-in Restaurants.

♦ Dine-in Restaurants will likely generate higher spending and/or higher margins per customer visit.

♦ This suggests Takeout/Delivery Only Restaurants might tend towards high volume, low margin business models.

Differences in Wants for Eaters

  • Takeout/Delivery Diners want

♦ Speedy prep and delivery

Low cost of delivery

♦ Decent presentation

♦ Decent customer service

  • Dine-In Diners want

♦ Ambience

♦ Good presentation

♦ Good customer service

  • Implications

♦ Takeout/Delivery Restaurants should not include offerings that must be presented well and/or that potentially require good customer service.

♦ For Dine-In Restaurants to keep customers from switching to Takeout/Delivery (assuming they want to), Dine-in Restaurants should emphasize ambience, good presentation, and good customer service.

Restaurants offering both Dine-In and Takeout/Delivery

  • These restaurants must simultaneously satisfy different wants of their customers.
  • How much do the eat-in group of customers overlap with the takeout/delivery customers?

♦ Larger overlaps will generate greater spillover experiences.

♦ Delivery Only restaurants (i.e., no overlap) can’t benefit from spillovers by Diners who want to dine-in occasionally.

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