UberEATS and the Long Tail in restaurants

In his groundbreaking blog and best-selling book the Long Tail, , Chris Anderson, Editor-in-Chief of Wired Magazine introduces the idea that on-line retailing will have a material impact on product distribution. He argues that niche products, traditionally left off of the retail shelf due to low and geographically dispersed demand, would flourish in the new e-retailer landscape.

Specifically, Mr. Anderson argues that by giving seller and buyer the ability to transact directly, no matter how specific, obscure, tawdry, or uncommon the product might be, a market will develop around that product and the sales will flourish. Looking for the exact rearview mirrors for your restored ’81 CJ8 Scrambler? No problem. An original pressing of the live Miles Davis record with John Coltrane playing tenor and alto sax? Sure thing. Slippers for your cat? Piece of cake! And as long as you have a credit card or a PayPal account, and are willing to pay for shipping, that little treasure can be yours. Exaggerated as that might sound, it is the essence of the long tail principal as it relates to on-line retailing.

Fast forward ten years, and its clear to see that Mr. Anderson’s foresight was finely tuned. On-line retail aggregators like Amazon and Alibaba can bring anything to the consumer’s front door within a very short period of time. According to a 2015 report by Forrester, on-line sales in the US alone topped $335B in 2015 and are expected to grow to $550B by 2020. Faster wireless networks and larger, more sophisticated smartphones have created a groundswell of new online shoppers. The same report concludes that 244 million Americans browsed or shopped on-line in 2015. On-line stores like Shopify and Etsy have found new ways to connect producers, from the industrial to the artisan, with legions of potential consumers, meeting the demand of an ever changing marketplace.

What does this have to do with restaurants? To date, those of us in the restaurant business have been largely immune to the impact of The Long Tail. There are several reasons why this has been the case.

Though it may seem like a new restaurant pops up on every corner everyday, the investment paradigm of opening a new restaurant, with its significant capital and staffing requirements, makes total seat growth, in effect, a zero sum game. Over time, when one restaurant opens, another closes. So the total number of “food production facilities" remains relatively finite. In fact, NPD’s Spring 2016 report shows a slight decrease in total number of units from 2015 to 2016.

Additionally, restauranteurs, even the most independent and daring of us, tend to be somewhat conservative in terms of menu design and execution. The reason? Consumers are generally pretty mainstream when it comes to their culinary desires. Consumers crave consistency and predictability. Due in no small part to the independent restaurant movement and the celebrity chef culture, recent trends, say over the last fifteen years or so, suggest a shift toward a broader, more interesting palate. But when you spend a significant amount of your (or your investors) capital to get a restaurant open, you have to play to the middle. 

Lastly, until recently, most restaurant occasions happened within the four walls of the establishment. Which meant that “distribution” was limited to the geographic area immediately surrounding the restaurant. Furthermore, the number of guests a restaurant could serve in a given period was finite, governed by the size of the dining facility. Most commercial kitchens are engineered for production that far exceeds the capacity of their seat count. 

The food truck and pop-up trends provided space for more adventurous offerings and newer winds blowing in the restaurant industry may soon accelerate the adoption of this trend. Uber, the poster child for the sharing economy, is right in the middle of it. And once again, these trends are being driven by the digital landscape.

Since 2012, restaurants visits have been virtually flat, registering a gain in traffic of less than 1%. However, during that same period, delivery occasions have grown 9%. At the same time, on-line ordering for restaurants has exploded, growing at a rate 300% faster than in-store orders, according to NPD. According to QSRWeb, at the Top 10 QSR chains for on-line ordering, on line orders now make up as much as 18% of sales. Launching these two platforms is cost prohibitive for most restaurants chains, never mind for the independent. Most operators are turning to 3rd party technology firms for these services, leveraging the existing platforms built for scale.

At the nexus of these three trends is the proliferation of on-line order aggregators that also provide delivery services. Though the business models differ slightly from company to company, UberEats (@ubereats)  Seamless (@eatseamless), Doordash (@doordash), and others are beginning to connect diners and restaurants in a way never imagined. 

Diners now have the opportunity to assess the merits of all the restaurants in their area that offer 3rd party delivery, including menu, price, expected waiting period, and even historical performance ratings before ordering. You get to choose from a wide array of food from across the entire culinary landscape, from the the common to the exotic. You get to order from that great little crowded Thai place across town, even at 8:00pm on a Friday night, without sitting in traffic and fighting to park. No matter what you are craving, if you have a credit card or Paypal account, and are willing to pay the delivery charge, UberEats can make sure those delicious little morsels are yours, usually within 30-45 minutes. 

For the restaurant operator, this new trend brings the potential of increased kitchen optimization and potentially, the ability to serve broader palettes and wider culinary need states, such as day part or dietary restrictions, without altering the in-store occasion or positioning. In fact, in some extreme cases, it is even leading to the elimination of the traditional operating platform altogether, as seasoned operators begin to open delivery-only outlets.

What does all of this mean for the restaurant industry? It’s still way to early to tell. The dining occasion is, after all, still very much about the experience. As yet, nobody has figured how to replicate this in the delivery model. But a look at the impact on-line retailing has had on the broader retail industry may be insightful. Delivery and on-line ordering are going to be permanent fixtures in the restaurant industry moving forward.

The Long Tail may be coming, at last, to the restaurant industry. With consumer demand flat, whether it is a good thing or bad thing for existing operators remains to be seen. For the guest, however, it is a huge win.