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Food Delivery Service and Restaurant: Friend or Foe?

Author

Listed:
  • Manlu Chen

    (School of Business, Renmin University of China, Haidian District, Beijing 100872, China)

  • Ming Hu

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

  • Jianfu Wang

    (College of Business, City University of Hong Kong, Kowloon 999077, Hong Kong SAR)

Abstract

With food delivery services, customers can hire delivery workers to pick up food on their behalf. To investigate the long-term impact of food delivery services on the restaurant industry, we model a restaurant serving food to customers as a stylized single-server queue with two streams of customers. One stream consists of tech-savvy customers who have access to a food delivery service platform. The other stream consists of traditional customers who are not able to use a food delivery service and only walk in by themselves. We study a Stackelberg game, in which the restaurant first sets the food price; the food delivery platform then sets the delivery fee; and, last, rational customers decide whether to walk in, balk, or use a food delivery service if they have access to one. If the restaurant has a sufficiently large established base of traditional customers, we show that the food delivery platform does not necessarily increase demand but may just change the composition of customers, as the segment of tech-savvy customers grows. Hence, paying the platform for bringing in customers may hurt the restaurant’s profitability. We demonstrate that either a one-way revenue-sharing contract with a price ceiling or a two-way revenue-sharing contract can coordinate the system and create a win-win situation. Furthermore, under conditions of no coordination between the restaurant and the platform, we show, somewhat surprisingly, that more customers having access to a food delivery service may hurt the platform itself and the society, when the food delivery service is sufficiently convenient, and the delivery-worker pool is large enough. This is because the restaurant can become a delivery-only kitchen and raise its food price by focusing on food-delivery customers only, leaving little surplus for the platform. This implies that limiting the number of delivery workers can provide a simple yet effective means for the platform to improve its own profitability while benefiting social welfare.

Suggested Citation

  • Manlu Chen & Ming Hu & Jianfu Wang, 2022. "Food Delivery Service and Restaurant: Friend or Foe?," Management Science, INFORMS, vol. 68(9), pages 6539-6551, September.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:9:p:6539-6551
    DOI: 10.1287/mnsc.2021.4245
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    References listed on IDEAS

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    Cited by:

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    2. Pasirayi, Simbarashe & Fennell, Patrick B. & Sen, Argha, 2023. "The effect of third-party delivery partnerships on firm value," Journal of Business Research, Elsevier, vol. 167(C).
    3. Ke, Jintao & Wang, Ce & Li, Xinwei & Tian, Qiong & Huang, Hai-Jun, 2024. "Equilibrium analysis for on-demand food delivery markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 184(C).
    4. Perez Becker, Nicole & Arts, Joachim & Reichardt, Sven & Lange, Anne, 2024. "Managing inventories of reusable containers for food take-away at a restaurant," International Journal of Production Economics, Elsevier, vol. 267(C).
    5. Ma, Shigui & He, Yong & Gu, Ran & Yeh, Chung-Hsing, 2024. "How to cooperate in a three-tier food delivery service supply chain," Journal of Retailing and Consumer Services, Elsevier, vol. 79(C).
    6. Mónica González Morales & José Antonio Cavero Rubio, 2023. "Impact of Digitalization of Sales on the Profitability of the Restaurant Industry during COVID-19," Economies, MDPI, vol. 11(11), pages 1-16, November.
    7. Du, Zhong & Fan, Zhi-Ping & Chen, Zhongwei, 2023. "Implications of on-time delivery service with compensation for an online food delivery platform and a restaurant," International Journal of Production Economics, Elsevier, vol. 262(C).
    8. Ma, Bohao & Wong, Yiik Diew & Teo, Chee-Chong & Wang, Ziyan, 2024. "Enhance understandings of Online Food Delivery's service quality with online reviews," Journal of Retailing and Consumer Services, Elsevier, vol. 76(C).

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