Restaurants Struggle With Food Delivery Due to Dine-In Demand, Labor Shortage

Got a craving for pancakes? Want some hot soup from your favorite restaurant delivered right to your door?

What was once the saving grace to the restaurant industry during the pandemic is now becoming a problem for profits as the labor shortage rages on.

As people rush to dine out in person again, industry experts are observing more and more restaurants taking delivery off their menus.

Even larger chains like Applebees, Olive Garden and IHOP are making moves on who to prioritize.

“What’s happened is, as the dining rooms have an opened, the delivery demand has stayed flat and steady. So, what restaurants are figuring out today is they can’t do it all, all the time,” said Lisa Miller, a Dallas-based consumer strategy and insight specialist.

“They’re having to throttle back on delivery to make sure that they can keep care of those customers that are sitting right in front of them."

Miller runs her own business consulting firm, LWM Associates, and has worked with dozens of brands including Walmart, Applebee’s, IHOP, Kimberly Clark, Frito Lay, La Quinta and 7-Eleven.

She said larger restaurants are taking a stand to focus on dine-in customers because that's where the profits are.

There's also just not enough staff to meet demand. Add that to the growing costs of ingredients, wages and rent.

“Dine-in demand has really been unleashed. People are excited to get back to restaurants,” Miller said. “Compound that with the labor shortage and you can imagine, now restaurants are getting orders from dine-in, they’re getting web orders, app orders, call in orders. They’re just having to start to prioritize."

Not to mention fees from third-party food delivery services like DoorDash, UberEats and GrubHub, which can be especially difficult for smaller businesses to continue with delivery if the demand to feed is bigger in person.

“When you think about the smaller mom and pops, when 35% goes to the delivery service, it’s definitely not very profitable for those local businesses. It hurts probably even more so," Miller said. "Both big companies and small companies rely on third-party, but it takes a huge chunk out of the margin and profitability. When given the choice, if you can’t do it all, you’ve got a focus on those dine-in customers."

Miller also tracks consumer sentiments and has polled more than 40,000 consumers since March 2020 as part of her "Journey Back to Joy" surveys and reports published monthly.

One of her recent consumer surveys showed 15% of diners reported delivery wasn't available during peak times in recent months.

"Slow delivery times, delivery fees -- the consumers are actually starting to say maybe delivery isn’t worth it anymore because there are so many variables," she said.

Interestingly, Miller said she also observed a solid demand in diners still not feeling comfortable with in-person dining and opting for delivery instead during the delta variant surge.

Data also showed mounting frustrations over the in-person dining experience due to the labor shortages.

That data once again has shifted toward dine-in heading into the holiday season. So, it remains to be seen how the omicron variant will affect consumer attitudes.

But what can consumers expect?     

It’s important to check in with your favorite restaurants to see how much they are scaling back on delivery, if at all. DoorDash added a feature this year that allows restaurants to automatically shut off delivery during peak hours in the dining room.

You might notice fewer options, more fees and longer wait times while ordering delivery, especially during peak hours.

"I think what I would say for consumers is they might have to start taking advantage of curbside and actually driving and picking up," Miller said. "I think that’s something that consumers will have to pivot to its delivery isn’t available when they want it."