Influence of Online Food Delivery Apps On The Operations of The Restaurant Business

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INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH VOLUME 8, ISSUE 12, DECEMBER 2019 ISSN 2277-8616

Influence Of Online Food Delivery Apps On The


Operations Of The Restaurant Business
Shantashree Das, Debomalya Ghose

Abstract: Technological evolution has completely changed the entire scenario of the restaurant industry. It has uplifted the usage of online food delivery
services and enabled us to order food at the comfort of our home, compare prices and conveniently access these services. These online food delivery
services are boosting the option of choosing meals from a wide variety of restaurants with a single tap of our smartphones. From this research paper, we
would be able to understand the benefits of integrating online food delivery apps within the restaurant business and the influence of online food delivery
apps on the inventory management of the restaurants. The study also lists out various issues faced by the restaurants which the restaurateurs should
keep in mind to provide better services to the customers and earn better profit margins.

Index Terms: Inventory Management, Food Delivery Aggregators, Online Business, Online Food Delivery Apps, Restaurants, Sales, Technology.
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1. INTRODUCTION advanced era efficiently. The study will also help in


The advent of technology and smartphones are revolutionizing understanding the issues currently faced by the restaurants so
our standard of living. With just a few taps and swipes, we can that they can improve their operations accordingly for proving
have the luxury of enjoying the food at the comfort of our better customer services.
home while binge-watching Netflix. Dining out with family and
friends has been replaced by the concept of eating-in; 1.2 Review of Literature
someone having a long, tiring day at work and do not have the Online food delivery apps are the media through which
strength to prepare food or wants to skip home-cooked meal restaurants parcel food directly at the doorsteps of the
can order through online with just a single tap of their customers. This idea of food delivery is quickly spreading due
smartphones. The restaurant sector is one of the fastest- to the increase in the number of the working population and
growing industries in the Indian economy and the revenues their hectic work-life culture in metro cities. There is no human
generated from it are likely to increase more in the coming intervention involved in the process of online food ordering,
years with the concept of ready-cooked meals. The study is which makes it error-free and more private. At present, the
conducted in the Guwahati city of Assam, India. Guwahati has Indian food business is around $350 billion, and this sector is
been an important commercial centre of Assam, India for coming up with innovative ideas every day to provide better
many years which has led to the migration and inflow of customer satisfaction and retain customers in the long run.
people from neighbouring towns and villages resulting in a This scenario has resulted in a massive competition between
vast population. With rapid urban development and a massive online food delivery apps and particular restaurants providing
number of people coming to the cities in search of jobs or free home delivery services (Anupriya Saxena, 2019).
leading a better standard of life, the concept of ready-cooked Technology has a hidden impact on the restaurant industry
food has gained much attention. The various food delivery and has changed its entire frame. People across the globe are
apps operating in Guwahati are Swiggy, Zomato, Uber Eats, enjoying a new comfort zone as a result of these technically
etc. developed online food delivery services. Mitali Gupta (2019),
The area of interest of this paper is the restaurant industry, in her paper, studied the impact of food delivery start-ups
and the inventory management of perishable products such as Swiggy and Zomato on the restaurant business and also
food is very crucial as these have a minimum shelf life. studied their various business strategies. Today, companies
Perishable products have a distinct shelf life and cannot be have changed their traditional business strategies to online
used after its shelf life is over, which makes it more critical to marketing for catering to the diverse needs of customers.
manage the inventory of perishable products than durable Jyotishman Das (2018), in his paper, studied consumer
products optimally. The variation in demand and supply also perception towards online food ordering and delivery services
has a significant impact on inventory management of and aimed to examine the views of the consumers about the
perishable products. different services they receive from different portals. Online
food delivery market is not mature yet and possesses various
1.1 Need for the Study challenges. These problems can only be solved by taking law
Restaurateurs wanting to excel in the restaurant sector should as the criterion, along with the joined efforts of the food
consider the option of tying up with third-party logistics for delivery apps, the restaurants, consumers, thereby creating an
online food delivery. However, everything has its benefits and excellent online takeaway environment (Hong Lan et al.,
drawbacks, so this study will help restaurateurs to understand 2016). Efficient inventory management is essential for
the importance of online food delivery apps and how important restaurants to avoid going out-of-stock or having wastages.
it has become to manage the inventory in this technologically Thus proper inventory control is crucial. Inventory control
refers to a strategic practice of purchasing and storing
————————————————
materials at a low price without affecting the manufacturing
 Shantashree Das, MBA, Department of Business Administration,
Assam University, India. E-mail: [email protected] and distribution of materials. Inventory control is a method of
 Dr. Debomalya Ghose, Associate Professor, Operations examining what, when, and how much to have in stock for a
Management, Department of Business Administration, Assam given period (Saleemi, 1997). Abad (2003) regarded the
University, India. problem of dynamic pricing and lot-sizing for a reseller who
E-mail: [email protected] sells perishable goods, and the price of the product can be
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varied within the inventory cycle taking in consideration the 1.5 Hypothesis for the Study
age of the goods and the value drop associated with it. In Let us formulate H0 as the null hypothesis and H1 as the
today's global market, the retailer's efficient and responsive alternative hypothesis as follows-
supply chain can only be achieved by making timely and 1. H01: There is no significant stock-out situation in
accurate decisions regarding the quality of orders and restaurants due to the increase in orders through online
maintaining an adequate inventory in competitive market food delivery apps.
conditions. Broekmeulen and Van Donselaar (2009) examined H11: There is a significant stock-out situation in
research on replenishment policies for a single echelon restaurants due to the increase in orders through online
perishable inventory system with stochastic demand and a food delivery apps.
fixed life period of m periods for comparing the EWA policy 2. H02: There is no wastage situation in the restaurants
with other available policies. Broekmeulen, RACM and Bakx, due to over-ordering or overcooking of food items.
C.H.M. (2013) said that by limiting the number of batches on H12: There is a wastage situation in the restaurants due
the shelf to one, the retailer could reduce the amount of to over-ordering or overcooking of food items.
outdating due to LIFO withdrawal at the expense of additional
handling. This research shows that products with a short 1.6 Scope of the Study
product lifetime, large shelf capacities, expensive outdating The research is carried out to understand the impact of online
and low handling cost-profit most from a single batch in-store food apps on the operations of the restaurant business. The
replenishment policy. Linh et al. (2015) through their literature, study is conducted from the restaurant's point of view, how
aim to define, describe, and propose a solution for the problem they are managing their inventories with an increase in
of inventory management in a two-echelon model for customer demands and what are the advantages and
perishable and substitutable products with multi-period disadvantages of tying up with the third-party food logistics.
lifetime. The paper discusses the inventory theory to consider The geographical scope of the study is the Guwahati city of
inventory management for perishable and substitutable Assam, India. The study will help new restaurateurs to
products having multi-period lifetime, definite lead time, understand how they should manage their inventory in this era
customer service level, and each item is treated separately. It of online food delivery and also evaluate the pros and cons to
also adopts a multi-metric approach to evaluate the understand what aspects they need to focus on for fulfilling the
performance of perishable inventory management under given customer demands.
targets. The main objective of perishable inventory
management is to attain the best returns, considering the 1.7 Limitations of the Study
useful life of the product. In the literature, inventory models The sample size is small for the accurate study of the online
have been developed for perishable products subjected to the food apps' influence on the restaurant business. It is carried
various demand conditions and life considerations. The out in Guwahati city of Assam so that the results may vary for
problem reduces to the well-known 'newsvendor' problem the other parts of the country due to the different lifestyles and
when the life of the product is just one period. Goyal & Giri regional differences. Also, the researcher could not cover all
(2001) have researched by surveying the literature on the food delivery apps due to which proper information could
problems of various types related to decaying, fixed-life and not be extracted. However, these limitations provide scope for
random life of items. Adachi et al. (1999) in their paper further research in future.
proposed a perishable inventory model by taking into
consideration different selling prices of perishable commodities 2 RESEARCH METHODOLOGY AND DATA
under stochastic demand. Different lifetimes of perishable The present study is exploratory, and both quantitative and
commodities are provided in their model, and they considered qualitative methods are used for data collection. The study
the possibility of discriminating selling prices for products at analyzes the responses collected from the restaurants of the
different lifetimes. Over the years, many different, Guwahati city of Assam and attempts to find out the benefits
complementary, and sometimes contradictory classifications and problems arising in the process. The data is primary in
were proposed to address perishability. nature and collected with the help of a structured
questionnaire comprising of both closed-ended and open-
1.3 Research Gap ended questions. For the survey purpose, convenient
Based on the literature review, it has become evident that sampling is being used as the sampling method, and the
most of the works on online food delivery apps are conducted sample size of the study is considered as 125. The research
on consumer behaviour or perception. A very few researches tools used in the study are percentage, Correlation analysis,
are performed on the restaurants outsourcing the third-party charts, Chi-square test, and descriptive statistics.
food logistics services; however, none are conducted on the
inventory management of the restaurants which is a very 3 DATA ANALYSIS AND FINDINGS
crucial aspect for smooth selling in the restaurants. We have conducted the survey with a sample of 125
respondents who have tied up with third-party online food
1.4 Objectives of the study delivery apps for providing their food delivery to the
The objectives of this study are as follows: customers.
1. To understand the importance of third-party outsourcing
logistics for food delivery. 3.1 Importance of outsourcing third-party logistics for
2. To analyze the impact of online food delivery apps on food delivery
the inventory management of the restaurants. The respondents were first asked about the number of food
3. To assess the significant issues faced by the restaurant delivery apps they are listed with, whose response is shown
owners. below.
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TABLE 2
70 Correlation Analysis between the Extent of Usage of
60 Apps and their Impact on Business
50 Impact on business
The extent of due to the usage of
40
usage of apps apps
30 The extent of usage of
20 apps 1
10 Impact on business due
0 to the apps 0.86 1
1 2 3 More Source: Correlation Analysis done in MS Excel
than 3
Frequency 18 62 41 4 We can see from above that both the data sets are positively
correlated and have a strong correlation of 86%. Thus, an
Percentage 14 50 33 3 increase in the usage of apps increases sales to a great
extent. The features of online food delivery apps that help the
Fig. 1 Numbers of Food Delivery Apps the
restaurant business in increasing its sales are shown below.
Restaurants are Listed with
TABLE 3
The above figure shows that the maximum of the respondents,
Features of Online Food Delivery Apps that help the
i.e. 50% use at least two online food delivery services for their
Restaurant Business in increasing their Sales
food delivery. 33% of them use three apps, 14% use only a
Source: Collected from primary data through field survey
single app, and 3% use more than three apps for delivering
their food. Then the response for the extent of usage of apps Features Frequency Percentage
for the restaurant‘s food delivery and their impact on the
restaurant business is analyzed. The responses are recorded Promotion 54 43
in the table below as shown. Customer Base 16 13
TABLE 1 Cost-effective 31 25
Responses for the Extent of Usage of Apps and their Brand building 24 19
Impact on Business
Questions Attributes Frequency Percentage Table 3 shows the features that help in the increase in sales of
the restaurants. 43% said that promotion helps the most in
The extent of Always 62 50
usage of apps Quite a lot 50 40
increasing the sales, 13% said that they help in increasing the
customer base, 25% said that they are cost-effective to the
Very little 10 8 business, and 19% said they help in building their brand
Not much 3 2 image.
Impact on business due
to the apps Great Extent 46 37 3.2 Impact of online food delivery apps on the inventory
management of the restaurants
Quite a bit 57 46
With the amount of increased online orders pouring in, it has
Very little 18 14 become very imperative for restaurants to manage their
Negligible inventory strategically. Operating with too much inventory or
impact 4 3 too little inventory can cost the business in various ways.
Source: Collected from primary data through field survey Earlier, the restaurateurs did not need to bother much about
going out-of-stock. When a customer used to come to dine-in,
Table 1 shows that the maximum respondents, i.e. 50% they would directly tell him or her that the dish he or she is
always use the third-party apps, 40% of them use quite a lot, looking for is unavailable which did not hamper the
8% use very little, and 2% does not use much. It can also be restaurant‘s image on a large scale. However, with customers
seen that the usage of apps has impacted their business a lot. having access to browse through the restaurant‘s menu all the
37% have been impacted to a great extent, 46% to quite a bit, time, it has become very crucial to optimally manage inventory
14% have been impacted very little. However, 3% have a as the customers will develop a negative attitude if they see
negligible impact on their business. Pearson’s correlation most of the dishes or the dish they wish to order being
coefficient is carried out between the data of the extent of ‗unavailable‘. Also, the restaurants cannot buy in bulk to avoid
usage of apps and their impact on the sales to examine if the stock-out as food is a perishable item having a low shelf life
two factors are correlated to one another and if correlated, to and would result in wastage. Thus, keeping the balance
what degree the strength of their association is. between stock-outs and wastages is the main aim of inventory
management. The inventory management practices of the
restaurants are analyzed as follows:

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INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH VOLUME 8, ISSUE 12, DECEMBER 2019 ISSN 2277-8616

finished food 6 to 12 67 54
TABLE 4
items 12 to 24 13 10
Response for Usage of Inventory Management Software and
Safety Stock Maintenance for Packaged Food Items More than 24 3 2
Source: Collected from primary data through field survey
Percentage

Questions Yes No From table 6 it is evident that the maximum of the vendors
maintains the shelf life of raw items of 12 to 24 hours and both
Usage of inventory management software 38 62 semi-finished and finished food items for 6 to 12 hours. None
Maintenance of safety stock for packaged food items 76 24 of the respondents keeps semi-finished and finished food
Source: Collected from primary data through field items for more than 24 hours, which is a good practice. The
survey customers ordering online will have a healthful meal, which will
be a good thing for both the restaurant and the online food
On being asked whether the restaurateurs use any inventory delivery apps.
management software, it was found that only 38% use The study tries to find out if there is a significant stock-out
inventory management software whereas rest of the 62% does situation in restaurants due to the increase in orders through
not use any software and are still dependent upon the online food delivery apps. For that, let us formulate the null
standard manual practices. Some of the inventory hypothesis as H01 and the alternative hypothesis as H11 such
management systems used by the vendors are NAV, POS, that:
Hustle, Just Billing, RanceLab, etc. Almost every one of the H01: There is no significant stock-out situation in
respondents, i.e. 76% maintain safety stock for the packaged restaurants due to the increase in orders through online food
and processed food items in case of emergencies and only delivery apps.
24% do not maintain any safety stock. H11: There is a significant stock-out situation in
restaurants due to the increase in orders through online food
TABLE 5 delivery apps.
Reordering Level of Raw and Packaged Food Items The calculated value of Chi-square came out to be 26.56,
Percentage which is higher than the critical value of 9.49 with 5% level of
Questions Attributes Frequency
significance and 4 degrees of freedom, thus rejecting the null
Reordering level of Daily 102 82
hypothesis. We accept the alternative hypothesis that there
the raw food items 2-3 days 19 15 exists a stock-out situation in the restaurants due to the
Weekly 4 3 increase in orders through online food delivery apps.
The study also tries to examine if there is a wastage
Monthly 0 0
situation in the restaurants due to over-ordering or
Reordering level of Daily 18 14 overcooking of items. For that, let us formulate the null
the packaged food 2-3 days 67 54 hypothesis as H02 and the alternative hypothesis as H12 such
items Weekly 35 28
that:
H02: There is no wastage situation in the restaurants due
Monthly 5 4 to over-ordering of raw materials or overcooking of food items.
Source: Collected from primary data through field survey H12: There is a wastage situation in the restaurants due to
over-ordering of raw materials or overcooking of food items.
From the above, it can be seen that the maximum of the The calculated value of Chi-square came out to be 13.68,
vendors i.e., 82% reorder their raw materials daily, 15% which is higher than the critical value of 9.49 with 5% level of
reorder every two to three days, and 3% reorder weekly. None significance and 4 degrees of freedom, thus rejecting the null
of the vendors reorder the raw items monthly. For packaged hypothesis. We accept the alternative hypothesis that there
food items, it can be seen that the maximum of the vendors exists a wastage situation in the restaurants due to over-
i.e., 54% reorder every 2-3 days. 28% reorder weekly, 14% ordering of raw materials or overcooking of food items.
reorder daily, and 4% reorder monthly.
TABLE 7
TABLE 6 Major challenges faced by the restaurants in terms of
Storage of Items in terms of their Shelf Life Inventory Management
Questions Attributes Frequency Percentage Attributes Mean SD
Shelf life of raw 1 to 6 0 0 Low item turnover 1.91 0.77
food items 6 to 12 25 20 Excess inventory 3.19 0.78
12 to 24 77 62 Failure to keep track of stocks 3.14 0.92
More than 24 23 18 Difficulty identifying demand patterns 3.04 0.96
Shelf life of semi 1 to 6 51 41 Source: Collected from primary data through field survey and
finished food 6 to 12 63 50 descriptive statistics done in MS Excel
items 12 to 24 11 9 Table 7 shows that the significant challenge faced in terms of
More than 24 0 0 inventory management is excess inventory with mean 3.19
Shelf life of 1 to 6 42 34 and standard deviation 0.78, followed by failure to keep track
of stock, followed by difficulty identifying demand patterns.
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From the hypothesis testing it is found that there are their in-time at the kitchen and dispense the inventory as
stock-out and wastage situations in the restaurants due to the per the FIFO rule.
online delivery apps. 5. The vendors should define the maximum and minimum
storage levels at the fast food outlets to keep the inventory
TABLE 8 fresh and edible.
Reasons for stock-outs and wastage 6. It is crucial to conduct audits while stocking the inventory
Questions Attributes Mean SD
items for examining damaged or low-quality food items
regularly.
Reasons for Inaccurate data 3.4 0.65 3.3 Major issues faced by the restaurants due to the online
stock-outs Failure to reorder timely 3.19 0.86 food ordering apps
Poor communication with suppliers 2.5 0.77 Although the online food ordering system has become
extremely popular these days due to its ease and
Not enough working capital 2.3 0.91
convenience, yet it possesses a good number of challenges.
Reasons for Overstocking 3.07 0.83 On being asked as part of the survey, the restaurateurs listed
wastage of Over production of food 3.28 0.76 out the following issues that they face for using the services of
the online food delivery apps:
food Defected or low quality items 2.62 0.96
1 Online food delivery aggregators have become a
Spills 2.61 0.84 necessary evil for restaurants. The online food delivery
aggregators, when first entered the market, offered pretty
Source: Collected from primary data through field survey and low and reasonable commissions to the restaurants. With
descriptive statistics done in MS Excel an increase in the usage of these apps, some of the
aggregators are charging commissions as high as 20-25%.
Table 8 shows that the primary reason for stock-out is As a result, the small businesses are running on very low-
inaccurate data with mean 3.4 and standard deviation 0.65 profit margins, and if this trend continues, they will soon be
and that for wastage is the overproduction of food with mean out of business.
3.28 and standard deviation 0.76. 2 There is no denying the fact that the quality of food
A few recommendations for the restaurateurs to better decreases when delivered in packages. It is very tough to
manage their inventory are discussed as follows: maintain the quality of food in comparison to the hot food
1. Even though a maximum of the restaurants in Guwahati served straight out of the kitchen. Despite the utmost care
does not use or may be unaware of the importance of an taken in delivering the food, the orders are prone to various
inventory management system, it is very crucial to deploy a quality failures such as spills, turning cold, and many more.
Proactive Inventory Management System as it can be a Also, the foods which are supposed to stay fresh and
crucial investment in a food business. Most of the vendors crispy turn moist or become sticky. All of these quality
of Guwahati go out-of-stock, mainly due to inaccurate data. issues result in a negative experience of customers directly
An inventory management system makes everything much or indirectly hampering the image of the restaurants.
more manageable by automating all the processes. Hand 3 Due to the soaring demand for the online orders received
counting of inventory can take a longer time, but the through third-party providers, the walk-in customers are
restaurants can perform the same process with an slowly facing dissatisfaction due to the delay in receiving
inventory management system in a matter of a few food as these orders have very little turnaround time (TAT)
minutes. within which the food is to be prepared and dispatched to
2. The restaurateurs need to take their inventory regularly. their destination.
They should prioritize items and take their inventory 4 With a wide range of restaurants providing a variety of
accordingly. Customer these days are very health options to choose from, it has become challenging for
conscious and give special care to hygiene and health. restaurants to retain customers in the long run. The
Different items have different storing temperature customers become loyal to food delivery apps and not
requirements and consequently, different shelf lives. The restaurants.
items like meat, vegetables, fruits which have a low shelf 5 Even after offering discounts and various other extra
life should be consumed fast than items which have a benefits, it is not always sure that the customers will place
higher shelf life. the order.
3. They need to clean out and organize the stock areas 6 The customers often cancel their orders when the food
before taking inventory and discard items that have does not get delivered according to their expected time,
expired, or organize similar items on the same shelf. Taking which causes wastage of food. The customers call the
inventory after the outlet has closed, or before it opens is delivery guy several times to locate their order, ultimately
advisable. One cannot take accurate inventory while goods resulting in customer dissatisfaction and decreasing the
are getting sold, so a fixed time should be picked to avoid chance of ordering from that restaurant again.
fluctuations in the results. 7 The concept of cloud kitchen or dark kitchen is also
4. It is necessary to accurately assess the already existing becoming a trend that is slowly ruining the restaurant
stock in the outlets before going for a new purchase. business. The cloud kitchens only need a highly skilled
Maximum food wastages happen when the stock is kitchen staff but no wait staff since they do not have any
ordered in large quantities but not consumed before it gets physical space for customers to dine-in or any takeaway
expired. The restaurateurs should use the First-In-First-Out facilities. As a result, it is considered to be very cost-
(FIFO) method for inventory usage and ask their staff to effective.
arrange the inventory according to their expiry dates or

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4 CONCLUSION
The restaurant segment and the food delivery market have
enormously changed over the last few years with rapid
urbanization and endless influx from neighbouring places to
cities. Ordering a meal from outside and eating-in has become
a tradition these days with the increasing number of
smartphones and food delivery apps. This research paper
gave an idea about how the usage of online food delivery apps
can have a positive impact on the restaurant business. The
paper also highlights the inventory management strategies
that the restaurants are following in today's scenario. For
effectively managing the restaurant inventory, a few
recommendations are given that might be helpful to the
restaurateurs. The issues faced by the restaurants currently
can be solved in the future, which leaves scope for further
research.

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