A blended model of restaurant deliveries, dine-in demand and capacity constraints

Abstract

The fast-growing food-delivery services are expected to continue to expand following Covid19. While considered a favorable strategic initiative, delivery might not be profitable for all restaurants. Accordingly, this study provides an analytical model to assess the impact of adding delivery service to a traditional dine-in restaurant. The theoretical contribution is a mathematical model depicting the strategic allocation of the restaurant’s production capacity, revealing a surprisingly complex balance between production (capacity constraints) , marketing (customer utility) , cannibalism and markets interdependency, leading to a range of business outcomes. A large-scale empirical investigation uses over a million unique transactions to test some of the model’s insights. The results show the introduction of delivery may increase transactions and revenue. However, the theoretical model suggests capacity constraints can limit growth potential over time. Correlations between dine-in and delivery demand reveal weekday patterns between both channels as an important indicator for how delivery may impact restaurant operations. • The multifaceted strategic change of adding delivery is surprisingly complex. • While considered a favorable strategic initiative, delivery may not necessarily be profitable. • A framework that operationalized the balance between production and marketing is proposed. • The analytical framework also modeled cannibalism and markets interdependency. • Empirical analyses further demonstrated the complex nature of adding delivery.