Digitalization of the Restaurant Industry: Comparison
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The COVID-19 pandemic had a severe impact on the restaurant industry. Temporary shutdowns and seating capacity restrictions led to a sharp drop in sales. In this scenario, digitalization emerged as a crucial strategy for business survival, offering opportunities to increase restaurants’ competitiveness and revenues. 

  • restaurant sector
  • digitalization
  • home delivery
  • profitability

1. Introduction

The COVID-19 pandemic had a profound economic impact on the majority of the production sectors, including the food service industry, which has a substantial influence on the Gross Domestic Product (GDP). The measures enforced by countries to control the spread of the pandemic limited companies’ activity and led to serious financial imbalances, even undermining the viability of many of them (Kim et al. 2020; Hu and Zhang 2021). Restaurants, classified as non-essential establishments with high social interaction, faced operational challenges in 2020, having to shut down and reduce seating capacity. Changes in consumer habits, driven by concerns about contagion risks, led to a decline in eating out (Liu and Kim 2021). Globally, the number of consumers who chose the traditional option of eating at a restaurant decreased by 30% globally between February 2019 and 2022 (Statista 2022a).
To survive the unprecedented health and economic crisis caused by COVID-19, businesses needed to embrace digitalization. Innovations and digital tools became crucial in developing competitive advantages that ensure profitability and resilience in the face of market turmoil (Schwertner 2017; Bouwman et al. 2018). Electronic commerce emerged as a leading trend, allowing companies to connect with consumers while ensuring social distancing and compliance with pandemic regulations (Dannenberg et al. 2020). Establishing an online sales channel became a vital tool for businesses to withstand the crisis and its economic impact (Kim et al. 2020; Türkes et al. 2021).
In this regard, the global market for restaurant online ordering and home delivery services experienced significant qualitative growth in 2020. Turnover increased from USD 157.34 billion in 2019 to USD 232.33 billion in 2020, with an annual growth rate of 26.45% in 2021 (Statista 2023). It was estimated that in 2022, global revenue from online sales for the restaurant industry would reach USD 325.44 billion and will continue growing at an annual rate of 6.71%, forecasting a turnover of USD 450.30 billion in 2027 (Statista 2023). In Spain, this industry witnessed remarkable sales growth between 2015 and 2018, with revenue exceeding 420 million euros in 2019. During the pandemic in 2020, revenue surpassed 1018.92 million euros, and in the first three quarters of 2022 alone, restaurant online sales generated revenue of 1267.61 million euros (Statista 2022b).
Beyond the impact that the pandemic has had on the market growth of online orders and home delivery, the digitalization of sales channels presents restaurant businesses with opportunities to expand their competitive advantages (Ma et al. 2021). This technology has been shown to increase companies’ productivity, minimize errors, reduce costs (Kimes 2011; See-Kwong et al. 2017; Niu et al. 2021; Türkes et al. 2021), improve customers’ user experience (Gavilán et al. 2021), and foster customer loyalty (Kim et al. 2019).
However, while there is consensus that online sales should be included in a comprehensive restaurant offering to ensure continuity and growth, companies must address several issues to maximize the usefulness of this sales channel (Liu and Kim 2021). Factors such as increased packaging and transport costs, delivery platform commissions, delivery errors, and the substitution effect of traditional sales can negatively impact business earnings and profitability (Collison 2020; Ma et al. 2021; Chen et al. 2022). The aim of this restudyearch is to contribute to the understanding of how the digitalization of the sales channel has affected the financial performance of businesses in the restaurant sector in the context of the COVID-19 pandemic. For this purpose, this studyresearch analyses the financial performance of restaurant companies during the challenging year of 2020, distinguishing between those with digital sales tools and those without. Specifically, three categories are established: having a website, minimal digitalization requirement; having an online ordering system and own home delivery services; and having an online ordering system and home delivery services through any of the delivery platforms.

2. Digitalization and Financial Performance

Digital transformation is a global trend that is spreading throughout all economic sectors (Zhai et al. 2022). By implementing technology in the value creation processes, companies are trying to adapt to the changes and impacts taking place in the business environment (Vial 2019). By doing so, they seek to maintain their competitive advantages or to develop new advantages that allow them to set themselves apart from their competitors (Schwertner 2017; Bouwman et al. 2018) and to guarantee the continuity of their business (Türkes et al. 2021). This transformation is intrinsically linked to dynamic capability theory, which argues that organisations that are able to identify and adjust their capabilities to changing environments are more likely to succeed (Teece et al. 1997). From an economic perspective, different studies agree that digital transformation contributes to improving companies’ profitability. In this sense, based on an analysis of business services, Ribeiro-Navarrete et al. (2021) conclude that the business use of social networks and training in digital tools improve the profitability of organizations. Fernández-Portillo et al. (2022) analysed a sample of Spanish companies and found that there is a direct and positive relation between a company’s digitalization and its financial performance, with adequate innovation management acting as moderating variable. The results of the studies by Peng and Tao (2022) and Zhai et al. (2022), whose studies are based on a sample of listed Chinese companies, are in the same line. These authors determined that digital transformation directly and indirectly improves business performance: directly, because it increases return on assets and return on equity; and indirectly, because it reduces costs, increases operation efficiency, and contributes to the success of innovation. Although it is one of the sectors most lagging behind (Tan and Netessine 2019), the restaurant sector is also immersed in the digital transformation of all its business processes (Collins et al. 2017). Digital tools provide support to the internal processes of restaurant businesses linked to the so called back of house activities (BOH), such as logistical management, human resources, and the finance/accounting area, and the external processes linked to front of house activities (FOH), which involve customer relations (Alt 2021). FOH digitalization processes, especially digital marketing and online ordering and home delivery services, can have a positive impact on restaurants’ profitability. The compilation and analysis of client data and their ordering habits can contribute to marketing strategies and together with home delivery services offer a new business opportunity, additional revenue and a stronger financial performance (Türkes et al. 2021). In addition, as described in the literature, if the digital tools used to provide these services are well implemented and integrated into a company’s operations, they also offer other numerous benefits (Kimes 2008). They can attract new buyers, increase business efficiency, reduce mistakes in orders and improve customer relations management and profitability (Kimes 2011; See-Kwong et al. 2017; Niu et al. 2021; Türkes et al. 2021). In addition, these tools contribute to enhancing customer experience because customers benefit from the ease and convenience of online ordering and home delivery services, which contributes to an increase in their satisfaction and loyalty (Kimes 2011; Gavilán et al. 2021). Nevertheless, these types of services also present some challenges. They could simply result in the cannibalization of traditional sales rather than an increase in demand. Customers could substitute physical purchases for online shopping without there being an increase in either sales or financial performance (Collison 2020; Chen et al. 2022). Likewise, the profit margins and profitability of companies could decrease due to higher costs involved in an online ordering system and home delivery (Kimes 2011; Chen et al. 2022; Niu et al. 2021). Incremental costs occur, although with differences, whether a restaurant invests in its own website, fleet of vehicles and delivery staff or whether it must pay commission to delivery platforms. Another risk, as See-Kwong et al. (2017) point out, is that restaurants lose control of the food once handed over to the delivery person and the desired level of quality could be compromised, which could consequently affect customer satisfaction, sales and profitability. Therefore, although different empirical studies show a positive relationship between online ordering technologies and the sales growth of restaurants (Liu and Kim 2021; Tan and Netessine 2019), the truth is that this relationship is not always so evident and neither is it clear if it directly relates to a higher profitability for companies. The relationship between the digitalization of restaurant sales channels and their financial performance is an aspect that has not been studied in depth. One study of note, by Collison (2020), analyses a sample of visa transactions made in the United States between card owners and restaurants with home delivery services. Although the study data reveals an increase in the revenue of restaurants that offer these services, it also reflects lower profitability. For their part, Van Veldhoven et al. (2021) analyse the financial performance of a sample of Belgians who offer online ordering through an external platform. They determine that restaurants’ liquidity increases but there is no significant evidence that profitability and solvency also improve. The theoretical model by Ma et al. (2021) determines that although in practice the introduction of online ordering and home delivery can initially increase sales and revenue there are other factors, such as the cannibalization of sales and the restaurants’ capacity to meet the demand from all the distribution channels, that influence the individual profitability of each establishment, making it difficult to determine their effect on economic and financial indicators.

3. Digitalization of the Restaurant Industry during COVID-19 and Financial Performance

During the most restrictive stage of the pandemic, providing online access for clients to place their orders and collect their food from the premises or by home delivery was crucial for the sustainability of many businesses. In the digital era, not being on the internet can mean a company does not exist for certain clients or users and consequently a loss of potential revenue and profitability. In this regard, the study by Han et al. (2023) based on the theory of customer acquisition marketing and the theory of uses and gratification, shows that restaurant revenues increase as their digital visibility increases. In the context of the pandemic, Brewer and Sebby (2021) also found that restaurant consumers’ purchase intentions were positively influenced by the visual presentation of menus on websites. Corporate websites are a basic tool in the digitalization process of companies and fundamental for digital communication (García-García et al. 2021). As Saleem et al. (2022) concluded in their research, a quality corporate website with clear, concise, engaging and relevant content for the audience positively influences consumers’ purchasing decisions and consequently benefits the financial performance of the business. This digital tool enables customers to find out about the company, its products and services, production processes and any information that it is interested in making public (Lowry et al. 2014). It also makes it easier for customers to communicate with the company, and they can make suggestions or comments that could be useful for improving organizational performance. Websites are also a very valuable information channel for conducting personalized marketing actions (Kimes 2011; Safari et al. 2015), which, as a result of their impact on client satisfaction and loyalty, can influence restaurants’ profitability (Kim et al. 2019). Singh et al. (2022) empirically tested the effect of using various digital marketing tools in the restaurant sector and found that they have a positive relationship with the competitiveness of businesses. As well as having a corporate website, online ordering and home delivery services have also established themselves as effective tools to reach a larger number of consumers in a cost-effective way (Ray et al. 2019), and they were key for restaurant businesses during the pandemic. As stated by some studies (Yang et al. 2020; Türkes et al. 2021), these services allowed restaurants to continue generating revenue, cover some of their fixed costs and ensure a portion of their profitability during periods of mandatory closure and restricted operating hours. Huang and Siao (2023) explored the impact of implementing online ordering and delivery services in restaurants during the COVID-19 pandemic, concluding that these services can improve both the financial and non-financial performance of establishments. Similarly, Kim et al. (2021) demonstrated that the adoption of digital channels had a positive impact on restaurant sales in China, regardless of the restrictions imposed by the city’s location. Likewise, Neise et al. (2021) highlighted that during the initial months of the lockdown in Germany, delivery and takeout services were the most relevant factors that explained the resilience of restaurants. Moreover, once the restrictions were lifted, and restaurants were able to reopen, the reduction in seating capacity and consumers’ fear of contagion meant a substantial decrease in the influx of consumers on the premises. In this context, the demand for online ordering and home delivery services continued to be an important source of revenue for restaurants (Kim et al. 2021; Gavilán et al. 2021; Hu and Zhang 2021). In recent years, an increasing number of restaurants have developed their own websites to allow customers to place orders directly through this channel (Yeo et al. 2017). However, whether due to operational or financial considerations, many restaurants choose to outsource these services through digital delivery platforms (See-Kwong et al. 2017), such as Deliveroo, Glovo, Just Eat, or Uber Eats. Both options have potential advantages and disadvantages. On the one hand, restaurants with in-house online ordering and home delivery services must bear the fixed and operational costs of this infrastructure, which can potentially impact their profitability (Collison 2020). However, as highlighted by Du et al. (2023), providing these services autonomously allows them to have greater control over the process, including service quality, delivery time and customer relationships, which can increase consumers’ purchase intent and benefits. On the other hand, the qualitative research by See-Kwong et al. (2017) suggests that restaurant managers believe that marketing investments and delivery services provided by large delivery platforms enhance the visibility and reach of restaurants, helping them attract more customers and generate higher revenue. According to the study by Kim et al. (2021), restaurants offering services through China’s main food delivery platform benefited from the COVID-19 crisis, experiencing an increase in average monthly sales in the first quarter of 2020 compared to the same period in 2019. Nevertheless, as noted by See-Kwong et al. (2017), the commissions charged by these platforms for each order can negatively impact the profitability of restaurants, which already have very tight profit margins. This reduction in profitability particularly affects smaller restaurants as they have limited negotiation power with the platforms (Ji et al. 2022). Additionally, Tao et al. (2020) highlight the issue of restaurants losing control over service quality when using these platforms, a concern that can also have a negative impact on sales and profitability. However, Mhlanga (2022) measured the impact of these platforms on restaurants in two South African cities and determined that they do not influence meal prices or restaurant profitability. The study by Niu et al. (2021) concludes that the choice between using in-house infrastructure or delivery platforms depends on a restaurant’s ability to adjust prices to cover the cost of the service, whether in-house or outsourced. It also suggests that a restaurant prefers to use its own logistics when there is a high potential for online sales. Conversely, they will outsource services when online sales are minimal.

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