Ecommerce Industry Guide: Food & Delivery

Your guide to flourishing without fraud in the Food & Delivery industry.

Of all industries impacted by the 2020 pandemic, the food and delivery industry has experienced some of the most change – including big wins and new challenges.

When the world sheltered indoors to combat the spread of COVID-19, the food and delivery ecommerce market was transformed. Shopping and dining experiences had to be reimagined, with major grocers and restaurant chains scrambling to figure out how to serve customers in their new reality. Companies that were able to adapt their ordering and delivery processes saw a massive upsurge, while others struggled to survive.

In this guide, you’ll learn how the food and delivery industry has shifted online, what your business must do to keep ecommerce customers coming back, and how to prevent fraud from ruining your reputation … without your fraud prevention ruining the customer experience.

Part A

The State of the Food & Delivery Industry

Chapter 1

Food & Delivery Industry Overview

In the last few years, the food and delivery industry has seen explosive growth.

Chapter 2

The Rise of Ecommerce in the Food & Delivery Industry

The shift online for food and delivery businesses showed up in several ways and led to innovative services that have become commonplace today.

Chapter 3

Who Is Shopping for Food & Delivery Online?

While some industries have a narrow customer base, the food and delivery industry serves anyone who eats food and shops for groceries.

Chapter 4

Emerging Food & Delivery Ecommerce Trends

What consumers want from their online ordering and shopping experiences has changed – and it varies by generation.

Chapter 5

How Can Food & Delivery Brands Deliver Great Online Shopping Experiences?

Food and delivery brands must anticipate customer needs and provide an experience that will earn them the sale – especially with competitors on every corner.

Part B

Food & Delivery Ecommerce Fraud Risk

Chapter 6

Fraud Risk in Food & Delivery Ecommerce

Consumers have definitely become accustomed to ordering food and groceries online — and fraudsters are taking advantage of those opportunities as well.

Chapter 7

How the Wrong Fraud Approach Threatens Revenue … and Reputation

Too little fraud prevention can result in more chargebacks, while too much protection can turn good customers away.

Chapter 8

Best Practices for Preventing Fraud While Preserving the Customer Experience

Ecommerce fraud can be prevented while still preserving the all-important customer experience. The key is data intelligence.

Chapter 9

How ClearSale Helps Food & Delivery Ecommerce Businesses Thrive

ClearSale takes a managed services approach to preventing fraud, providing a real-world solution unlike anything else on the market.

Part A

Food & Delivery Industry Overview

In the last few years, the food and delivery industry has seen explosive growth. Let’s examine where the industry has been — and where it’s heading.

For the purposes of this Industry Guide, we define the food and delivery category as including restaurants, grocery stores, grocery delivery services, prepared foods, convenience stores and delivery on demand.

Foodservice

Food and beverages prepared for immediate consumption, takeout or delivery.

Online Food Delivery

Same- or next-day delivered groceries and subscription meal delivery.

Global Revenue Picture

It can easily be said that the food and delivery industry reimagined itself over the last few years with a clear “before” and “after” state of the industry.

The pandemic effect

The pandemic had a significant impact on the entire ecommerce ecosystem, jetting forward to five years of growth and more than $3.9 trillion in online sales within a single year. It also forced the food and delivery industry — one that relied heavily on foot traffic — to rethink their businesses. Depending on location, consumers were in lockdown for up to 18 months. The traditional model for food and delivery brands was no longer an option. And the shift was felt throughout the industry:

Approximately 471 million global consumers used online grocery delivery services in 2017 – that number grew to 1.2 billion by 2022.

Online grocery sales as percentage of total grocery sales jumped from 4.9% in 2019 to 7.2% worldwide in 2021.

The global online food delivery sector reached $770 billion in 2022, which can be broken down into the grocery delivery segment ($460 billion) and the meal delivery segment ($300 billion).

By 2027, the online food delivery market is expected to reach $1.4 trillion.

Meanwhile, global restaurant and food service sales grew to $34.25 billion in 2022 and is estimated to grow to $56.3 billion by 2027.

The choppy road to recovery

Now that the global market is settling down from its pandemic peak, the food delivery segment is experiencing the repercussions of the 2022 global economic downturn. Consumers have retained the online food delivery habit; however, rising inflation, supply chain disruptions, and a looming threat of recession have contributed to challenging and uncertain times for the food and delivery industry.

The Rise of Ecommerce in the Food & Delivery Industry

The shift online for food and delivery businesses showed up in a number of ways and led to innovative services that have become commonplace today.

Dining and grocery shopping reimagined

Early in the pandemic, grocery stores and restaurants were forced to close, giving food and delivery brands the option to adapt or shut down completely and wait it out.

Businesses that chose the former faired considerably better and were able to capitalize on online ordering as well as develop new options for customers.

Preparation pays off

Long before the pandemic, big box stores like Target and Walmart had been expanding to offer groceries and prepackaged meals to attract more sales and expand their reach. In addition, these enterprise retailers/grocers had a strong online presence. So, when the pandemic hit, it was much easier for them to pivot and align with same-day grocery and retailer delivery brands like Shipt and Instacart.

With its acquisition of Whole Foods, Amazon was also well-positioned to take advantage of online grocery shopping, although Amazon only accounted for 14% of the online grocery market in mid-2020. In contrast, Walmart had captured 47% of online grocery shoppers, and local grocery chains and third-party apps accounted for 34% of online shoppers.

Walmart is still the winner when it comes to grocery and retail delivery. But Shipt is holding its own with an 11% year-over-year increase in orders, and Instacart boasts similar results with double-digit grocery sales growth that is expected to continue into 2024.

Another interesting subset of online grocery delivery is the market for subscription-based meal prep services.

Meals in a box, delivered to your door

For consumers who wanted a gourmet experience despite the lockdowns, meal kit delivery services became an online sensation. Ranging from premade meals for reheating to boxed ingredients and elaborate instructions for cooking multicourse meals, this category within the food and delivery industry has taken off.

Industry analysts predict that – at a compounded annual growth rate of 14.6% – the market for prepared meal delivery will expand from $13.32 billion today to $22.99 billion in 2027. This market growth is largely being spurred on by consumers’ increased demand for subscription services.

Restaurant delivery thrives as well

Restaurant food delivery has become an industry in and of itself, especially in developing countries. The ease of entry for gig workers has created its own economy.

“Don’t assume that a purchase decision will only be made on your website. Younger consumers are persuaded through blogs, reviews, influencers, etc. Create opportunities for these generations to do their research.”

Rafael Lourenco,
ClearSale Executive Vice President & Partner

User-friendly apps with tech-enabled driver networks, such as Uber Eats and DoorDash, created a new category within the industry that remains today. Uber Eats generated about $10.9 billion in 2022, surpassing its competitors Delivery Hero and DoorDash, with worldwide revenues of about $9.2 billion and $6.6 billion, respectively.

Even on the road, travelers are ordering food for delivery, and delivery companies have taken steps to break down language barriers. For example, Uber has partnered with Rosetta Stone to offer free language lessons through its app to Uber and Uber Eats drivers.

Who Is Shopping for Food & Delivery Online?

While some industries have a narrow customer base, the food and delivery industry serves anyone who eats food and shops for groceries.

Younger generations are leading the charge when it comes to online shopping. And, although nearly all consumers were forced to purchase groceries and food service items online during the pandemic, we are seeing that certain demographics have continued beyond the pandemic.

Millennials love meal kits

Once a luxury enjoyed mostly by high-income earners, meal kit subscriptions have become somewhat commonplace. However, millennials are power shoppers and should be a target for meal kit companies. Of those millennials interested in meal kits, 57% are female and 43% are male.

Emerging Food & Delivery Ecommerce Trends

What consumers want from their online ordering and shopping experiences has changed – and it varies by generation.

For the purposes of this Industry Guide, we define the food and delivery category as including restaurants, grocery stores, grocery delivery services, prepared foods, convenience stores and delivery on demand.

Trend

Third-Party Food Delivery

Third-party delivery allows customers to order different types of meals from many different restaurants. Gen Z consumers are four times more likely to utilize third-party food delivery aggregators than baby boomers.

As more restaurants continue to use third-party delivery platforms, it expands delivery footprints and operating hours.

The challenge is that those restaurants lose control of the service level provided to their customers. The wrong platform partner can actually result in dissatisfied customers and increased chargebacks.

Trend

In-House Platforms

As third-party food delivery service providers are expanding, restaurants are also setting up their own in-house food delivery management platforms.

Why? Because it allows them to take back some of the control over customer service. This is also the case with grocers. Many of them have proprietary delivery services, which allows for better management of the customer experience.

Another benefit? They can cash in on the 55% of Gen Z and 60% of millennials who have more delivery apps than streaming services.

Trend

Ghost Supermarkets & Ghost Kitchens

Large grocery chains have begun opening ghost supermarkets in urban areas. They aren’t open to the public for shopping but are available for online customers. The result is faster and more convenient fulfillment.  

Similarly, ghost kitchens are restaurants that offer only delivery – no physical dining space and no pick-up services. Other names for these operations include dark kitchens, cloud kitchens and virtual restaurants.

Globally, the ghost kitchen market is valued at over $56 billion and continues to grow.

Trend

Membership Markets

Online wholesale grocery stores like Thrive Market offer organic, non-GMO products at a discounted rate in exchange for a membership fee.  

Even better, Thrive Market guarantees that its annual membership will pay for itself. So, if a member pays the $60 fee and only saves $40, Thrive will give the customers a $20 credit after they renew.

Thrive Market and other similar membership markets appeal to all of the generations mentioned in this guide; however, Gen Z still accounts for most of its audience.

Trend

Social Commerce

Social commerce has become more popular in the food and delivery industry. In 2022, U.S. social commerce sales was $51.8 billion, and it’s expected to increase to $145.2 billion by 2028. Just like with most online food and delivery trends, Gen Z and millennials account for most the most social commerce consumers. 

Customers simply use the in-app shopping functionality within popular social media platforms such as Facebook, Instagram and TikTok. This allows for the ability to shop through posts where a product is tagged in a photo or video.

Trend

Trend: AI-Enabled Food Shopping

Modern Restaurant Management estimates that nearly 40% of online ordering is done using voice search over smartphones. Natural-language voice command technology and AI assistants improve accuracy and ensure that customer orders are correct.

How Food & Delivery Brands Deliver Great Online Shopping Experiences?

Food and delivery brands must anticipate customer needs and provide an experience that will earn them the sale – especially with competitors on every corner.

Food and delivery businesses have had a few years to figure out how to provide a superior customer experience. Brands should know that expectations for great online shopping experiences have only heightened.

Here are 6 ways that food and delivery brands can surprise and delight customers.

Easy Registration and Social Media Sign-In

Customers need the ability to register and log in quickly to reduce cart abandonment – a common challenge with ecommerce apps. Regardless of where the customer is signing in – website, app, social media channel – the process should be simple and consistent.

Filter and Sorting for Easy Navigation

Regardless of the online presence, navigation should be designed to make the shopping and/or selection process easier. That means search functionality, filtering, multiple category levels, favorites, repeat selections, curated suggestions, and other types of navigation.

On food delivery apps, customers should be able to view order history, most ordered, current discounts and deals.

Real-Time Delivery Tracking

At a minimum, food delivery apps should provide real-time order placement and delivery tracking that includes order status at several stages — including order acceptance, preparation, and dispatching.

In addition, customers should be able to reference a live GPS map within the app that shows where their delivery person is at any time.

Not only does this satisfy customer expectations, but it also helps prevent refunds and chargebacks related to nondelivery.

Range of Secure Payment Options

Payment options must coincide with the customer base – meaning that food and delivery brands must offer a full range of options. This includes credit and debit card payments, digital wallets, and cash on delivery. By offering online payments, companies can sell more and receive payment faster.

Excellent Customer Support

Customer support is key for food and delivery brands that want to anticipate issues and prevent chargebacks. Features like live chat and other types of custom chatbots can engage customers and address their questions. In addition, in-app chat support improves communication between customers and delivery personnel.

Loyalty Programs

For food delivery and grocery delivery apps, loyalty programs play an important role in increasing customer retention and brand loyalty. Customers who get deals and discounts on their food are more likely to order again.

Apps should also provide multiple membership plans that offer a range of perks — from free delivery to special discounts to redeemable points.

PART B

Fraud Risk in Food & Delivery Ecommerce

Online food and delivery brands have seen a tremendous increase in fraud since the beginning of the pandemic.

During the pandemic, food and delivery businesses that previously accepted cash and/or had no online presence were left no choice but to make the shift online to survive. That transformation was hard enough – meaning that many companies didn’t have the time or experience to anticipate how quickly fraudsters would take advantage of this new ecommerce playground.

Unlike other online industries, food and delivery retailers must deliver within hours. That gives little time to make decisions about the validity of orders and increases the likelihood of either declining a good order or approving one that is fraudulent. Profit margins in the food and delivery industry are extremely tight already, leaving little room for losses related to fraud.

Food and delivery businesses with poor or nonexistent fraud prevention tactics risk being subject to a variety of fraud schemes:

Friendly Fraud

As soon as online grocery and food delivery apps like Instacart started making it easy to get groceries or order in food from restaurants, it took almost no time for the friendly fraud to begin.

Friendly fraud happens when a customer places an order and, subsequently, requests a refund or files a chargeback. While some of these requests are legitimate, in many cases, it’s a less-than-honest customer who just wants free food.

Companies like Instacart, Postmates, DoorDash and others have Customer Care teams to address bad experiences with a delivery, and an increasing number of customers have been looking for ways to cheat the system. Most often, the complaints included claims that customers received the wrong items, damaged items or poor replacements, or they claimed to be overcharged.

Friendly fraud and related scams can have catastrophic results for food and delivery businesses. Many of them suffer the same fate – being forced to close their doors after fighting against numerous fraudulent disputes.

Employee Fraud

A common type of fraud that emerged within the food and delivery industry happened between employees and their employers. For example, a company’s delivery drivers used location spoofing to trick delivery companies into thinking those drivers were in higher-traffic, higher-paying areas, allowing them to get more lucrative deliveries.

This tactic hurt businesses in two ways. First, they were paying more to delivery drivers who were lying about their location. Another issue stemmed from the unhappy customers who expected a fast delivery and had to wait longer. This led to more chargebacks.

Finally, some drivers even used location spoofing to make it look like they had tried to deliver customers’ orders, claiming that the customer never answered the door. Again, this cost companies because they had to refund orders and/or deal with chargebacks.

Account Takeover (ATO) Fraud

Account takeover (ATO) fraud has increased across all industries since the beginning of the pandemic, but it has hit the food and delivery industry in several ways.

Fraudsters use phishing and malware to gain access to legitimate customers’ accounts, changing credentials and then making fraudulent purchases.

Fraudsters also use food delivery from online orders to test the validity of stolen credit card details purchased on the dark web.

We’ve also seen an increase in triangulation fraud in the food and delivery industry, where fraudsters place orders with food delivery services and turn those orders into cash.

The process goes like this:

  • Fraudsters place an order with a food delivery service.
  • They then advertise deep discounts with these food delivery services on social media.
  • Customers send the fraudsters their order and pay with Cash app, Venmo, PayPal, gift cards, and other hard-to-trace methods.
  • The fraudsters are often in another country, so they are hard to catch.
  • Meanwhile, social media users get their meal at a deep discount and don’t realize they are involved in the use of stolen credit cards.

Curbside Pick-Up Fraud

Buy online, pick up at curbside (BOPAC), and buy online, pick up in-store (BOPIS) exploded during the pandemic and revolutionized the food and delivery industry. So much so, they have become post-pandemic “business as usual” practices.

At the same time, businesses have had to be wary of fraudsters who learned which schemes are most successful.

A fraudster with a stolen credit card may need to only supply a legitimate billing address at curbside to avoid suspicion. If the billing address is local, that's all the better for establishing the pick-up person’s credibility. Meanwhile, orders need to be filled fast, which leaves little to no time for manual review or to consider the legitimacy of the order. The result: Scammers may get away with their heists before anyone even suspects there might be a problem.

Refund Abuse

Customers place orders through a restaurant’s website or app – or even through a third-party delivery service such as Uber Eats or DoorDash. The food is picked up curbside or delivered, and payment is handled online. As a result, the customer doesn’t come into the restaurant, removing the business owner’s ability to validate that the order is correct, that the customer is satisfied with the food, and that the payment was handled correctly.

All customers need to do to initiate a refund is to click a button on their screen or smartphone – no interaction with the owner or any restaurant employee is needed. This can lead to many customers capitalizing on the opportunity to get a refund without realizing that what they’re doing is fraudulent.

And because there has been little to no direct interaction with the customer, these refunds are difficult to contest. A customer can claim that the order was wrong, somebody else took the order or the order was never delivered — and the restaurant usually can’t prove otherwise. If they push back too hard and refuse the refund, the business risks upsetting the customer and a potential reputation issue if that customer takes to social media to complain. Not to mention an even MORE expensive transaction if the customer decides to file a chargeback!

How the Wrong Fraud Approach Threatens Revenue … and Reputation

Fraudulent transactions can have a tremendous impact on the bottom line for food and delivery ecommerce brands. Too little or too much fraud sensitivity can be very costly in chargebacks and false declines. Recent consumer behavior analysis shows that shoppers are unforgiving when they’ve been wrongly declined.

Food and delivery businesses have to walk a fine line. Before 2020, most companies had considerably more face-to-face interaction with customers. If an order wasn’t right, the customer could talk directly to a restaurant server, a grocer or even a manager. But today, the potential for both chargebacks and false declines creates a precarious challenge across the industry.

The cost of chargebacks to travel merchants

Before the pandemic, food and delivery brands had some of the lowest chargeback rates at barely 0.01%. Customers may have used credit cards to pay for food and meals, but issues with service or quality were handled on the spot and onsite.

Since the introduction and virtual takeover of ecommerce in this industry, chargebacks have increased dramatically. The lack of face-to-face contact has made it all too convenient for customers to dispute charges for a multitude of reasons – from their order never arriving to their order being incorrect.

As a result, food and delivery companies are forced to investigate and dispute chargebacks or lose revenue to refunds and chargeback fees. Too many chargebacks can create even more trouble.

“Lost revenue isn’t the only risk, however,” says Eduardo Gerolamo, ClearSale Global Business Analyst. “The industry standard threshold for chargeback rates is 1%. When merchants exceed that rate, their payment processing partners will likely place them into a monitoring program with associated fees, as well as timelines for reducing chargeback rates.”

Eduardo Gerolamo
ClearSale Global Business Analyst

The longer a company is in a monitoring program and the higher the chargeback rate, the more money in fees they’ll incur.

The cost of false declines

False declines occur when a legitimate transaction is denied by the business, usually due to excessive fraud filters or auto-declines on the company’s ecommerce platform.

Not only do consumers have to suffer the embarrassment of having their credit card declined, but they also have to investigate whether something is wrong with their card – not exactly the seamless experience these customers were looking for.

False declines weaken brand reputation

The biggest lifetime cost of false declines comes from angry customers who not only take their business elsewhere, but also take to social media and complain. That’s where the real damage is done to online food and delivery brands. Gen Z, millennial and Gen X consumers are heavy online food and delivery users, with the former two generations being more active on social media. A bad review that goes viral can sink a restaurant or delivery service and seriously impede sales.

Consumer behavior and false declines

Proving the need to be wary of false declines, an American Express study found that consumers tell an average of nine people about their good experiences, but they tell 16 people about the bad. And the rule in customer service is that consumers are much more likely to talk about their negative experiences than their positive ones.

What’s truly telling is the data from ClearSale’s 2021-2022 Global Ecommerce Consumer Behavior report, which showed that 41% of consumers will never return to a site after a false decline, and 32% say they’ll complain about their experience on social media.

The picture becomes more troubling when we look at consumer attitudes toward false declines by generation.

Without question, false declines drive customers away and can ruin a brand’s reputation.

Best Practices for Preventing Fraud While Preserving the Customer Experience

Ecommerce fraud can be prevented while still preserving the all-important customer experience.

Food and delivery businesses need to have a deep understanding of their customer base – including all segments and generations – if they want to balance fraud prevention and customer experience. Here are some best practices that achieve that goal.

Understand which segments are higher-risk

Who is most likely to be a concern? What type of data can you feed into your fraud prevention algorithm that will flag those orders for a closer look?

Compare risk and revenue

For every fraud prevention tactic, evaluate how much of an inconvenience it will create for customers. They may be willing to provide additional information – within reason – if it means a safer shopping experience. Further, food and delivery ecommerce brands should review their current approval rates to get a clear picture of how well they’re balancing risk with revenue.

Get personal with customers

How well do you know your customers? The more food and delivery ecommerce brands track consumer shopping patterns and behavior, then the easier it will be to identify potential fraud.

Be wary of automatic filters

Ecommerce platforms have the best intentions to keep an online business protected from fraud, but blindly turning on filters as if every customer and every transaction is the same is a recipe for false declines. Be very cautious of automatic filters, especially when applying multiple filters, as they can either cancel each other out or double up to the point of declining good orders.

It’s easy to think that fraud filters will provide more peace of mind, but they’re more likely to turn away good customers.

Partner With a Trusted Fraud Protection Solution Provider

The most effective way to prevent fraud is to work with an expert partner that has the expertise and experience to identify, evaluate and prevent fraud from happening. For food and delivery brands, that partner should have a global view of fraud and understand the most current tactics used by fraudsters.

How ClearSale Helps Food & Delivery Ecommerce Businesses Thrive

ClearSale takes a managed services approach to preventing fraud. We combine advanced statistical and artificial intelligence with the world’s largest team of specialized fraud analysts to deliver a balanced solution unlike anything else in the ecommerce fraud prevention market.

Real-Time fraud scoring

At ClearSale, we utilize real-time fraud scoring that assigns a fraud score to each received order, based on each client’s threshold. This helps increase the number of automatically approved orders, it identifies orders that are clearly fraud, and it flags orders that are suspicious enough to be reviewed. Having both the most assertive fraud scoring with the fastest response time is crucial to avoiding chargebacks.

Interactive client dashboard

We help companies preserve customer experience and brand reputation by never auto-declining suspicious orders – instead, we flag them for a secondary contextual review. And because our client dashboard is so intuitive and easy to use, your team can easily waive the review and approve orders that you know are valid.

With ClearSale, food and delivery ecommerce brands can rest assured that their revenue and their reputation are covered.

Here’s more about what ClearSale offers food and delivery ecommerce businesses:

Simple Ecommerce Integration

Our fraud protection solutions quickly integrate with all major ecommerce platforms via an easy-to-install plugin.

Specialized Service

We offer flexibility for customizing procedures and call scripts.

Near-Immediate Order Approvals

Even our human analysts are fast.

Comprehensive Protection Against Fraud

ClearSale’s Chargeback Insurance program offers 100% guaranteed coverage of all fraud-related chargebacks.

The Highest Approval Rates on the Planet

Our system will never auto-decline a suspicious order.

Support for Online Retailers of All Sizes

Our enterprise solution consists of everything from augmenting your in-house fraud teams, to fraud consulting services, to full-scale, end-to-end solutions. We customize your experience based on the needs of your organization, staffing bandwidth and business goals.

ClearSale is a trusted fraud prevention partner in the food and delivery industry. Our clients have seen impressive results after partnering with us, including:

  • 99%+

    approval rates.

  • 80%

    reduction in false declines.

  • 90%+

    instant decisions.

  • 99.6%

    decisions within 24 hours.

  • 98%

    drop in chargeback ratio.

  • 100%

    customer satisfaction.

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