The Determinants and Barriers of Outsourcing Third-Party Online Delivery: Perspectives of F&B Entrepreneurs in Malaysia

Abstract

Online food delivery and food delivery apps have continued to grow exponentially in Malaysia. Fundamental aspects in entrepreneurship of the food and beverage industry, such as knowledge and attitudes towards online food delivery services being outsourced, have yet to be extensively recognized. The present study intends to explore this area of subject matter within the Malaysian context by using behavioral reasoning theory. The actual interview for this study took place in May 2020, and 14 interviews had been carried out. All interviews were audio-recorded with the consent from the respondents for reference purposes and subsequently transcribed verbatim. The transcripts were then checked against audio records. Content analysis was used to analyze the transcripts by focusing on n frequency counts and coding of themes. A qualitative method has been adopted by employing an interview to elicit the perspectives of entrepreneurs from Sarawak on the determinants and barriers in outsourcing online food delivery services. Results indicate that high potential in revenue, broad exposure to reach customers, convenience, and provision of job opportunities are the four factors that determine to outsource. In contrast, food quality maintenance, trustworthiness, high cost incurred, and consumer technology resistance are four factors that serve as barriers towards outsourcing third-party online delivery.

1. Introduction

Coronavirus (Covid-19), and social-distancing are three phrases that have permanently imprinted into the current social lexicon. This pandemic had resulted in long-term impacts on the food and beverage (F&B) industry across the world, including Malaysia. Restaurant operators have braced for a significant effect on the annual revenue, as some have expected a drop of as much as 80 percent over the next couple of months as tourists and locals avoid public places due to the outbreak (The Star Online, 2020). Although the pandemic is unprecedented, the crisis has been a catalyst of change in the society. The current lifestyle among the people has diversified from the expected behaviors and attitudes, as food delivery service has become a prominent and essential industry. Consumers are now becoming more comfortable with food delivery through online services and apps due to the restricted movement and “forced trial” of distant social engagement during the pandemic. This higher level of lifestyle comfort has expanded the more intricate processes and mechanisms involved in food delivery services.

One of the most noticeable changes has been the surge of online apps to order food delivery services. In the last decade, the online food delivery business in Malaysia has expanded with monumental success from companies such as Dahmakan, Food Panda, GrabFood, and Honestbee, among many others. The revenue in online food delivery has amounted to US$192m in 2020, which is expected to show an annual growth rate (CAGR 2020–2024) of 17.9%. With that massive growth, food delivery is set to become a $370 Million industry by 2024. Due to the thriving food delivery service, consumers can enjoy the benefits of a new and more convenient form of restaurant delivery that takes place through the Internet. Consumers can compare prices, delivery times, menus, and reviews from other customers in any food delivery apps.

On the other hand, foodservice operators are challenged to adjust to the behavioral changes that technology has brought to modern society. Consumer preferences and demands have transformed, whereby the dependence on technology for most products and lifestyle consumption has increased (Lee & Kim, 2019). Thus, foodservice operators will need a seismic shift in operations, as well as in the overall business. As the need for food delivery increases with the emergence of numerous food delivery apps and services, small companies begin to outsource some of the business functions, such as food delivery service. This business strategy has previously been adopted only by medium to large companies. Besides, the increase in outsourcing to third-party food delivery among small businesses is also due to business owners and managers these days having an awareness and entrepreneurship mindset for the value of this business strategy towards the consumers and the business. However, the complexity in the outsourcing process can be a drawback for businesses, as the potential economic returns might not be significant enough to outweigh the effort and time required. This issue is even more apparent when the COVID-19 pandemic caused nations to go into lockdown, including Malaysia, which has significantly impacted the economy.

Despite the rising interest in outsourcing within the foodservice industry, there are a substantially insignificant number of researches available in the respective field. Prior research has only investigated the insights and the factors influencing decisions to engage online food delivery service providers only within the Klang Valley in Malaysia from the perspectives of business owners. Sarawak, the largest state in Malaysia, has been gradually catching on with the food delivery service industry via online apps, such as Food Panda. Budding entrepreneurs within that state begin to develop and expand similar online delivery services for food, such as Planet Kuching, Lyfe, MoreFun, who have currently achieved similar quality ratings as GrabFood and Food Panda. Thus, the purpose of this study is to address the empirical and contextual gaps of the industry by exploring the determinants and barriers in engaging third-party online food delivery service providers in Kuching, Sarawak. Specifically, this study aims to determine the extent in response by food operators towards transforming the business models through outsourcing post-COVID-19 through a qualitative approach. This study employs the Behavioral Reasoning Theory (BRT) as the theoretical basis to identify determinants and barriers in outsourcing to third-party delivery, which would be significant in recognizing the attitudes and behaviors of F&B owners towards outsourcing and other networking-based delivery applications technologies.

2. Concept

2.1. Outsourcing to Third-Party Delivery

Outsourcing can be referred to as a business practice by a company in hiring a third party to perform tasks, handle operations or provide services for the company. This business practice had become a prevalent interacting mechanism and business function, especially for the restaurant industry in recent years. Many restaurants worldwide had opted to partner with a third-party delivery service as a form of culture. Food Panda, Grab Food, and Uber Eats was the most common online delivery service companies that represented the extensive range of attractive and innovative web-based services for the food and beverage (F&B) industry.

One of the most appealing functions of an online food delivery system was allowing the consumers or subscribers to create profiles within a confined system that guaranteed security to view or share information. This safe environment stimulated virtual connection and interaction with other like-minded people of similar tastes and interests in a pragmatic manner. Moreover, the system within the applications would compile and organize information based on an algorithm that would learn the priorities and needs of the consumers. These data would be stored and offered to different restaurants that matched the pre-set preferences for customers to place an order, which saved time and effort. Over the years, these systems had become an efficient avenue that made the processes of ordering food effortless for customers. Due to the convenience and control in the pace of ordering, as well as limiting personal interactions, online food delivering applications gradually became one of the most important networking sites around the world with over a billion users (Kimes, 2011).

2.2. Theoretical Considerations

The Behavioral Reasoning Theory (BRT) was adopted in this study as the basis to identify the determinants and barriers in using third-party online delivery. Numerous prior studies had examined BRT to explore the factors for consumers to adopt the technology (San-Martín et al., 2015; Wang et al., 2015; Lian & Yen, 2013; 2014). Besides, this theory was applied in studies on understanding innovation adoption (Chatzidakis & Lee, 2013; Claudy et al., 2015; Claudy et al., 2013; Westaby et al., 2010), whereby results yielded that determinants and barriers for behavior and intention in adoption can be investigated within a single framework. Studies in the field of social psychology (Westaby et al., 2010) had also stated that determinants and barriers to technology adoption might not contradict each other. Nonetheless, none of these studies had focused on the perspectives of the entrepreneurs. Hence, this study would contribute to new empirical evidence by examining the role of determinants and barriers for entrepreneurs to engaging in third-party online delivery services within a single clear framework from BRT.

2.3. ‘Reasons For’ and ‘Reason Against’

According to BRT, context-specific reasons served as the essential linkages between the beliefs, global motives, intentions, and behaviors of the consumers (Westaby, 2005b). These reasons were consistent with the theory of explanation-based decisions (Pennington & Hastie, 1988) and the reasons theory (Westaby & Fishbein, 1996). Reasons were defined as “specific subjective factors that people use to explain anticipated behavior and can be conceptualized as anticipated reasons, concurrent reasons and post hoc reasons” (Westaby, 2005b, p. 100), which were conceptually distinct from beliefs. Westaby (2005b) had further theorized reasons under two broad dimensions – ‘reasons for’ and ‘reasons against’ performing a behavior. The ‘reasons for’ and ‘reasons against’ performing the behavior were theoretically distinctive and had been conceptualized as “to subsume pro/con, benefit/cost, determinant/barrier, and facilitator/ constraint” (Westaby, 2005a p. 570). Each individual always searched for reasons in making sense of the world and in justifying their behavior. Hence, the usefulness of ‘reasons for’ and ‘reasons against’ in predicting attitude and behavior remained intangible at a larger scale of society. Nonetheless, the importance of eliciting ‘reasons for’ and ‘reasons against’ outsourcing within this study was crucial to gain insights into the attitudes, intentions, and behaviors among the entrepreneurs.

3. Propositions Development

Although numerous studies had been carried out on online food and grocery delivery, the specific views of F&B owners towards third-party online food delivery service were still limited, specifically with theoretical support (Yi et al., 2018). Besides, the empirical research to date had yet to investigate the determinants and barriers of using online food delivery services. As studies on online food delivery service were predominantly carried out in the contexts of western society, the perception of F&B owners towards third-party food delivery remained largely unanswered within the context of Malaysia. Thus, this study intended to investigate and elicit specific determinants and barriers about the applications for third-party food delivery among Malaysian entrepreneurs as a platform for future studies in this area of research interest.

According to BRT, reasons were powerful determinants of behavior. Hence, two propositions were developed in this study.

P1: There will be specific descriptions of ‘reason for’ outsourcing to third party online delivery by F&B owners.

P2: There will be specific descriptions of ‘reason against’ outsourcing to third party online delivery by F&B owners.

4. Methodology

Sarawak had been one of the developing states in Malaysia that strived to become an industrialized city by 2020. Hence, Sarawak became a potential investment hub that offered a lucrative opportunity for multi-businesses and mega projects (Malaysian Investment Development Authority, 2019). These investments from various manufacturing sectors, including the food and beverage (F&B) industry, had started to adopt new technologies to increase the production outcome. This emerging economy in Sarawak was, therefore, an aspect that this study had chosen to investigate from the perspective of entrepreneurs on the determinants and barriers in outsourcing to third-party online delivery. Besides, this study was interested in gathering the thoughts of these entrepreneurs in the thriving F&B industry.

This study had employed personal interviews as a qualitative approach to assimilating in-depth information within the exploratory nature of this study (Perry, 1998). Therefore, this study adhered to the concept of saturation in data collection and analysis instead of data generalizability (Strauss & Corbin, 1998). A sample size of a minimum of 10 respondents was predetermined at the outset to ascertain if similar themes started to replicate with additional interviews (Charmaz, 2006). The respondents were selected through purposeful sampling to ensure the sample represented the population of F&B owners in Sarawak, Malaysia (Onwuegbuzie & Leech, 2007). These respondents consisted of business owners, restaurant managers, operators, and supervisors who were knowledgeable in business operations with a clear vision of the direction of the respective business.

A pilot study was carried out on two people on separate occasions to ensure the respondents understood the interview questions in providing accurate and relevant responses (Dicicco-Bloom & Crabtree, 2006). The interview was conducted using a funnel approach, whereby questions that elicit a broad perspective would be asked first (Churchill & Iacobucci, 2005; Hair et al., 2006). Some of these general questions included ‘What comes to mind when you think about outsourcing’ or ‘Could you tell me your perspectives on the online delivery service.’ The interview would gradually narrow down to become more specific to the queries (determinants and barriers) and the reasons behind the practice of outsourcing delivery services to third-party vendors.

The actual interview for this study took place in May 2020, and 14 interviews had been carried out. The interview sessions usually began with a short introduction of this research, followed by an ice-breaking session. All interviews were audio-recorded with the consent from the respondents for reference purposes and subsequently transcribed verbatim. The transcripts were then checked against audio records (Kurasaki, 2000). Content analysis was used to analyze the transcripts by focusing on n frequency counts (Wilkinson, 2000) and coding of themes (Ryan & Bernard, 2000). The themes on determinants and barriers in the transcripts were first coded independently by three coders before aligning together to gauge the inter-coder agreement (Braun & Clarke, 2006).

5. Results and Discussion

Table 1 displayed the demographic profile of all 14 respondents in this study. On the other hand, Table 2 presented a list of determinants and barriers in outsourcing to third-party online delivery through content analysis. The four factors that emerged as themes for determinants were high potential in revenue, broad exposure to reach customers, convenience, and provision of job opportunities. On the other hand, the four factors that emerged as themes for barriers were food quality maintenance, trustworthiness, high cost incurred, and technology resistance among consumers.

Table 1: Demographic Profile

Table 2: Themes of Determinants and Barriers

5.1. Determinants

Higher potential in revenue was found to be a prominent reason in decisions for outsourcing third-party online food delivery. Numerous respondents had indicated that chances to increase business revenue would be higher through outsourcing food delivery services by sustaining the demand capacity and increasing the sales turnover. Outsourcing food delivery created an additional stream of income as the space and number for people to dine-in at a restaurant could be limited. Hence, outsourcing to third-party online delivery service providers would offer the restaurant an alternative income avenue by having dedicated delivery services that can ensure the food reached a broader scope of consumers due to physical limitations.

With outsourcing services, the number of orders and source of revenues is no longer solely contributed by the dine-in business. We actually tend to earn more than what we need to pay for the online delivery service providers, especially in this Covid-19 pandemic and Movement Control Order (MCO) period. After all, it is quite worthwhile with the increased sales turnover (Interviewee 07).

The increased exposure that allowed the restaurant to reach out to a broader market was an apparent determinant towards outsourcing food delivery to third-party service providers. Online food ordering and delivering platforms were deemed an efficient and easy method in promoting the brand or the products within the F&B industry. Chances for the consumers to access and explore the brand or products from a specific restaurant would be high, which provided consumers with options based on preferences and interests when ordering food. Thus, business establishments would subscribe to third-party online delivery platforms, including websites, social media, and printed materials that occasionally provided discounts for the consumers based on the marketing theme.

Furthermore, respondents decided to collaborate with online food delivery service providers to reach a broader range of customers. From the interviews, the choice to outsource food delivery service was mainly to expand the customer base to potential consumers who do not live or work near the restaurant. By capitalizing on the third-party online food delivery services, the restaurant could reach out to customers in different geographical locations. Thus, customers who did not want to travel or did not have the means of transportation could enjoy the food from the restaurant by using third-party service providers to order online.

I tend to accept customers from wider extent range. If without third-party delivery, I can only accept customers’ orders within my area coverage. Nowadays, I will have about 3–4 riders to help deliver food to different areas for me, more quickly, efficiently, and market-wise (Interviewee 09).

As exposure increases, we tend to reach out to wider customer reach, not only within the Kuching area. The third-party service providers will deliver to wherever the order is accepted (Interviewee 02).

The convenience in this business practice was one of the primary reasons for most entrepreneurs to subscribe to third-party online food delivery service providers. Respondents had mentioned that outsourcing food delivery services to third-party were found to be more convenient than establishing an in-house delivery service as most of the responsibilities could be delegated to the service providers. By outsourcing delivery services, entrepreneurs were only required to prepare the food for the delivery riders to pick up. Moreover, the entrepreneurs would not need to create a specific system to order food online or hire additional employees for food delivery services.

I will only take orders, deal with customers, including explaining to them regarding delivery charges that will be charged, no limit minimum purchase. If order success, I will order third party to let them in charge of the delivery process (Interviewee 03).

After they (third party delivery) finish delivery, they will inform me. As lack of partnership, I cannot do so many things at one time, including delivery; if got third party delivery, my life will be much easier (Interviewee 11).

Outsourcing delivery lets me focus exclusively on the tangible things I provide to customers as no burden of having to handle delivery (Interviewee 01).

The provision of job opportunities was also found to be a determinant in the decision to outsourcing third-party food delivery. Entrepreneurs’ decision to outsource the food delivery to third-party service providers would help individuals affected by the MCO in generating income. An online survey conducted by the SME Association of Malaysia (SME Malaysia) had reported a job slash of 25% throughout the entire nation, which can potentially result in 2.56 million people being jobless due to MCO. Individuals who were affected would face a tight cash flow or no income throughout this challenging period. Nonetheless, food delivery companies were employing more “riders” to cope with the sudden increase in delivery orders during the Movement Control Order (MCO). Hence, those who may need temporary work opportunities were able to join the recruitment community for delivery riders and generate income to sustain themselves and their families.

I think this outsourcing food delivery service can open up new opportunities by assisting those people to secure a job and get extra income. Lots of people getting jobless, no working opportunities, especially during this catastrophe situation, so this third party delivery service can help them to at least earn some extra money, and to pay for their basic necessitates such as petrol, food, etc. (Interviewee 04).

As F&B owners, we shall help each other to get a win-win scenario (Interviewee 05).

5.2. Barriers

One of the most significant reasons that hindered the entrepreneurs from outsourcing third-party delivery services was the concern for the food quality. By outsourcing food delivery to external providers, entrepreneurs found that the control over the food quality would be compromised. Moreover, the risks in the taste of the food being affected by physical conditions, such as delay in delivery and changes in room temperature (during the delivery process), could reduce the quality of the food.

Food quality is our first reason as the product requires to be chilled and not encouraged to be under the hot sun. This is our top priority to ensure product is fresh until customers’ doorstep (Interviewee 13).

It is utter important of keeping our product chill even during delivery. We want to make sure product is fresh all the way to reach our customers (Interviewee 08).

Another significant reason that contributed to the decision by entrepreneurs to not outsource to third-party online delivery service providers was found to be trustworthiness. Food-delivery services had been a growing business that transformed the way people place an order for, make payment for, and receive a meal. Hence, there were points of contact between an order made and prepared by the restaurant to being delivered to the customer. Nonetheless, the delay in processing the payment by the respective provider, delivery rescheduling, lack of communication, and disregard for the customer were some of the complaints made by consumers during the Covid-19 pandemic. Besides, food safety had also become a priority during the outbreak, whereby customers needed to feel safe and comfortable to order from a restaurant. Any extra points of contact could make consumers feel unsafe. Additionally, respondents had also doubted the standards for safety in food delivery were followed, especially during the MCO.

This is very important as our product requires proper handling so as to keep the freshness before it reaches customers (Interviewee 06).

As an owner, we are also scared to let the third party do delivery in this pandemic season, many things that we need to concern especially hygiene issue. Besides, I don’t know whether they will deliver the products to the correct customers or not (Interviewee 10).

Too many negative comments are associated with some of the food delivery platforms, and there is no way for me to know what is going to happen or what type of experience my customer is going to encounter (Interviewee 13).

Some respondents had suggested insufficient resources for the business operation as a reason not to outsource to third-party delivery service providers. Some of the entrepreneurs refused to pay the commission when subscribing to the delivery providers. Every order that the customer made through the third-party food delivery service provider would be charged with a commission to the entrepreneurs. Thus, the cost and business revenue remained a significant factor in deciding to outsource the delivery services. These entrepreneurs found minimal value to the approach of third-party online food delivery service due to the extra cost that may incur.

Cost of outsourcing will affect the profit margin of our sales. Hence, it is important to draw an equation between price and outsourcing service (Interviewee 08).

For a small business like us, we do not afford to hire a delivery person to distribute the food (Interviewee 10).

Resistance to technology among customers was also an important reason that contributed to the decision of not outsourcing to third-party online delivery service providers. Some individuals may not be familiar with the technology, especially those that require the latest software in mobile phones or computers. Some individuals would also be suffering from technology anxiety, which could have a direct impact on the adoption of online food ordering systems as customers may be reluctant to place orders through the Internet. As previously mentioned, ordering food online would limit personal interactions, which some customers may find undesirable, especially among those who preferred to have more personal touch to enhance the experience of food intake. Thus, people who value interactions with employees in restaurants would be reluctant to use the self-service approach of online food delivery service. Business owners within the food industry should address these issues by identifying the system that could be used without the presence of physical assistance but would still enhance the experience of online food delivery services (Kimes, 2011).

Undoubtedly, consumer technology resistance plays an important role in the success of an innovation, can certainly inhibit or delay the online food applications adoption (Interviewee 08).

Some residents of rural areas are still reluctant to adopt new technology and they still prefer to go to restaurant to order than using food delivery apps (Interviewee 06).

I found out that consumers, especially baby boomers, will adopt the online food applications technology if and only they got influence from their family members, siblings, or friends; if not, they won’t bother to use the applications at all (Interviewee 13).

6. Implications and Conclusion

Food delivery services and applications with access to real-time location-based data have become an essential platform to connect individuals and organisations effectively. Unlike conventional food delivery strategies, food delivery apps utilize interactive images that result in a more informative and representative context (Jang et al., 2019). At a personal level, customers would find the apps a convenient and popular platform to choose and order food from a large variety of restaurants in the comfort of their own homes. From the managerial point of view, the growing trend in food delivery and ordering apps has allowed more business opportunities among the food joints. Food delivery applications, such as Grab Food, Food Panda, and Dahmakan, serve a broader target audience, increasing the exposure of the brand name for any F&B business. Hence, there has been a significant increase in restaurants, including small businesses that subscribe to third-party food delivery services and applications in marketing the products and communicate with consumers. This service platform has become part of society’s necessity, which yields the desired outcome of increased revenue, especially during a pandemic.

Nonetheless, this study has been able to identify two implications within the prospect of outsourcing third-party online food delivery. Firstly, the four determinants that are elicited based on the theoretical foundation of BRT demonstrate the attitude of F&B entrepreneurs in Sarawak towards outsourcing. The results provide a better prediction and explanation as to the reasons for the attitude being formed. From the qualitative data, higher revenue potential, wider exposure in reaching out to customers, convenience as well as provision for job opportunities have the most significant impact on the decision to outsource to third-party online food delivery service within the developing economy. Besides, online delivery service plays a significant role in enhancing customer satisfaction and experience through the various methods of payments, the availability of ratings and reviews, and minimal human interaction. These reasons would attract the younger generation, specifically the millennials, to use the apps. Hence, marketers and managers need to consider food delivery applications and the targeted market.

Moreover, the four barriers in outsourcing third-party online food delivery service also provide further insights into the attitude or behavior of the F&B entrepreneurs in Sarawak towards the use of the applications. Findings from this study have provided concrete evidence on the impact of maintaining the food quality, trustworthiness, high cost incurred, and resistance to technology by consumers within the context of developing economy. This study also finds that online food delivery service is unappealing to smaller restaurants due to the lack of capacity in incorporating delivery service to the vision of the F&B business. These beliefs affect the behavioral intention to avoid outsourcing to third-party online food delivery services. Nonetheless, this study has found a significant influence from family members, siblings, and friends in experimenting with new and innovative online delivery service applications, especially for the older generations. Thus, marketers and managers need to realise the benefits of food delivery service and the importance of networking in this current modern society. By understanding the mechanisms involved in this business approach of outsourcing food delivery to third-party, entrepreneurs would develop comprehensive strategies that target consumers and generate interest from potential business partners.

Despite using BRT as the foundation of this study to explore entrepreneurs’ perspectives for the determinants and barriers in outsourcing to third-party online delivery, future quantitative research is needed to validate the themes in this present study. Future studies with statistical data can also investigate the relationships between the determinants, the barriers, and the behavioral intentions towards outsourcing to third-party online delivery through a more extensive sample within Malaysia. Although the younger generation predominantly uses online food delivery applications, the adoption of applications can be examined from the social lens of the different generations. Unlike older generations, young people today are born into the technological era, whereby technology is seen as a necessity in daily lives. Hence, teenagers’ views about online food delivery applications may be different from that of young adults. These studies can further enhance not only the understanding of outsourcing food delivery service from the perspectives of the entrepreneurs but could also contribute additional knowledge to third-party online food delivery service providers. Findings from these studies could impact future online food delivery sites and applications to remain competitive within the foodservice industry.