WHAT’S your delivery deal-breaker?

More than two-thirds of customers say they would stop using a food delivery service if the fee exceeded $3, while three-quarters would baulk at anything over $5.

Currently, the average fee across the likes of Menulog, UberEats, Deliveroo and Foodora stands at around $3, meaning they are limiting their market to just 30 per cent of users.

That’s according to UBS retail analyst Ben Gilbert, who surveyed more than 1500 consumers to find out whether food aggregators would end pizza giant Domino’s domination of the $3.2 billion delivery market — or if the danger has been overcooked.

“Delivery fees, in our view, are a significant barrier to increasing delivery penetration, with around 40 per cent of customers flagging this as an issue,” Mr Gilbert said in a client note.

While predicting they would double sales in three years’ time — growing from $740 million this financial year to account for more than half of the online delivery market — he highlighted a number of “structural factors” putting a natural cap on their growth.

That’s partly because online delivery makes up just 10 per cent of total takeaway, and partly because they lack control of the value chain — aggregators (apps) control the order, but have no control over the actual delivery or the quality of the product.

Meanwhile, the delivery premium charged by some restaurants — McDonald’s charges 15 per cent, for example — compounds already high delivery fees, hurting the overall value proposition.

“Despite having around 4 per cent of the Australian takeaway market, aggregators are not a material threat to well-prepared incumbents,” Mr Gilbert said. Coverage was also cited as an issue, with the vast majority of food delivery app sales coming from wealthier customers in dense, urban markets.

“While we acknowledge the threat, we do believe the market has not fully appreciated the challenges (sustainability of model, coverage, value offering) facing aggregators over the next three to five years and the implications for Domino’s share in the delivery market.”

Mr Gilbert said he believed growth in delivery app sales would come at the expense of other “food occasions” such as Chinese or Indian, rather than Domino’s, due to the “fundamentally different” customer.

“It is a treat, reward, convenience and value customer,” he said. “We believe aggregators are unlikely to change this customer base, in part adding a degree of protection to Domino’s core customer base. Aggregators typically attract a smaller, more affluent group of consumers.”

He said Domino’s competitive advantage centred on its “end-to-end control of the delivery supply chain (from order to delivery), allowing it to control price, food quality and range, service and delivery speed”.

Domino’s shares have taken a beating since the company’s half-year results last month — when it lowered its full-year sales forecasts at its Australian and New Zealand stores — and are currently down around 16 per cent from their February 13 level of $49.50.

Mr Gilbert said the market had been overly pessimistic on the ANZ division.

“We continue to believe Domino’s is a good business, with leading technology and execution,” he said.

“While there is no doubt in the new world of aggregators, risks have increased, our UBS Evidence Lab study and industry discussion suggests these have been more than priced in, with risk to the upside. We believe the market has overreacted to these issues.”

frank.chung@news.com.au