Ray Camillo – Founder & CEO, Blue Orbit Restaurant Consulting
The obvious motivation for a restaurant to take on delivery service is to build sales. Third party delivery platforms like GrubHub, UberEats and EAT24 are making it possible for restaurants to add delivery that don’t typically offer it. Simultaneously, those services add competitors to the fray as square footage allocated to dining space becomes less important as a sales channel. Home meal replacement continues to be the name of the game as grocery stores allocate ever-more square footage to prepared items and less to raw or unfinished products. Just look near the front of any grocery store and you’ll find hot meals ready to eat, party platters, pre-packaged appetizers like shrimp cocktail, and sushi. Convenience stores are vying for meal attention as they add made-to-order sandwiches, soups and enhanced roller dog experiences, well beyond yesterday’s typical candy bars, chips and soft drinks. Restaurants that depend solely on dining space with tables and chairs to generate their sales are sitting ducks if the differentiating factor in their offering isn’t specifically the in-house dining experience itself. For every other restaurant they must consider catering, takeout, delivery, and/or a retail market, grab-and-go component. Meal delivery offers the most convenience where minimum order values are not difficult to meet. When third party solutions pop up and allocate television and online advertising dollars, it’s reasonable to assume they are reacting to demand. Consumers want meals delivered.
Retail square footage, especially high-traffic retail square footage, costs a premium – often $40 to $90 per square foot per year in most metropolitan areas and sometimes higher for premium city social centers in top markets. Rent often runs a close third place to labor and cost of goods for the most expensive overhead. Anything that reduces overhead can be a good thing. But before a restaurant decides to add delivery service, they should ask themselves a few questions:
- Will delivering their food cheapen their brand? If the restaurant has made its reputation as a place with great ambience, vibe or social scene, then delivering the food will fail to deliver the experience that has made the restaurant worth patronizing.
- Can they afford to give the third-party delivery service 30% of each sale? A healthy restaurant will typically drop 12% to 22% to Net Income. If the delivery service takes 30% of sales, then the restaurant is effectively losing 8% to 18% on each sale…they’re running a food delivery charity, not a profitable business. It might be better to think about delivering it with internal resources.
- Are they prepared to add staff to manage the delivery business? We’ve seen small restaurants and even big national chains mismanage delivery by staffing the restaurant for dine-in volume and then shifting that same staff to delivery detail at peak time when they’re needed in the restaurant. In other words, the manager sends a cashier or a cook out to deliver food when they should be cooking food or ringing in customers during the “rush”.
- Do they have a method for managing credit card payments upon delivery? Drivers typically work for tips. Customers typically pay with credit cards. If drivers are not armed with a smartphone credit card reader then the driver may need to carry a printed receipt from the restaurant to the customer and then keep track of the signed sheet which is awkward and cumbersome.
- Is there a budget for developing a website shopping cart menu to allow customers to order and pay online? In defense of the third-party delivery services, they will manage the online ordering and payment process for the restaurant through their websites. To compete with them, restaurants will need to offer online ordering convenience…and that’ll cost $5k to $35k to develop depending on how smooth they want their online ordering experience to be.
- Does their food travel well? Some foods are not created to be held hot and delivered 30 minutes later. Pasta, for instance, tends to soak up the sauce and resembles nothing close to same item served on a plate. Fried items – like French fries, falafel, hushpuppies, fritters, and calamari – are best served crispy and hot, not soggy and warm. Yelpers order takeout too and reports of bad delivery experiences can damage a brand if the delivered food doesn’t substantially mimic the restaurant’s plated food.
- Do the takeout containers travel well? Earth-friendly paper products don’t always work well for delivery. Corn based plastics tend to melt over time when exposed to hot liquid while cardboard that isn’t coated in plastic tends to leach (then leak) liquids. Lids must secure tightly to keep one food item from spilling onto or into another. Containers must hold heat. Finally they must make your food look good. If you put a small pasta side in a large takeout container, the customer may feel ripped off for receiving such a small portion even though it is the same size as the restaurant portion.
Food delivery is tricky because meal periods tend to be static around lunch and dinner and volume surges often tax delivery capacity. Restaurants that offer popular delivery items need to either have enough drivers and vehicles to handle demand or they need to be prepared to eat the high costs of the third-party delivery services. If delivery isn’t popular and it can be handled with only one driver or if the third-party delivery service merely provides a lagniappe service to regulars that periodically can’t make it into the restaurant, then the restaurant should question offering delivery at all. The restaurants that can do really well are those designed for delivery as they will rent inexpensive, non-guest-facing warehouse spaces. Indeed, GrubHub is reportedly investing in food production spaces that don’t have storefronts but offer several different cuisines under different names. By keeping their startup and overhead costs low, they can afford the high fees of the delivery services. Just be sure that adding delivery doesn’t simply add cost and complexity without adding more profit.