Is Food Delievery Right For Your Restaurant Business?
No topic is hotter in the restaurant space than delivery today. An amazing shift is taking place where customers want their favorite food, and not just pizza, delivered wherever and whenever. For me, delivery became a new reality and not just a fad when I saw McDonald's advertising during the recent World Cup matches that they would now be delivering food. This was no longer a test in a few US markets but now ready for prime time by a heavy hitter in the QSR realm.
There are people projecting that delivery will do to restaurants what Amazon did to retail. I think it is too early to tell for sure, and caution is wise. Nonetheless, I am seeing many restaurant companies testing delivery in select markets and many more are discussing it. However, before you make the decision to plunge into this new channel, there are a few questions you should ask yourself.
Whose Customer Is It?
How are your customers going to request a delivery? Will you hire your own drivers and create your own e-commerce website, or will you use a third-party delivery service? The first option will take more time and money before you can start comparing to a 3rd party option. But, which alternative do your customers prefer?
Examples of restaurants who have built their own platforms include Panera and Domino's, and both efforts are considered successful, albeit expensive. It's simple, the customer goes to the brand website and orders. An upside to this approach is your customer sees only what you want them to see and their experience is directly connected to your brand. Another plus for this option is the ability to add other programs and services beyond ordering, such as loyalty and payment.
McDonald's decided not to build their own delivery platform, and instead forged a deal with a 3rd party. The 3rd party option can potentially blur the customer's perception of who they are buying from. The customer goes to the website of the delivery company that has dozens or hundreds of restaurants and has to find your brand. The delivery company might have its own loyalty or frequent diner program, but it isn't yours. The question is whether the customer's loyalty shifts from the restaurant brand to the delivery brand or vice-versa.
Can We Make Money?
The math of calculating the total cost of delivery is complicated. Delivery will affect the number of customers you service, labor, food cost, food packaging, and delivery expenses including vehicle insurance. Your assumptions on these revenues and costs are critical to evaluating the profit impact of delivery.
The calculations for doing delivery on your own are more complex than for 3rd party delivery because you have to make capital investments that are going to be on your balance sheet for years. If the experiment fails, it could result in a costly write-off to your earnings. One investment decision you will have to make is whether your web order is going to automatically flow into your POS like they do with Panera and Dominos. The costs of this depend on the POS you are using and the cooperation you get from your POS vendor.
Other questions to consider: Will you offer your entire menu or only certain items? Will delivery be available all the time or selected hours? What is your objective for delivery times, and what contingencies can you put in place to achieve that objective?
Here is a calculator for 3rd party delivery. A shout out to Jordan Thaeler for putting this together. This option is a bit easier to calculate because in many cases it eliminates the need for capital investment. But, the +/- 30% commissions you pay could leave you feeling like all your customers are discounters. It is at least mathematically possible for you to lose money on every transaction.
I have highlighted downside issues with profitability, but you also need to calculate the possible upside scenarios. For example, if delivery expands your customer base significantly, or increases the frequency that an existing customer buys food from you, the profit impact could be very large. Take your time and calculate carefully.
Will I Get All My Profits?
Finally, think about how the funds generated by the delivery sales end up in your bank account. How long does it take to receive the funds? Where is your audit trail so you know that you have received all the money you should? These questions apply to both options.
If you build your own e-commerce website, you will be handling credit card transactions directly. Remember PCI? The security of those transactions is now your responsibility. Yes, you already have a processor for your POS transactions inside the restaurant, but depending on the volume of online orders, you may choose a different processor for the website. Either way, it is reasonable to assume that the timing of payment to you, and the issues that will need to be resolved (e.g. missing authorizations, etc.), will be similar to your current POS transactions. The upside to this option is that you can see everything your customer does on the website, and that gives you a big advantage in resolving issues with them, and controlling the level of service provided to them.
If you choose to go with a 3rd party, the timing of payments, the audit trail to back up those payments, and the procedures for dealing with customer issues have to be defined in detail. The 3rd party is now the customer-facing part of your operation, both for ordering and the delivery. Any dissatisfaction with the 3rd party may end up damaging your brand. Today, there are a number of companies who cannot reconcile the activity they see in their POS with the activity recorded by the 3rd party delivery vendor. Without a clear and easy reconciliation process, you could be spending lots of time determining whether the amount you were paid by the 3rd party was the correct amount.
Many 3rd party delivery systems cannot automatically push the order into your POS at the appropriate location. In this case, you must consider the operational impact of receiving orders from your 3rd party and manually entering them into the POS at each location. Next time you go out to a casual dining or fine dining restaurant, look for a collection of tablets on the hostess stand, or near the bar. I have seen as many as four tablets, each dedicated to a different 3rd party delivery service. You need to make sure someone is tasked with constantly monitoring these tablets and when an order comes in, manually entering the order into your POS.
Is My Food Inventory Up For The Challenge?
While McDonald's believes they can deliver hot and tasty french fries, some food just does not travel well. Can you imagine having your next ice cream cone delivered? The delivery side of your business may not include all of your menu items, just those that can be delivered with the minimum of compromise on taste and texture.
Before you even begin to implement any food delivery plan, make sure your team imagines how your staple menu will do during travel.
There is little doubt that delivery is here to stay, in some form. But, it is unlikely to affect all forms of restaurants. Let me know if this is a topic you'd like to me to do more research on. I'd love to hear your thoughts!
What is your experience with delivery? Was it revolutionary for your business or a nightmare? Has anyone pulled the plug on a delivery project? Are you still waiting on the sidelines? if so, why exactly? What other questions should a restaurant operator ask before delving in?
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