Should You Manage Delivery In-House?
While consumers seem to love home delivery services, the results for restaurants can be mixed.
Some operators are choosing to operate their own delivery services. Of course, pizza and Chinese restaurants have been in the delivery business for years. And in major metro areas, all types of operators offer delivery. Some of the major chains like Panera are investing in the technology and labor to run delivery operations in-house.
The third-party delivery services allow restaurants that have never offered delivery before a fast way to tap it into that market without building their own system and hiring employees.
While some operators feared delivery would cannibalize sales, that’s not been the case. About 60 percent of operators surveyed say that offering delivery has generated incremental sales, according to research firm Technomic. Only 11 percent felt that delivery impacted dine-in business, and only 7 percent said that takeout sales were lower because of it. However, some restaurants fear they’re losing revenue with delivery orders because dine-in parties tend to be larger and order higher margin items like soda and alcohol.
There are lots of delivery options in the market, such as UberEats, Postmates, DoorDash, and a bunch of others. Some, like Slice, specialize in pizza shops or other niche markets. The big chains are buying into the idea, too. Yum Brands, owner of KFC, Taco Bell and Pizza Hut, has invested $200 million in GrubHub. However, Pizza Hut will keep its in-house delivery system.
What’s the best option for your restaurant? Your choice of delivery services could have a significant impact on your bottom line. Let’s look at the trade-offs of cost and complexity vs. controlling the customer relationship and keeping costs in-house.
Restaurant fees for delivery can run 15 to 30 percent of the order, so restaurants must understand the impact on their margins with each delivery order. But running delivery in-house has its own set of costs, mostly labor.
Panera started its delivery service in 2015 and found that their in-house service drives more business volume while building loyalty. Dominos says its in-house delivery is cheaper than outsourcing and paying the fees. Quick-serve chains like Wendy’s and McDonald’s use the services, as well as a growing number of smaller chains and independents.
Remember, you only pay the delivery service when it’s needed, compared to keeping drivers on duty when takeout orders are slow.
Many restaurants offer online ordering through their website (or app) and use their own drivers to deliver. With in-house delivery, you ensure menu changes are updated, store closings are noted, and you control other details that could get lost in translation with a third-party service. You can also set a reasonable delivery area to ensure the quality of the food which is ordered, and this also limits the distance drivers must travel.
Making sure the delivery experience lived up to the on-premise experience was a key factor for Panera to start its own delivery operation. Dominos will maintain its in-house delivery service to control the relationship with the customer to take care of any product problems immediately. A delivery driver paid by the trip probably won’t make the best brand ambassador.
Own the Relationship
Restaurants are starting to find that customer loyalty is moving from the restaurant to the delivery service. But, when there’s a problem with the order, the customer blames the restaurant. Customer relationship-builders like loyalty programs can suffer with third-party delivery.
Keep in mind that most of the third-party delivery services are not yet profitable, so the long-term future is uncertain. What’s clear is that the consumer demand for delivery is here to stay, so finding the right path for your restaurant will be critical in the coming months and years.
If you’re not sure what’s the best solution for your operation, contact the experts in restaurant accounting and finance technology.