Updated: Oct 13, 2018
Few trends can truly be said to have had a fundamental effect on the restaurant business model. The growth of delivery is one.
When it comes to delivery, consumers are not voting with their feet but with their fingers and thumbs – opting for the convenience of having restaurant-quality food delivered to their home or workplace, even when the result is often far from restaurant-quality food by the time it has undergone several backflips and somersaults at the hands of a helmet-clad delivery driver.
It’s clearly what consumers want and there are plenty of us out there cashing in to give it to them. The question is, at what cost?
As most of you know I am a pragmatist, a realist and far from an evangelical restaurateur who will write about the importance of the restaurant as a place to socialise, entertain and enjoy the experience – although all are pertinent points. The cost we are talking about is the future of your business.
I understand customers want different things for different occasions. When I stay in a hotel for business, rather than choosing ridiculously overpriced room service or a table for one, delivery is a great option. On those dark winter nights when you get back late after a long-delayed commuter train, delivery is right up there once more. These are different occasions than when I want to get dressed up and enjoy a full-service restaurant experience.
We can all see the appeal I’m sure. I’m also sure, however, that there is cannibalisation within businesses and there will be times when your customers, who have made that extra effort for their favourite cuisine or brand in the past, will take the opportunity to eat it at home – because they can.
The other obvious cost is the commission charged by the delivery partner, with some smaller businesses paying more than a third for this service, inclusive of VAT, so in real terms more than 40% on your net. It’s a costly business.
Next up is the distraction to your service teams and your kitchen having to cope with a full restaurant and a new set of delivery orders during peak times.
You’ve also got the negative effect of having drivers with cumbersome backpacks blocking your restaurant entrance, putting off guests and interfering with the beautiful guest journey you’ve built and pride yourself on.
So why do we do it? Because our customers want it and right now so do most of our investors. I’d hate to think of the level of like-for-like decline we’d see, even from some of our most successful brands if it weren’t for the saviour of delivery.
All emotion and drama aside, if you are offering a cuisine that travels well you should be maximising the delivery opportunity. I helped deliver a seven-figure revenue line through delivery in a recent role, one that was continuing to grow and was far from insignificant.
So what do you need to do to make it work for you? The first thing is to ensure you have robustly tested the suitability of your product in delivery trials. See what travels well, use the data at the disposal of your delivery partner to plan what sells and make sure it’s tight and easy for the kitchen to deliver at peak times. Don’t fall into the trap of thinking you need your whole menu online.
Second is commit to it. Push the site teams to monitor sales levels on the chosen platforms you use and avoid turning it off. The dishes you put out for delivery need to be produced fast. There is an almost direct correlation between speed of food being ready and the number of orders you gain.
Third is make someone responsible. If you are a major brand with lots of sites and this opportunity could bring in that seven-figure sales line, why not hire someone to manage and maximise it? It’s likely to be worth more than one unit so it’s worth the investment.
Next, use your packaging and accompanying collateral to sell your brand, highlight your key message and drive site visitation. Bounce-backs work really well.
Think about the additional revenue opportunities around drinks, desserts and retail. What will people want on those home-dining occasions? How about popcorn or chocolate bars with their pizza for movie night? All great upsells. Don’t feel restricted by what you are selling in the venue and let’s not be restricted by restaurant pricing either. Few people are going to pay £25 for a bottle of wine to drink at home, but they might pay £10. Speak to your wine suppliers, find good-quality wine with popular grape varietals that can be priced at this level. Think of the incremental revenue opportunity not the percentage margin while, of course, remembering the commission levels.
We know the big players. Just Eat pitches itself as the online market place for takeaway food, while UberEats is a transport provider that will deliver food as well as people from A to B.
But what of Deliveroo? Its positioning used to be clear. It was the delivery platform for restaurant-quality food, the place you’d go for better-quality food from brands you knew and trusted. Not any more it would seem. In my opinion its business model is confused, which is leading to a growing level of discontent within the industry. Speaking to many brand marketers, they feel the once-protected space alongside brand contemporaries has gone, with fast food being listed above or below their brands, which is not ideal for many.
I saw one commentator label them the “Trojan horse of our sector”, which I can understand. In all cases of third-party platforms, the relationship with the customer is removed, which is something many have come to accept as a quid pro quo for their increased revenue. However, for the most part restaurateurs feel safe in the knowledge the partner is simply offering a service, connecting the customer to their brand.
Deliveroo’s recent actions make me feel uneasy, though, with a seeming intention to use the platform and audience it has built to take the spoon out of the mouths of the brands they are feeding. The company has been operating dark kitchens for some time under the premise you don’t need a restaurant at all, just a kitchen. To date, these have been managed by operating partners that provide the team, food and know-how, paying a higher percentage of commission for a fully fitted kitchen in a Deliveroo Editions site. A great opportunity for operators to spread their brand without capital investment – that’s the sell.
Seemingly it’s not necessarily working for some partners, though. The answer is to encourage people to create new brands the operator can prepare and sell out of the same kitchen. This is great in principle and for those operators in the short term who will make a better return from the investment, but what about the long term? Doesn’t it prove Deliveroo doesn’t need the established brand to be successful from these kitchens? The risk, of course, is it discounts the need for the brand at all, only requiring an operator. A very different place from being a partner to great brands.
Add into the mix the fact the company launched a dine-in concept with click-and-collect technology in Singapore and it leads to even more questions as to the company’s long-term plan.
We’ve seen technology companies change markets in many sectors. In the hotel sector, online travel agents overtook the traditional travel trade in less than a decade. Aggregators came next, shaking things up once more, then Airbnb came and disrupted it again, changing the game completely. In fact last October, the company announced it was working with developers to launch branded apartments in Florida – directly competing with hotels and other apartment owners that use the platform.
With large consumer awareness and technology penetration, it seems the next step will be major technology players taking the opportunity to jump on the in-restaurant transaction and journey bandwagon. We could find we are paying ever-increasing commission levels on transactions beyond delivery.
It is vital the industry and key operators think for the long term regarding their strategies when it comes to online distribution and technology. Spread the risk by working with multiple players. Start building infrastructure to gain direct orders in addition to third parties, even if only initially through click and collect. Partner each other to find, define and develop solutions.
Third-party providers have their place and will undoubtedly become a bigger part of the mix. I think we should be careful we don’t give up our intellectual property, our know-how and customers to let them pull the rug out from under us. Keep the keys to the castle safe – think for the long term, not just this year’s like-for-likes.