New research shows who’s leading the pack in delivery
From left: “It’s kind of fun to come in first on the speed metric,” said Bowie Cheung, head of regional operations at UberEverything for the U.S. and Canada, during a session on food on demand at the RFDC in 2017. Lisa van Kesteren, CEO of SeeLevel HX, detailed tactics that her firm’s new research revealed. On a different panel, Srini Kumar of Craftworks Restaurants & Breweries explained how he drills down into the numbers to make sure delivery makes sense.
Photos by Focus Event Photography
New research shines a little light on the murky world of third-party delivery. A pair of research projects by SeeLevel HX, a secret shopping and research firm, conducted for Food On Demand, Franchise Times’ sister publication, took a close look at the nascent industry with 1,400 secret shoppers in five major markets and a wide-sweeping consumer survey.
There are a lot of insights in the research, but three metrics really show what’s going on.
First, speed of delivery. UberEats and its fleet of omnipresent vehicles was the quickest, delivering food orders in 35 minutes on average. Postmates came in second at 40 minutes, followed by DoorDash at 42 minutes and Grubhub at 50 minutes. UberEats did, however, miss its own timing estimate nearly 30 percent of the time. Door Dash was the most timely, delivering food on time 75 percent of the time.
As for the delivery fee, UberEats was the most expensive at $5.01 on average across markets. Postmates came in just behind at $4.95, and both DoorDash and Grubhub were cheaper at $3.17 and $3.11, respectively.
According to the consumer survey, all of those prices were within customer expectations. Consumers said the $8 mark would be too expensive, $6 would be getting expensive but still doable and $3.60 is a “great deal.” No firm dipped below the $2 mark, where consumers surveyed said it would get questionable as far as quality.
The chief question for restaurants is always, “does this replace a visit?” And according to the survey, not usually. Nearly half of respondents said an order replaced cooking at home, 33 percent said it replaced restaurant takeout and 20 percent said it replaced a restaurant visit. That puts delivery business between 50 and 80 percent incremental across services on average.
As for why customers are ordering, consumers were brutally honest in the survey: They were too drunk, they were too lazy and they didn’t want to haul the kids out for dinner.
Twelve percent of respondents said fast delivery was key, 13 percent said they didn’t want to deal with weather and 20 percent said they order because they didn’t want to leave the house.
Delivery ‘very hard,’ but some find profits
Grubhub processes 305,000 delivery orders per day, and Stan Chia says that number is only going to increase as consumers and restaurants alike adjust to the new normal that revolves around convenience.
The COO of Grubhub, which provides third-party delivery services in more than 800 cities, Chia was joined by Matt Tucker, COO of online ordering and delivery platform Olo, and Mike Church, managing director at Deloitte Consulting, to talk about using delivery to drive revenue and demand.
Tucker, whose Olo service focuses on multi-unit restaurants, didn’t sugarcoat it: “Delivery is very hard and it’s very tough to make money. There’s no silver bullet in delivery by any stretch of the imagination.” Restaurant operators have to think about logistics and the best way to integrate delivery into their overall operations, he stresses, including everything from accessible parking for drivers to how the kitchen processes orders.
“You can’t just spread a little layer of delivery love on top of your brand—it’s not that simple,” says Tucker.
Point-of-sale integration is huge, agrees Chia, as is the consumer-facing technology, something Grubhub treats as paramount to success both for the delivery service and the restaurant.
“The actual management of the guest experience through the life cycle of that delivery order is huge,” says Chia. “How Grubhub tackles that is to try to own a lot of that customer experience piece,” including taking ownership of the process if something goes wrong that’s “very clearly not the restaurant’s fault.”
Church, who focuses on Deloitte’s digital and restaurant practice, says success with third-party delivery depends a lot on how restaurant brands can differentiate themselves in the space.
It’s all about “empower me,” says Church. “The consumer is expecting tools and ways to get real-time delivery times, menu customization,” and the third-party services and restaurants that respond to those desires are going to win.
“Incremental sales” are the buzzwords making restaurant operators’ ears perk up, and Chia says it’s a key focus for Grubhub in demonstrating value to restaurants.
“We want to make sure the volume we send them isn’t cannibalistic, that it’s truly incremental,” says Chia, adding several reports, including research from investment bank Cowen, shows delivery sales are 80 percent incremental. “We feel very good about that.”
But looking beyond the sales aspect is equally important, puts in Church, who encourages restaurants to view these channels as an opportunity to partner with the delivery service and “learn along the way,” picking up information on customers and using insights from ordering data to target marketing efforts or adjust brand positioning. It can be as simple as asking about the type of food and drink images that most appeal to consumers on the ordering platform, he says.
Prices should vary
On the topic of profits, Tucker says operators need to understand they can’t necessarily apply delivery in the same manner to every daypart and should consider, for example, varying the price charged during more popular times. Operators, he continues, “need to understand that the guest is willing to pay for that convenience” and restaurants should charge as such.
On-demand and off-premise dining is only going to expand, the panelists agree, and those on both sides of the equation have to work together to ultimately make this new reality beneficial to their business.
Third-party delivery no longer optional
Forget whatever you’re hearing about the tax bill, non-traditional locations or trends in M&A. There is one dominant trend in the restaurant world that everybody is paying attention to and it’s third-party delivery. This subject was everywhere on the agenda and in between-session conversations at the Restaurant Finance & Development Conference.
As somebody who closely follows third-party delivery trends, I’ve previously been dismayed by some of what I’ve heard about this topic on the franchise industry expo circuit. Until recently, much of the talk was speculative, with many sessions conveying the message that the restaurant industry wasn’t sure if this delivery stuff was a blip or a mega-trend.
With more restaurant brands moving from beta testing to large-scale, national delivery rollouts, the energy has shifted and delivery is poised to explode from an optional incremental gain for restaurants into something many brands absolutely must do in terms of marketing, sales growth and attracting younger, soon-to-be-affluent customers.
At RFDC, Fred LeFranc of Results Thru Strategy led a panel entitled The Third Wave: Delivery Strategies Front and Center. The panelists included Srini Kumar of Craftworks Restaurants & Breweries, Jonathan Rollo of Greenleaf Gourmet Chopshop and Paul Motenko of Stacked Restaurants, who were all unanimous that there’s no way to shy away from delivery, even with all the issues it presents for restaurants.
“This is totally consumer driven, so it’s here to stay,” Rollo said. “This is a war and someone’s going to win.”
LeFranc shared some stats, teeing up the idea that delivery growth has a long way to go.
“The current U.S. delivery market is about $43 billion, so it’s very large, and that aggregates all sorts of delivery, not just restaurant delivery. It’s a very large business and we estimate it’s going to go to about $76 billion by 2022,” he said. “It’s explosive growth, which explains why there are so many third-party delivery providers in the space.”
Common issues, ranging from kitchen layout to upholding guest satisfaction, are nothing to sneeze at. On the profit-and-loss side, most delivery firms charge anywhere from 12 to 30 percent for each ticket, which can be a sizable pill for any company. In addition, little things have big impacts, such as delivery drivers not looking presentable, matters of packaging and legal liability to name a few.
While this panel was one of several touching on restaurant delivery, a fully packed auditorium, next-level audience questions and speakers diving much deeper into the subject mark a dramatic shift from the tone this industry set just a year ago.
‘Last person standing’
Audience members grilled the panelists about rates they were paying their delivery partners, integrating delivery tablets into their point-of-sales system, how to handle sub-par drivers and tactics for negotiating contracts. The consensus was the more popular a restaurant is on a given platform, the more incentive delivery providers have for sweetening the deal.
LeFranc closed by telling the audience to expect continued mergers and acquisitions among providers, as financiers and equity firms soon look for returns on their significant investments.
“The dirty little secret is nobody’s making money,” he said of the providers themselves. “The real question is when will the runway run out and when will we start seeing consolidation and, ultimately, figure out who’s going to be the last person standing just like the auto industry in the 1880s when we had 250 companies.”