Onus on operator to make delivery work
Right: Postmates’ Vikrum Aiyer describes the ups and downs of autonomous vehicles and delivery robots at the Food On Demand Conference in March. Top left: “Can you afford to lose 8 percent of your customer base? No you can’t,” said Laura Rea Dickey, CEO of Dickey’s Barbecue Pit, about mobile delivery. Bottom left: Food On Demand’s Tom Kaiser, left,and DoorDash COO Christopher Payne.
Photos by Joe Veen
For all the restaurant operators grappling with how they can expand mobile delivery without losing their shirt—in other words, all of them—Laura Rea Dickey says one statistic may convince them that jumping on the wave is not optional.
“What we have found is for us, it’s not a choice,” said Dickey, CEO of the 77-year-old Dickey’s Barbecue Pit. “We would be losing probably 8 percent of our customer base if we didn’t have food on demand. That was really compelling to me.” She learned that choice statistic after conducting research, something she recommends to others.
“Can you afford to lose 8 percent of your customer base?” she asked rhetorically, speaking on a panel at the Food On Demand Conference in March. “No you can’t. We brought in people that are a lot smarter than me, to not only help us retain our customers, but build them. We looked at it and said we have to have a hybrid approach,” with both direct delivery that they operate themselves and a third-party service. “That’s what worked for us.”
Phil Friedman, CEO of Salsarita’s, said his team is analyzing each restaurant, one by one, and adapting the model to what makes sense. “Fully costing anything you’re doing is important. We have to participate, but we have to participate smartly,” he said. “Relevance and access” are the two most important things mobile delivery brings to a restaurant brand.
Mark Hardison, VP of marketing at El Pollo Loco, said 80 percent of his brand’s mobile orders are incremental, meaning they are on top of what they would otherwise get from drive-thru or in-restaurant orders, while 20 percent cannibalize the other types of orders. Fifty-five percent of El Pollo Loco’s restaurants are franchised, and Hardison said inviting operators to participate in the discussions around mobile delivery was important. “Like any big initiative it starts with communication and collaboration. As we started talking about delivery, a lot of our franchisees were already participating with Grubhub or DoorDash and we could use their experience.”
Last summer, the brand hosted a demo day with each of the third-party delivery services coming in to answer questions, including the head of the marketing advisory council, a franchisee. “He got to ask questions firsthand on behalf of franchisees on how this would work,” which helped to gain operator buy-in.
(As other panelists noted, corporate-owned stores also need to work on buy-in, as many report having managers at the store level turn off the online ordering app if things get too busy, or hiding certain menu items if they’re too time-consuming to make.)
Most operators today complain about the commissions that third-party players charge, but Dickey pushes back on that idea. “We love third-party partners. Would I rather retain that 18 to 22 percent commission? Absolutely. But we would probably be losing 8 percent of our customer base because they are opting to be third-party guests first,” she said.
“I view it as, it’s not the third-party partner’s responsibility to make that profitable for us, it’s mine. You have to invest in the marketing, the training and make that work for you. The onus is on us as restaurateurs, not on the third party that’s providing that additional service.”
A sad headline flashed across the phone right before a luncheon talk March 19 called The Autonomous Solution. A pedestrian was killed in Tucson, Arizona, by an autonomous vehicle, in what appears to be the first such death involving a driverless car.
For the Postmates executive giving the talk at the Food On Demand Conference, it was a grim moment, for the tragedy itself, of course, and also for the chilling effect such incidents may have on research and development of these new technologies.
“There could be a negative, kneejerk reaction where states clamp down” on experimentation, said Vikrum Aiyer, head of global public policy for Postmates, the app-based delivery service. “If we as a country don’t keep pace with the rate of R&D, other countries are going to outpace us.”
Later, the talk turned to lighter topics in the interesting world where consumers can get anything they want, whenever they want it, sometimes with the help of a few robotic friends. “If I can just roll out of bed, extend my hand out the window and have that taco drop in my hand, I’m all for it,” Aiyer said with a laugh, responding to a question from Food On Demand’s Nicholas Upton. “That’s the dream,” replied Upton.
In reality, though, aerial delivery via drones is a ways off, mostly because of the glacial pace of Federal Aviation Administration and other federal regulators. But robots that can deliver your favorite burrito or any other product are already on the streets in some locations, and Postmates has a partnership with Starship to test the idea.
Postmates has a fleet of 150,000 independent contractors—humans—to deliver products to customers, and that model works well for longer trips. But anything “less than a mile and the payout is kind of annoying,” Aiyer noted.
“So we thought one easy way to close that gap was sidewalk robotics. We launched in Washington, D.C., which is a showcase to how progressive they are, because I think the last thing the Secret Service wants is a bunch of coolers on wheels rolling around.”
The test proved successful, with no reports of “cute robots mugging anyone,” as Upton joked, and plenty of comments from people who had fun watching the little guys roll around.
“We had somewhere between 50- to 70,000 miles tested and there has not been any incident by the same standards as defined by any vehicle. We’re lucky to have that.
And in many respects it’s because they are fairly small, fairly slow-moving,” Aiyer said.
But there were a few haters. “The No. 1 feedback we get is, passersby yelling about robotic delivery, taking over our streets.” It seems even cute little robots have their critics.
Category killer or savior?
An operator rose from the audience to expose a major bone of contention between restaurateurs and third-party delivery systems at a Food On Demand Conference panel discussion. “We are financing their growth,” he said, referring to delivery services like Grubhub and UberEats and DoorDash, yet delivery is “basically ruining a lot of mom-and-pop shops.”
He continued, “I love this panel because you sort of pointed out the deflection everyone has been seeing” during presentations earlier. “We ask, how do you make money?
And everyone says, ‘Hey, everyone, look at the sky.’”
The commissions that delivery services charge, ranging from 18 to 30 percent of the order, make many operators grumpy, especially when they hear third parties brag about how much private equity is flooding into their space, allowing expansion into ever more cities.
DoorDash’s COO, for example, talked about its $535-million investment from SoftBank earlier this year, which will allow it to expand into 1,800 cities by the end of 2018, up from 600 now. If they’re attracting so much money and becoming so profitable in their mature markets, why aren’t they reducing prices, the audience member complained.
But two panelists pushed back, including, surprisingly, one operator himself. Jim Collins operates a restaurant in California, and is CEO of Kitchen United, which builds “ghost kitchens” or kitchens without a storefront restaurant that allow an operator to expand its delivery radius with much lower labor costs.
“There’s something interesting that’s been discussed in this conference, who owns that data?” Collins said. “I truly believe that the platform that acquires the customer should own the data. If Grubhub has acquired your customer, they should own the data,” and he urged operators to change their mindset.
“We all think of restaurants as an infrastructure, those four walls. An online marketing company is also an infrastructure. They don’t make food; you don’t make online apps.” Collins said restaurant owners can pound on the table and protest as much as they want, but their little “$75 a month” spent on marketing doesn’t come close to having the reach of a delivery platform.
“Yes, it’s your food, but realistically do you really think your food would have reached that mass and that scale if it wasn’t for those platforms? When we start talking about we own the data—no, we would not have had any data without them.”
He ended with a flourish: “I had a restaurant operator say to me, ‘I can’t make money in delivery.’ If you can’t make money in delivery, then you better start thinking about a new business to be in.”
Fred LeFranc, panel moderator and CEO of Results Thru Strategy, ended on a conciliatory note. The third-party services are sincere when they say they want to help restaurant operators grow revenue, he said, but the industry is so new that everyone is figuring out how the model will work.
“It’s like whitewater rafting. You can’t control that raft. All you can do is not crash into the wall and die,” he said, adding he likes the new Food On Demand Conference because “we now have a tribe, a community so we can have this ongoing conversation.”
No doubt this is one debate that won’t be ending soon.
Beware ‘tyranny of legacy’
Food delivery is “not some cute fad” as some restaurant CEOs would suggest. “This is a fundamental shift,” declared Noah Glass, founder and CEO of Olo, speaking at the first Food On Demand Conference in Dallas in March.
Olo, as many of its 95 million users know, provides digital ordering and on-demand interfaces for the restaurant industry, so he may be said to have a vested interest in his predictions. But he painted a detailed and convincing case in a keynote address at the conference, the first of its kind and presented by the publisher of Food On Demand, Franchise Times and the Restaurant Finance Monitor.
Glass himself was ahead of his time founding his service in 2005, pre-dating the iPhone. “Less than 5 percent of people in the U.S. had smartphones,” he recalls. “People had dumb phones. We had to build something back then that a consumer could use. We built a text messaging platform, and we had to explain, here’s how you send a text message.”
Glass recited data that predicts a $200 billion shift toward digital ordering in the coming years. “In an $800-billion industry this is an incredibly large shift. Twenty-five cents of every dollar is heading this way,” he says.
He warned against thinking like an old-timer. “Some restaurants are under the tyranny of legacy. QSR is an example,” he said, referring to quick-service restaurants. “CEOs have come up for decades” and may be putting all their effort into creating a faster drive-thru, for example, rather than adding delivery options.
That reminds him of Henry Ford, who famously said if he asked customers what they wanted, they would have asked for a faster horse rather than the Model T. “I think of the same thing for some who think they need a faster horse. On-demand ordering is the car,” Glass said.
He described “tablet hell,” and showed a photo of an unidentified restaurant with an array of 10 or 12 different tablets on a table. “Somebody has to check all these and get an order into a point of sale system,” he said. “Ten to 20 percent of these orders that come in don’t even get looked at.” To avoid that sad picture, an integrated POS is a must.
And he was adamantly against signing with only one third-party delivery system, something that many operators do because they generally can get a better price. “No exclusive deals,” he advised operators, although other speakers at the conference, naturally including delivery service platforms, suggested the opposite. “It’s like making an exclusive deal with one credit card company,” so then only taking Visa rather than MasterCard and American Express, too. “Restaurants should not be doing exclusive deals with delivery platforms.”
If anyone doubted they should pay attention to the topic, Glass had a warning. “Restaurants who say ‘I don’t really need to engage with this’ are doing their brands, their franchisees and all their stakeholders a potentially fatal disservice.”
Just getting started
“It’s the very earliest innings of on-demand food delivery,” says Christopher Payne, COO of DoorDash, the third-party restaurant delivery service that is now in 60 markets and 600 cities and is about to blow up to three times that, he said during an on-stage interview at the debut Food On Demand Conference in Dallas.
“DoorDash is a 4-and-a-half-year-old company, so we have a long way to go,” Payne said in response to questions from Food On Demand’s Deputy Editor Tom Kaiser.
Many of the restaurant brands they deliver for “have been around for decades. It’s going to take us a long time to cover all the geography.” DoorDash started at Stanford University when founder Tony Xu went door-to-door at campus restaurants and talked to them about how to add incremental revenue via delivery.
The firm just received a $535-million cash infusion led by SoftBank, the Japanese firm that also bought a 15 percent stake in Uber/UberEats in January.
Payne called the investment “an endorsement, if you will, about the viability, the size and shape of this space. We’re very excited about what it represents.”
What will DoorDash use the money for, Kaiser asked? “No surprise, growth will be one of the top uses of that money, in a few different forms,” with the first push being geographic growth. “We’re in 600 cities now. Our goal is to triple that to 1,800 cities by the end of the year. That’s going to be very hard,” Payne said, but they are “very excited to be able to do that.”
Kaiser asked Payne if DoorDash is profitable, as many people wonder in the fledgling delivery space. “On the one hand, no,” Payne said, noting they’re still in the investment stage and in newer markets, such as Tucson, Arizona, and Louisville, Kentucky, where they entered recently, they lose money at first. However, in Silicon Valley, L.A., Orange County, Houston and Atlanta, to name a few, “these are very profitable markets.”
Fifty percent of business
The numbers in those older markets should be eye-popping for the restaurant owners as well. “When we launch a market, at the beginning delivery is a small part of the business, maybe it’s 1, 2 or 3 percent. You roll that forward four years things start to change,” Payne said, with 30, 40 or even 50 percent of the population in their mature markets having tried DoorDash.
On the main university avenue where Xu started DoorDash, “some of the businesses on that street are doing 50 percent of their sales coming through delivery,” Payne said.
“You’ve now gone from, ‘Oh, that’s kind of cute,’ with 3 percent” of sales coming from delivery, “to, it’s breaking your restaurant if you don’t have the operations right.”