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Third-party delivery services gain traction


With eight stores under her belt as a Jersey Mike’s franchisee, Cathy Brown is getting good at delivery.

She has two stores in northern California and two in San Diego with delivery via courier service Postmates. She has a presence on delivery service Eat24 as well.

Another store at San Diego State University is on GrubHub, which the students seem to like.

After two years, 20 percent of her sales come through delivery partners. So which of the three is her favorite?

“It’s a very silly reason, but I would pick Postmates because Starbucks has gotten behind them and Chipotle and we like to consider ourselves as a brand on par with those guys,” Nelson says. “If it was Taco Bell instead of Chipotle that wouldn’t interest me.”

With drones, same-day shipping and mobile apps in the news, outsourced delivery is on everyone’s mind. But the field is new enough that a clear leader has yet to emerge.

Brown said she wouldn’t be interested to hear who Taco Bell is partnering with. But the chain (which has 6,200 restaurants to Chipotle’s 1,800) recently chose Palo Alto, California-based DoorDash.

Prahar Shah, who runs business development and sales for DoorDash, says it has pulled in staff or consultants from MIT, Harvard, Google and Facebook. DoorDash is in 15 major metropolitan areas covering 200 cities. “As far as I’ve heard,” Shah says, “we are the largest on-demand delivery service.”

Anand Dass, who runs merchant and brand partnerships for San Francisco-based Postmates, makes a similar claim for his company, which offers service to 28 cities and has 15,000 couriers. “I think we are the biggest on-demand delivery infrastructure,” Dass says. “Reach—we  are in more markets and are head and shoulders above, like 3X, 4X. You can compare the social media numbers.”

It’s interesting that Dass invoked social media. On Facebook, Postmates has 50,288 fans to online ordering platform GrubHub’s 927,090. Even Eat24, which posted a public “breakup letter” with Facebook in early 2014 and hasn’t used the site since, still has 67,762.

But both of those sites are delivery platforms (they connect restaurants that already do delivery to customers) rather than delivery services. Postmates, DoorDash and their ilk are building infrastructure so customers can get delivery from places that haven’t offered that service before.

John Gordon, the principal of San Diego-based Pacific Management Consulting Group, says he sees the trend as a positive for the industry. “I think delivery is an excellent sales platform to be further expanded,” Gordon says. “It has the potential of much higher average tickets.”

But there are risks. Jeff Zuckerman is the CMO for Los Angeles-based PizzaRev, which has 19 corporate locations and nine franchises. The company recently became a preferred partner of Postmates. He says the partnership is off to a good start, but sharing drivers with every other brand in town means you lose some control over your image.

“Brand risk is always the biggest risk you face,” Zuckerman says. “The only way you can know that is hiring your own drivers.”

Price increases seem to be absorbed well in the urban environments where delivery services are more popular. Fees with delivery services range from free (if the restaurant absorbs it, or there’s a special offer) to $20 depending on location. A fee around $5 to $6 per delivery seems to be the going average, which Gordon says is not an obstacle.

“The typical delivery customer is less interested in price and more interested in speed,” Gordon says. But there are limits, both for customers and restaurants. “The absolute highest I’ve heard is $8. That certainly would cause me pause.”

Says Zuckerman: “If ever we felt like the cost structure was out of line with what our customers expected, we would look to either find an alternate solution or make a change. Postmates understands they are operating in an economic environment and they have to be competitive.”

The various ordering companies offer a similar suite of services—real time GPS driver tracking, seamless on-app ordering systems, easy payment options. The real question, as Jersey Mike’s Brown found out, is which system your neighborhood’s customers are used to using. Beyond that, it’s a question of optimizing your store’s ordering experience.

Dass suggests looking at the experience in three steps. First, think of your menu for what travels well and is popular. You want a variety, but watch out for items that are time- or temperature-sensitive.

“If you have a molten lava cake and the attraction of the product comes from ice cream and hot chocolate, that might not travel well,” Dass says.

Then, consider how far it should travel. Some items do very well on a short trip but start to fade after a longer voyage. “If you’re in the business of high-end sushi you don’t want sashimi and sushi traveling five miles in a city like LA,” Dass says.

Finally, consider the pricing. Generally this means working with the delivery partner on a proposal that will fit your needs, and possibly also some surreptitious ordering from your rivals so you can see their fees.

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