Diving Into Delivery P&Ls
Five-plus years into the sea change that is third-party delivery, restaurant operators continue to debate the merits, challenges and potential profits that result from handing over some crucial parts of the business, from guest contact, upholding the brand and a lack of shared customer data.
At the second day of the Restaurant Finance & Development Conference in Las Vegas, Neil Culbertson, founder and principal of Growth Partners LLC, led a panel entitled “Delivery Economics: How Do Operators Make Money?”
Under that simple umbrella, Culbertson assembled a terrific panel that resulted in one of the sharpest debates I’ve heard on this topic in four years of covering the perils and possibilities of third-party delivery. Supporting presenters included Guy Constant of Red Robin, Brandy Blackwell of McAlister’s Deli, Jayson Tipp of Pincho Factory and Scott Davis of CoreLife Eatery.
Rather than focusing entirely on sales, Culbertson began with a focus on costs, operational consequences and margins that actual restaurant groups are seeing through their delivery programs. He cited Stephens data that showed that 80% of 25 major restaurant operators are currently testing or have rolled out delivery. That’s a stark change from just two or three years ago. Looking ahead to 2022, delivery is expected to be $76 billion of a total $640 billion U.S. restaurant industry.
“Nobody questions whether delivery is here to stay," Culbertson said while presenting the data. “Everybody’s got a different idea of how big it’s going to be.”
From a front-of-the-house standpoint, McAlister’s Blackwell said that “tablet hell is real” and that continues to be a challenge at the brand’s deli-focused restaurants, with the real problem not being the space, necessarily, but the opportunities for making slight errors when entering orders into the chain’s point-of-sale system.
“Integration or lack thereof has been one of the challenges for the front of the house,” she said. “Things are getting missed, it’s happening daily and then there’s charge-backs that happen to the brand.”
Constant from Red Robin seconded the sentiment about tablet integration, but added that the behavior of third-party delivery fleets can also be problematic, especially when they cut in front of guests or get demanding with restaurant staff.
“Drivers can be extremely aggressive about getting their order right away,” he said, noting that his brand has seen an uptick in the number of drivers that are stacking orders from multiple restaurants, which leads to even more significant concerns about the condition of the food upon arrival.
Speaking to that vanishing subset of restaurants that hasn’t jumped into delivery, CoreLife’s Davis recommended first setting up a robust, successful takeout or pickup operation to help the restaurant, its managers and staff develop protocols and procedures to improve accuracy and anticipate some of the issues that are presented with outsourced delivery.
Even with CoreLife’s years of delivery under its belt, he said that he remains nervous about where delivery trends are going, noting that restaurants aren’t in the driver’s seat, with fast-growing delivery brands owning the customer data and point-of-contact relationship.
“We’re nervous about where it’s going,” he said. “All these providers are out there and they’re driving the boat right now, so we’re trying to play catch-up so we can service our franchisees properly.”
Blackwell agreed with her fellow panelists, but noted that coming to terms with the 30-35 percent fees charged by delivery providers means taking a more holistic approach where delivery is viewed as a means to slow “valleys” and slower day parts in a given restaurant’s weekly flow.
Turning to the marketing exposure from having a presence on delivery sites, she added that it’s harder for smaller brands—even of McAlister’s size—to compete for placement on the sites and in the eyes of their consumers.
To make it easier or at least more consistent for smaller brands, Blackwell closed with the quip of the presentation: “Eventually Amazon just needs to buy everybody so we can stop worrying about this.”