By now pizzeria owners are all well aware of the existence of third-party restaurant delivery services. The marketing reach of the big national players in this field grows daily. We now see their ads in print, on TV, and even popping up on our mobile devices. The giant question now looms: “Will it work for me?”
This has become quite a hot-button topic as of late. Rival factions on both sides of the debate have become very heated and passionate about their arguments, almost to the point of the Hatfields and McCoys.
And you know what? They are right! Those who argue both sides of this issue are absolutely correct. Unfortunately, that puts you right back at square one, trying to make sense of all of the facts and figures in an effort to determine if this is right for your business.
We can spend an eternity discussing the basic pros and cons of third-party delivery, but you’re already well aware of those facts: You don’t have to pay drivers, insurance, liability, blah blah blah. You know all of that by now. Let’s scratch a bit deeper below the surface and see what may or may not be able to work for you.
Many third-party companies will ask for access to your customer database. This is a slippery slope. The company will use that database to create a beautiful marketing campaign for the delivery service to all of your customers. At the same time, your customers will also see the offerings of all of your competitors who also use that same third-party service. You will need to carefully consider whether you are willing to share that database and if the risk is worth it to you.
Next comes the cold hard cash! This is where the discussion can often become contentious. Third-party delivery services will often seek a commission from the restaurant of 20 percent to 30 percent of the check’s value. Is it worth it? I recently sat in on a presentation where the speaker laid out cost percentages in an attempt to show operators that working with third parties may not be profitable. The speaker gave this example:
Food cost: 30%
Labor cost: 30%
Fixed costs (rent, utilities, etc.): 30%
Now add on a third-party delivery service cost of 30%. Even if you could tighten up costs elsewhere, it would still be difficult to turn a profit. And would that small profit margin, if any, really be worth the marketing value gained from the service?
As the speaker made his case against third-party delivery, more than 100 people in that room nodded their heads “yes,” like churchgoers listening to the pastor’s sermon on Sunday. They had all just been talked out of using third-party delivery services.
That speaker was 100 percent right and 100 percent wrong. How can that be? He was right because that is how we teach our managers to operate and think. Be analytical. Meet the cost benchmarks that are projected. Manage labor, manage food, hit those numbers!
But he was wrong because, as owners, we know that those numbers can begin to differ quite a bit in our favor when volume increases. Here’s a basic example:
Say you usually make about 50 large pizzas every Tuesday night. Then, for some reason, on one particular Tuesday, everyone in the neighborhood has a hankering for your delicious pies. You end up making 60 large pizzas that night. Ten more than usual, a 20 percent increase! Congratulations! Are you now huddled on the floor in a teary heap next to the oven, crying about how difficult it was to make 10 more pies? Are you complaining about how you needed three more pizza makers on the line that night to handle the crazy volume? Of course not!
And therein lies the point: If a third-party delivery service increases your sales by 20 percent in a night, it only costs you the 20 percent to 30 percent commission and the cost of the food! You did not add more staffing costs. Your rent did not increase that night. The cost of electricity did not go up that night. You were already paying those costs on a Tuesday. It did not cost you more to add that 20 percent spike in sales.
And how about those credit card fees that make us all cringe? The third-party service handles the payments, and they are eating that cost for you as well. It certainly is food for thought when we look at it this way.
Big Guy vs. Little Guy
None of us are perfect, and the same holds true when it comes to third-party delivery services. Everyone faces challenges. The big players, national companies like DoorDash and GrubHub, have a marketing budget and reach that is second to none. These companies are becoming household names. Partnering with them and taking advantage of their reach can result in massive exposure for your business—exposure that you would never be able to afford on your own. In large metropolitan areas these companies are absolutely fantastic. Walk into any busy city in the U.S. and you will see the delivery people everywhere bringing hot food to happy customers. It is an absentee management model. The call centers for these services are not local to every restaurant. That’s fine. They don’t need to be. With so many delivery people and so many consumers, it runs seamlessly. It is a perfect synergy. Everybody wins!
It can be more challenging in suburban or rural areas. This is where the little guys come into play. Geographic distance between restaurants and consumers can be much greater in suburban areas. Naturally, the available workforce of delivery people dramatically decreases as well. As a result, food orders can’t always be delivered in the same expeditious manner as in the bigger cities with a lot more delivery people. For these areas, smaller, locally owned delivery services can have greater success. They know exactly how many drivers they have and how many restaurants they can adequately service at one time. Their call centers are local, and they can easily handle any issues directly with a restaurant or a customer, thus providing immediate resolution.
But these smaller delivery providers want their pound of flesh too—and that’s where many restaurateurs balk. The smaller local delivery companies don’t have GrubHub’s huge marketing budget. They are not advertising during the Super Bowl or “American Idol.” So why should a restaurant give them a commission of 20 percent to 30 percent?
This is where you need to come up with a creative solution: Give them the commission. Now partner with them and make them work for you. They’ve got a local, privately owned business just like you. Meet with the owner, hash out a plan and grow your businesses together. Think twice about giving them your customer database. Instead, try contacting everyone in your customer database yourself and let them know about the exciting partnership you’ve formed with XYZ Delivery and how to place an order with them.
The little-guy delivery services may not advertise on prime time TV, but they will have “boots on the ground”—local salespeople marketing their services. Meet with those salespeople. Find out what their goals are and how you can help them reach those goals. Local salespeople for a delivery company will walk into businesses and offices in your market all day to promote their service. Try incentivizing those people to make sure they are promoting you as well. Consider putting together lunch catering packages that they can sell to local offices and companies. Then make sure you are adequately staffed and prepared to fulfill those catering orders on time. Doing so will make that salesperson look like gold to the customer. He or she will come back to you again and again. You will become the reliable restaurant for the salesperson, who will continue to promote “you” and not others.
When you are helping these delivery salespeople to easily make commission dollars, watch how fast your sales will grow at the same time. There is nothing nicer than having $300, $500 or $1,000 dollars in lunch catering sales already on your board before you even open for the day. Both you and the third-party delivery salespeople have a common goal. Make that your inspiration to work together, and they will, in effect, be working “for” you. The results will follow!
There really is no right or wrong answer here. You need to determine exactly what the goals are for your business and which third-party service may or may not fit your objectives. Know your numbers and keep realistic expectations of what the service can provide for you. Then, with careful planning and implementation, you will be able to make third-party delivery service work for you.
Michael Androw is a 30-plus-year restaurant veteran. He started making pizzas in 1986 and currently owns the award-winning E&D Pizza Company in Avon, Conn.