- For many pizza chains and independent operators, third-party delivery companies like Uber Eats and Doordash make great partners. But for a smaller market, a local provider might be a better choice.
- To partner successfully with a local third-party delivery service, meet with the owner, hash out a plan and grow your businesses together.
By Michael Androw
When PMQ first profiled Michael Androw, owner of E&D Pizza Company in Avon, Connecticut, in October 2019, he was offering both dine-in and delivery/carryout to his customers. In late 2020, Androw closed his dining room and converted entirely to a DELCO model using a locally owned third-party delivery service. “I don’t regret making the move, because business is bonkers,” Androw recently told PMQ. “I still have a hard time swallowing the fact that I have a restaurant with no seating, but then the tidal wave of orders starts, and I quickly forget.” Here, Androw offers his candid—and business-savvy—perspective on the benefits of third-party ordering.
By now, pizzeria owners are 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 popping up on our mobile devices. The giant question now looms: “Will it work for me?”
This has been quite a hot-button topic. Rival factions on both sides of the debate have gotten 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 the facts and figures in an effort to determine if third-party delivery is right for your business.
We can spend an eternity discussing the 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 work for you.
“You will need to carefully consider whether you are willing to share your customer database and if the risk is worth it to you.”
— Michael Androw, E&D Pizza Company
Sharing Your Database
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 their delivery service to all of your customers. At the same time, your customers will also see the offerings of your competitors that use the 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.
Counting the Costs
Next comes the cold hard cash! This is where the discussion can turn contentious. Third-party delivery services will often seek a commission from the restaurant of 20% to 30% of the check’s value. Is it worth it? I once sat in on a presentation where the speaker laid out cost percentages in an attempt to show operators that working with third parties might 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, the speaker said. 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.
But that speaker was 100% right and 100% 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! Yet he was wrong because, as owners, we know that those numbers can begin to differ quite a bit in our favor when volume increases.
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—10 more than usual, a 20% 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% in one night, it only costs you the 20% to 30% commission and the cost of the food. You did not add more staffing costs. Your rent did not increase that night. Your 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% 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.
“If a third-party delivery service increases your sales by 20% in one night, it only costs you the 20% to 30% commission and the cost of the food.”
— Michael Androw, E&D Pizza Company
Choosing the Right Partner
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 fantastic. Walk into any busy city in the U.S., and you will see delivery people everywhere bringing hot food to happy customers. It is an absentee management model. The call centers for these third-party providers 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 third-party guys come into play. Geographic distance between restaurants and consumers can be much greater in suburban areas. Naturally, the available workforce of delivery people decreases dramatically 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 employ 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% to 30%?
“Both you and third-party delivery salespeople have a common goal. Make that your inspiration to work together, and they will, in effect, be working for you.”
— Michael Androw, E&D Pizza Company
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 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 and was featured on PMQ’s cover in October 2019. He started making pizzas in 1986 and currently owns the award-winning E&D Pizza Company in Avon, Connecticut.