The rise of delivery services in recent years has been a major growth driver for foodservice. Fast food and casual dining chains are now offering delivery through third-party services such as GrubHub, Door Dash, UberEats, and Caviar. The biggest challenge foodservice operators face with the rise in delivery is that product quality can suffer once the food leaves the restaurant.
As the Wall Street Journal recently reported, companies like Panera estimates each delivery costs about $5 after accounting for labor, gas and packaging. Yet to avoid turning away customers, it continues to charge a flat delivery fee of $3 per order in most markets, which means they have to sell a lot more per order to absorb those costs. Billions of dollars have been spent in a quest to build services that reliably move fresh food from one place to another, yet many in the business wonder if they will ever get the economics right. Most delivery orders remain unprofitable.
We recently hosted a think-tank session in Chicago on Michigan Avenue, and our manufacturer attendees identified a number of issues related to delivery from a supply-chain perspective:
- Integrity of the Food Item – the distance and time from the restaurant to the customer, the type of packaging used, the type of food delivered (how friendly it is to delivery) and food safety (tampering) are all issues to consider when using third-party delivery.
- Loss of Operator Control – the question arose about the ability of a restaurant to do its own delivery (such as Panera bread or Jimmie John’s), instead of relying on a third party such as Postmates or GrubHub. If manufacturers are able to better inform and transfer best-practices knowledge the benefits of in-house delivery translates into fewer mixups, multiple deliveries, a “real” restaurant employee and the reduction of other problems identified above.
- Industry Pressures – with restaurant traffic on the decline and concepts competing for not only the FAFH dollar but the retail dollar, signing on with a third-party delivery company with the promise of new customers is enticing. However, the percentages paid by restaurants equate to minimal (if any) profit.
- Business Model Shift – with the movement toward smaller stores and fewer staff members, restaurants may be moving toward an “all-delivery” model. Demographics are seeing Gen Z and Millennials more comfortable ordering food to a home or off-site location, meaning that the labor retention and recruitment could be further tightened if waitstaff see a decline in potential tips.
Foodservice IP’s TAKE:
Delivery will remain a thorny issue, however, we all know it is not going away. With mobile devices changing the way society purchases everything from clothing to services to foodservice, the best approach is to perform an internal analysis of a current portfolio followed by an external analysis of key clients to determine how to best participate in delivery. If there are certain customers that are not well-suited for third-party delivery, use consumer insights to help support the claim and explain that harm to the brand could occur if not executed well.