In today’s digital economy, convenience is king. The shuttering of department stores across the nation have signaled the preference of consumers to shop for and enjoy goods from the comfort of their own homes. Same day grocery delivery, two-day Amazon shipping, or even automated delivery of recurring commodity items like toilet paper or dog food demonstrate that consumers are hungry for fewer barriers and more opportunities to receive products on their own terms.
The food industry is no exception to this trend. Customers are increasingly ordering food through apps on their smartphones or by calling in. Demand for deliveries has expanded beyond the usual dinner ordered in from pizza chains and Chinese take-out. Sit-down restaurants and breakfast and lunch dining have also seen steady growth in delivery demand; and that demand for deliveries is dramatically changing the restaurant industry.
“Delivery has become a need to have and no longer a nice to have in the restaurant industry.”
While delivery still makes up a relatively small portion of overall restaurant business (in 2017, delivery comprised of just 3 percent of total transactions), it’s a sector that’s growing even as the industry experiences restaurant slowdown. In the last five years, revenue from deliveries jumped 20% and the overall number of deliveries increased by 10%.
“Delivery has become a need to have and no longer a nice to have in the restaurant industry,” says Warren Solochek, senior vice president at NPD group. “Restaurants need delivery in today’s environment in order to gain and maintain share. It has become a consumer expectation.”
So how do you go about implementing delivery services at your restaurant? We interviewed two restaurant franchisee owners and seasoned delivery services pros to learn some best practices. First, for assessing if delivery services are right for your restaurant; then, how to pick a vendor.
Are Delivery Services a Good Fit for Your Business?
Our experts recommend these three steps to help you evaluate whether delivery services makes sense for your business.
1. Run the numbers
For Cassandra Stokes, a Newk’s Eatery franchisee, delivery was a no brainer. “Convenience is a movement. We’re seeing increased sales in delivery, increased sales in grab and go. People want to eat at home or at the office. They’re trying to spend more time at their desk and less time commuting back and forth for lunch. If you don’t do it, you’re missing out on market share; it’s as simple as that. There’s a demand for it and we don’t want to miss it.”But, she cautions, the numbers have to make sense. Service fees and other costs can create a deficit to your bottom line. Evaluate whether your pricing model could absorb some of the cost of adding a delivery service. “We include a slight markup on our delivery orders,” says Stokes. “This helps us partially recoup the vendor fees.”
2. Don’t just base it off the numbers
At least, don’t base your delivery services decisions on the bottom line numbers only. “You have to think about the top line, too,” says Jay Clark, a Potbelly Sandwich Works franchisee. “There’s a marketing value to delivery services that you have to consider; an intangible benefit of being present in that marketplace.”
And, as Stokes pointed out, a competitive value. If you aren’t participating in a space, you’re losing out on an entire occasion for dining.
3. Assess your product
Now that you know delivery services would make sense for your business financially and competitively, you need to make sure your product makes sense for delivery.“When it goes out your backdoor into a car, regardless of who [the vendor] is, how is your company and your brand represented when it gets to the front door of that customer?” Clark says, “It’s important to know what your product is going to look like when it gets to the customer. What will the temperature be? What will that experience be for the customer? If your product doesn’t travel well, or won’t meet your quality standards within the delivery benchmark, you might want to reconsider delivery.”
How to Evaluate Potential Delivery Services Vendors
Next, evaluate your vendors. Here are the five things to consider when deciding on which of the many services to partner with to deliver your product:
1. Does your franchisor have any preferred vendors?
Your franchisor might have preferred delivery services vendors that you should evaluate first. Chances are, they’ve negotiated more favorable terms than you’ll be able to secure as a single franchisee. However, even if your franchisor has a relationship with a vendor, be sure to take the following considerations to ensure that vendor is a good fit.
2. Review Contracts and Fees
Stokes advises reviewing full contracts up-front. “Some vendors we talked to wouldn’t show us a contract until we would commit to them. That’s a red flag. It’s important to know exactly how they’re getting paid. Are there up-front initiation fees? What’s their commission model? Is there a trial period for the service before you have to commit to a lengthier time period? These are all questions that should be spelled out in a contract that you can weigh before signing.”
3. Set Expectations and Processes
Another important aspect to review before signing on with a vendor are the logistics of the actual service.
“Think first from the customer’s perspective,” Stokes says. “How do they use the service? Do they have to call in, use an app, go online? Make sure it’s a process you can feel confident that your customers will respond to.” It’s also important to know how your restaurant will receive the orders and if it’s a process you can adapt to.
Last, but not least, know when and how you get paid. “Is it every day? Twice a month? Once a month? We’ve evaluated vendors with all sorts of payment plans. Ideally, for your cash flow, you want to be paid every day,” says Clark.
4. Ensure Quality Control
It can be difficult to entrust someone else with delivering your brand experience, but there are safeguards you can put in place. “Make sure it’s clearly outlined in your contract what their delivery benchmarks are, if they have a plan for getting orders to customers when they don’t have enough drivers and where refunds come from if a customer is unhappy – your pocket or theirs,” says Stokes.Clearly defining these parameters at the beginning of your vendor relationship will help ensure quality control and set expectations for who’s responsible if something does go wrong.
5. What else do they bring to the table?
So, you’ve found a vendor who can deliver your food to customers. How else can they support your business efforts? “To capture those top-line benefits, it’s important to evaluate what their marketing efforts are,” suggests Clark. “You need to know both how they’re going to market you as a partner and how they market to customers in general to increase adoption of their service.”
“Also consider what integrations they can accommodate with your other systems,” says Stokes. “Integration with your point of sales system, for example, would help streamline your financial processes.”
So, is adding a delivery option to your business right for you? Many restaurants have found that in addition to satisfying to consumer demand for delivery and convenience, it provides an even steadier, more predictable overall income. Use the tips above to evaluate it for yourself and contact us at OnePoint Franchise Accounting to help make financial sense of adding delivery to your business.