There’s little debate third-party delivery is rushing through the restaurant industry. Upserve says 60 percent of U.S. consumers order delivery or take out once a week. Additionally, 59 percent of orders from millennials are taking place outside the restaurant.
Another way to illustrate this: According to The NPD Group, 46 percent of Baby Boomers order less than one meal per month via delivery. For millennials, though, it’s 29 percent who order one or more meals per WEEK via delivery. Dining out of home currently represents an $870 billion slice of the restaurant industry, and it’s only getting bigger and harder to be profitable in.
More data points:
- 28 percent of consumers stay at home more versus two years ago.
- Among 18–34 year-old guests, 30 percent are replacing carryout with delivery.
- In 2018, there were 2 billion-plus digital restaurant orders taken.
- Where is this going down? Customers absorb 11 hours of screen time per day and the average user spends a total of 34 days per year on social media.
So, it’s a pretty concrete reality that revenue is flooding the channel. But there are abundant cost hurdles and delivery concerns afoot. Here’s an article exploring why some brands are rejecting the service.
A question many quick-serves face, however, is whether or not it’s more budget and brand friendly to hire in-house drivers or work with a third-party platform. Fast casual Cousins Subs does both, and there’s a reason for that.
Justin McCoy, the chain’s VP of marketing, took some time to chat with QSR about Cousins Subs’ strategy, the pros and cons of both approaches, and how brands can uncover what works best for them.
Let’s start by talking about the decision to both hire in-house drivers and work with a third-party platform. Why did deploying the two strategies make sense for Cousins Subs?
Prior to the explosion of the third-party delivery market, we had been experimenting with delivery both in corporate and franchise locations. These tests included full-service delivery and catering delivery. As demand began to grow and the third-party market expanded into our region of the country, we made the decision to further explore a partnership with a third-party delivery provider. After a careful review of our options, we decided to enter into a preferred partner agreement with a leading DSP that was also integrated with our online ordering provider. Today, we offer third-party delivery through nearly 85 percent of our locations systemwide. To better serve the downtown Milwaukee businesses and residents, we opened our first commissary location this summer. Through this location, we provide first-party delivery in downtown Milwaukee. We listened to our guests. They wanted delivery options, and we delivered through a DSP and our in-house channel.
How long has the brand offered delivery? What did the first version look like?
We began our initial testing of in-house delivery several years ago. We conducted tests through our corporate-owned locations in which our crew members delivered orders in company-owned, branded vehicles. Recently, we signed on a third-party DSP and gradually rolled out delivery systemwide. This past summer we opened our delivery-only restaurant in downtown Milwaukee.
What did you learn in those early days?
Identifying and retaining quality delivery drivers while trying to grow volume is a challenge. We made adjustments as we went along regarding pay, fees and responsibilities for in-house drivers. Additionally, we had to make some adjustments related to the timing of product preparation given that we offer grilled and fried menu items in addition to cold options.
Going back to the first- and third-party delivery conversation, can we break down some pros and cons of each? While you can control the experience better with in-house drivers, you also need to hire them, naturally. How big of a challenge is that in today’s labor market? How has Cousins Subs tackled it?
Hiring in-house drivers is a difficult task. We found it to be difficult because these crew members are only delivering for your brand versus working with a DSP to drop off dozens of orders from a variety of restaurants. That said, companies that offer first-party delivery need to build enough volume to keep drivers busy and compensate them appropriately. In terms of pros and cons of each, they are what you’d expect. In-house delivery allows you to train and control the representation of your brand. You own the transaction from beginning to end and are not subject to fees. Hiring in-house is difficult, building the business, insurance and vehicle expenses are all challenges. Third-party DSPs offer a network of drivers and eliminate a number of the challenges I previously outlined regarding in-house delivery. However, challenges of third-party DSPs include fees, lack of control as to how your brand is represented throughout the transaction and the impact on operations if restaurants utilize DSPs who are not integrated into their tech stack.
Is the decision to pick one or the other (or both) up to operators? And if so, what argument do you typically hear being made for wanting to go the in-house route?
We have very few franchisees offering in-house delivery. Some offer limited delivery for catering or larger orders, but very few offer full-service delivery. By negotiating a preferred partner program for the brand and managing the third-party DSP relationship for our system, we’ve received overwhelming buy-in from our franchise partners.
For third party, the challenges are pretty well known. Protecting brand value. Denigration of food quality. Costs, of course. What has been Cousins Subs’ experience across this spectrum of hurdles?
From the start, we analyzed DSPs closely to determine who we felt we’d have the least challenges with. That legwork put us in a better position out of the gate, but hasn’t eliminated all challenges. Overall, we have systems in place for when a transaction fails and work quickly to rectify the situation. Errors like failed transactions have been minimalized by protocols we’ve put in place, which we are constantly analyzing to update as needed.
What solutions have you tapped to make it as streamlined and profitable as possible?
We have chosen to only work with DSPs who are integrated into our current tech stack and have negotiated preferred partner agreements on behalf of our system.
How does Cousins Subs’ third-party delivery guest differ from the in-house one? Or just from the dine-in guest, too?
As with online orders for pickup, we see a lift in average check. We have not done a deeper dive into metrics like demographics and psychographics yet to differentiate. It’s important to note we promote delivery in all advertising regardless of the channel and or demo.
Have you found the service to be incremental?
We have found a portion if not significant portion to be incremental based on our analysis.
What advice would you give a restaurateur hoping to play in the delivery space, and make it profitable?
Identify the right DSP for you, and negotiate a preferred rate once identified. If need be, adjust menu pricing accordingly to be the most successful.
What do you think the future of the space is? Do you see more of these aggregators consolidating? How do you think it will change?
I would be shocked if we don’t see a consolidation of DSPs or other tech service providers acquiring a DSP and adding it to their range of services.
How do you prepare employees for delivery, while making sure your dine-in service remains a key priority?
We have developed a system for handling incoming orders by working closely with our operations and training teams.
