Prior to the pandemic, most restaurants were dipping their toes in off-premise dining channels. We recognized that consumer needs were shifting and looked for ways to cater to the nearly 60 percent of customers in the U.S. that order delivery or takeout at least once a week. Although we knew the benefits of third-party delivery and online ordering, we didn’t know it would soon be our only way to do business and that the demand for both would soon skyrocket due to an unforeseen crisis.
COVID-19 has forced restaurant owners to learn how to adapt; not just to survive the crisis but thrive beyond it. Since the crisis began, many of us have seen our revenue streams change almost overnight. Before the pandemic, third-party delivery accounted for about 15 percent of our overall sales. Now, we’re at a staggering 40 percent.
While restaurants continue to reopen dining rooms across the country, we are not expecting demand for delivery and online ordering to go away. The partnership between restaurant brands and third-party delivery companies can be a win for everyone when restaurants solve for the pressure on net margins from the channel. Once this has been achieved, we can both rely on each other in times of triumph and times of crisis.
Here are a few things to consider as brands continue to capitalize on third-party delivery and online ordering services:
It’s not too late to begin a partnership with a third-party delivery provider. As dining rooms continue to reopen, consumers are returning at a cautious pace. Numerous polls have shown only about 20-25 percent of consumers feel comfortable dining in a restaurant. While this percentage will continue to grow as time goes on, there will still be many people that are not quite there yet. If you have not taken advantage of these delivery services or online ordering platforms, you need to embrace this channel because it’s here to stay.
Integration with your reward system is crucial. A restaurant can be live with DoorDash or UberEats within a week, but you also need to integrate it with your POS system to keep everything fluid. Offering mobile ordering or loyalty programs encourages 45 percent of consumers to use online ordering services more often. When you integrate your online ordering platform with your reward system, guests can reap the benefits of dining at your restaurant even when they are not physically there. This is a big traffic-driver and proved to be of huge value with takeout orders when dining rooms were closed.
Offset the margin to create a mutually beneficial partnership. Net margins and free cash flow are a priority for an emerging brand. We figured it out a while ago through trial and error. Our sales were growing from third-party delivery, so we leveraged our relationships with UberEats and DoorDash, and they were able to create a mutually beneficial partnership with us. We reduced commissions by going through a smarter set of providers, and we initiated a premium pricing model where customers pay 20 percent if they use those services. If they are doing a great job of getting food to the consumer, then as a restaurant owner and operator, I’m happy.
Third-party services can amplify sales while dine-in traffic increases.
While restaurant owners are in the process of reviving their dine-in traffic, third-party services can be a great marketing tool. For example, we will be providing bounce-back offers to incentivize these guests to use our online ordering service. Informing them about the offer will remind them that curbside pickup is an option, and they can accrue benefits for their orders if they join our rewards program. Now that we have come close to achieving parity on margins for third-party delivery orders with our premium pricing model, we can also offer incentives, like free delivery, to boost sales through this channel as needed.
Technology and digital ordering tools are more important now than ever. Brands that did not have those pre-existing partnerships are having to play catch up. Since 2014, delivery and digital ordering have grown 300 percent faster than dine-in traffic. And, since delivery has become the primary connection to customers, brands are faced with promoting the channel or getting left behind. Those who nurture a strong relationship with their partners and continue to tailor to the stay-at-home consumer, even with dining rooms open, will be the ones who ultimately succeed.
Tinku Saini is co-founder and CEO of Tarka Indian Kitchen, an Austin-based eatery known for serving fresh and flavorful Indian food that is also fast and affordable. Saini operated restaurants for over two decades including a their full-service concept, Clay Pit. Prior to opening restaurants, he was the Environmental Editor for the Seattle Daily Journal of Commerce.