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    Why Restaurants are Missing the Point with Delivery Fees

  • The CEO of category disruptor Kitchen United sees opportunity where other brands see a problem.

    Kitchen United
    Kitchen United is a virtual kitchen company looking to change the off-premises game.

    It’s part of my job to be constantly in conversation with operators from large and small restaurant chains. As the CEO of a company working to better enable off-premises business for restaurants, it’s inevitable that the conversation frequently turns to commissions charged by delivery marketplaces. Pair that with my experience as a restaurant owner that runs delivery out of my restaurant, Town, and it’s a topic I discuss and dissect daily. In the last month I’ve heard the CEOs of some of the largest restaurant chains in the country talk about the “unsustainability” of the model. I see things differently. I see opportunity.

    Let’s face it: commission fees aren’t going away and they’re not going down, at least not any time soon. Though the marketplaces sometimes buy market share with lower fees, these are all temporary. With costs as high as $2,500 for driver recruitment, and competition increasing costs for consumer-app adoption, the marketplaces have to increase revenues from their only revenue sources: their restaurant partners. Instead of dwelling on whether these fees will go away or change, the better question is whether there is a way to change the fundamental nature of our business so we can profit in spite of the fees.

    Thirty percent is no small number. The larger chains are able to negotiate the commissions down, but even so, the percentage paid to the marketplace is a burden if it’s seen solely as cost of goods sold, which is how pretty much everyone is looking at it.

    This is where I think we go wrong. A few facts:

    Marketplace sales are on average 80 percent incremental to restaurant sales. Read any major research study, even those that are friendly to restaurants, and this metric comes through loud and clear. Stated another way, once the consumer decides to stay home, they’re going to stay home. If you’re not on their chosen shopping source, you’re not going to serve them. Consumers who order through a marketplace can’t order from your restaurant if you aren’t where they’re shopping.

    People who dine at home aren’t choosing not to go out, they’re choosing not to cook. Trips to restaurants on average are down less than one visit per month, even for heavy users of delivery. In fact, studies unanimously show that the heaviest users of delivery are also the heaviest users of restaurant services overall. They’re an incredibly important target market for restaurants.

    Their proximity to your restaurant makes these diners your holy grail target market. The fact that these consumers are able to order delivery from your restaurant means they live or work less than three miles away, and in many cases are likely much closer.

    When I look at all of that in context, what this starts to look like to me is a flashing white light of opportunity.

    In the past if I wanted to market my restaurant to potential consumers, I had to buy advertising I knew was inherently inefficient. Major chains buy TV advertising knowing that the vast majority of people they’ll reach have no interest in ever coming to their dining rooms.

    What if there was a way to market only to people who show by purchasing in advance that they have a 100 percent intent in wanting my food? What if, further, I knew with 100 percent certainty that these consumers live within the addressable radius of my restaurant? How much would I pay for that kind of advertising?  When I look at it that way, the marketplace fee seems comparatively cheap.

    That’s how I’ve chosen to look at the fees charged by the delivery companies. The shift in our perspective with regard to fees is palpable. The question isn’t, “how do I get the fees down?” It’s “how do I use the opportunity created by the order to convert a consumer from an at-home-only consumer to a ‘we love coming to eat at the restaurant consumer?” 

    The answer to that is in the food of course, and by ensuring the overall delivery experience is an appropriate extension of your brand. There is much discussion around losing control of the experience to third party, but that simply is not true. You control what goes into the bag. Surprise and delight your consumer with an added desert or a small token of appreciation such as extra bread with a note. These small gestures keep you top of mind and can create loyal customers for life. Building genuine relationships with guests is the heart of the restaurant industry. Third-party delivery should be viewed as a valuable new way to make new friends.

    Jim Collins is Chief Executive Officer of Kitchen United, the virtual kitchen company building efficient off-premise, pickup and delivery for forward thinking restaurant brands. He is also the founder, owner and operator of Town Kitchen and Grill in Montrose, California, a 100-seat new American restaurant that recently won 10 best new American restaurants in Los Angeles.