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    Should Restaurants Embrace the Middle Man with Delivery?

  • As delivery expands, brands look for ways to maximize a rapidly growing source of revenue through a network of third-party providers and efficient technology.

    Wow Bao
    Wow Bao integrated third-party delivery centrally into its POS three or four years ago.

    In a quick-serve industry beleaguered by fierce competition, labor shortages, and razor-thin margins, delivery presents a rare bright spot of incremental and even replacement revenue for operators who prioritize convenience and efficiency.

    “Back in the day, what we loved about delivery was that it was incremental sales, and didn’t cost us additional labor or rent,” says Geoff Alexander, president of Chicago-based steamed bao bun chain Wow Bao, which was among the first quick-serve brands to partner with DoorDash. “Now that people are staying home and able to get delivery so much easier, there’s been a shift in the business. Customer counts might go down while delivery sales go up. The best answer is to find ways to embrace that within your business.”

    Though delivery sales account for just 3 percent of restaurant business (per the National Restaurant Association), they’re projected to outpace on-premises revenue by three times through 2023, according to L.E.K. Consulting. By 2030, global delivery sales could rise an annual average of more than 20 percent to $365 billion, up from $35 billion in 2018, according to forecasts by investment bank UBS.

    Third-party providers in the U.S. and abroad are snatching up smaller or competing businesses to quickly expand their customer base and acquire new technology. In 2018, restaurant delivery company acquisitions grew 37.5 percent from the previous year, Food Institute data found. Grubhub purchased two delivery companies in 2017, which helped it expand in Iowa, the Carolinas, and Washington State. It more recently inked partnerships with White Castle and Taco Bell to offer delivery nationwide in markets where both brands operate. In 2018, Uber Eats snapped up Ando, the delivery-only restaurant started by chef David Chang. Uber Eats also partnered with Starbucks to help the coffee giant expand delivery to more U.S. stores.

    “I don’t believe we’re anywhere close to market saturation with third-party delivery,” says Michael Krueger, counsel at law firm Newmeyer & Dillion. From an operator standpoint, “if you do it right, you hit a certain point where it’s all profit,” he adds. Beyond embracing the middle man, that means understanding your own business—everything from managing food and labor costs to negotiating a good building lease. “If you’ve got your own data, you can rely on that. [If it] says you can sell, say, 30 percent more without increasing a shift and only increasing the cost of food, you know exactly what numbers to hit on those delivery costs to minimize the overall increase,” he says. Traditional leases often contain clauses enabling landlords to take a percentage of delivery fees after profit interest hits a certain number. “Delivery [fees] should be the last thing you worry about,” Krueger says.

    Online ordering has grown five times since 2016 for smoothie and cold-pressed juice chain Nekter; around 35 percent of all sales come through the health-food brand’s app. About three years ago, Nekter started testing delivery with DoorDash at five stores as the next logical extension for getting healthy snacks and meals to customers seamlessly. The brand went all in on the investment last year, signing on with multiple providers, including Grubhub and Postmates. “With delivery-service providers, we’ve always looked for price, reach, and reliability, with emphasis on reliability,” says director of digital marketing  Jon Asher. With each additional delivery provider comes another tablet, which requires manual order entry into Nekter’s POS system along with constant monitoring, so Nekter recently invested in technology to integrate third-party orders into its own POS through aggregator Olo.

    It makes sense for established names like Starbucks and Taco Bell to sign exclusivity deals with third-party providers to secure cheaper rates, which can cost an extra 12–18 percent per order, or, in the case of UberEats, as much as 30 percent. But for mid-tier and smaller chains, using multiple providers means more visibility. Wow Bao’s team considered signing an exclusivity deal with a single provider for a better rate and stronger relationship with its drivers, but seeing major brands back off of choosing one provider (i.e. when McDonald’s killed its exclusivity deal with Uber Eats) made the brand rethink its approach. Alexander acknowledges that there are challenges like high commission costs and lack of control over the customer experience.

    Wow Bao integrated third-party delivery centrally into its POS three or four years ago via streamlining technology provider Chowly. While other restaurants have built out delivery-dedicated lines to minimize disruption, the chain fully automated three of its Chicago locations using end-to-end technology platform Eatsa. Orders are taken via app or in-store kiosk. Once prepared, the food is placed in cubbies, which display customers’ names and “Uber Eats” or “DoorDash” in LED lights, facilitating pickup for drivers. “A lot of people talk about third-party delivery as being a disruption,” Alexander says. “I don’t look at it as disruption; I look at it as innovation. At the same time, delivery has to work for your concept. Don’t just do it to do it.”

    Krueger shares that sentiment, adding that brands embracing innovative efficiency stand to profit most from this growing segment. “We’re talking about efficiencies,” he says. “That will be the best utilization of delivery: establishing an ordering system not to reach only one location, but to produce food and beverage as quickly as possible.”