Delivering satisfaction?

With over 1,000 restaurant companies filing for insolvency last year, dining businesses are going bankrupt at record levels. The reasons for this have been widely commented on and indeed have been explored by MBS in previous editions – business rates, market saturation, food prices, currency and wage costs have created a lethal cocktail which has put significant pressure on all operators in the sector.

Many restaurants looking for additional revenue streams have understandably turned their sights towards delivery and the rise of third-party operators such as Deliveroo, Just Eat and Uber Eats has made this an accessible option for restaurant companies of all shapes and sizes – and it makes sense. In an age where more people are working from home and have less time to go grocery shopping and prepare meals, delivery is clearly filling a consumer need – convenience. This has been highlighted by the likes of Gousto entering the market and delivering healthy, simple meal solutions straight to your home.

From an operator’s standpoint the logic is simple. Delivery allows them to capitalise on their loyal customer base and drive more business from an existing location. It now makes up a significant portion of their revenue and has been one of the major factors driving like-for-like sales for restaurant businesses over the past few years.

It’s clear delivery is becoming a critical part of the dining ecosystem and it feels unlikely this will change. But are restaurants and third-party delivery companies happy bedfellows?

Operationally, your typical restaurant company is just not set up to work with the likes of Deliveroo – they’re set up to deliver a great in-house hospitality experience. They are designed to welcome guests, sit them down, hand them a menu and talk to them about today’s special. They lose control of the experience the moment their food leaves the restaurant.

On the flipside, delivery apps aren’t set up to work with restaurants either, they’re smart logistics platforms geared towards speed and convenience. Their success is driven by technology and sales and ultimately the restaurant pays their fee not the end consumer.

The service fees – which can reach upwards of 30% for some operators – are another challenge. Larger operators have the market share and higher order count allowing them to enter exclusive partnerships and negotiate down service fees. Smaller restaurants just don’t have that kind of negotiating power and hand over a huge proportion of their margin to these 3rd parties.

Additionally, by allowing 3rd party apps to own their customer data, the restaurants themselves are loosing a powerful tool for future direct communication with customers, and forfeit any opportunity to utilise data from online orders to drive footfall into their restaurants. Who is to say the likes of a Deliveroo at some point, using the customer data they have acquired, won’t create their own restaurant brands, fulfilled by ‘dark kitchens’, in direct competition with the restaurants they currently deliver for?

That being said, more and more consumers are ordering their dinner from third-party delivery platforms, and there’s no doubt that these services have contributed to the growing demand for takeaways. As a result, some restaurants feel obligated to sign on with them – sacrificing their own profits to feed demand.

For these reasons, many restaurants have found it difficult to integrate delivery platforms into their offerings, which has had a tangible impact on the end user experience. Restaurants have reported frequent complaints from diners receiving food late, cold, or even outside of its packaging. And too many times from my own experience have I been disappointed by the difference in quality between the same dish at home vs in the restaurant from where I ordered it. It’s also never a pleasant sight to see drivers hanging around in restaurants whilst they wait for orders – and it’s often the case that online orders take precedence in the kitchen at peak times, increasing the wait time for customers that are dining-in.

This has a detrimental impact on a restaurant’s brand. Larger restaurant companies spend a great deal of resources on cultivating their images. Creating brand value and loyalty through experience that lives in the mind of the guest long after the meal. That all goes up in smoke if a food delivery turns up looking barely edible.

So, can delivery be the new remedy to access growth? Or is it the new discount drug – shooting for lower profit sales that ultimately can hurt your brand. The answer is probably neither but what is clear is that for certain operators, getting delivery right is critical. And it would seem there are some fundamental steps which can be taken.

Firstly, there is almost no restaurant industry representation on the boards of the major delivery platforms and on the other side of the table, very limited technology and logistics representation on the boards of the major restaurant companies. The benefits of bringing in know-how, expertise and equally as important – relationships are clear and both sectors should seriously look at how they can supplement their existing talent.

Secondly, restaurant operators could explore forming dedicated delivery divisions within their companies. This won’t be right for everyone but certainly for some, allocating budget and resources to focus on the operational implementation of a delivery business could be transformative. This business unit would be specifically tasked, for example, with managing relationships with third parties and optimising format and layout for both front and back of house to work more seamlessly with a dine-in/takeaway model. They would also be responsible for experimenting with new concepts like dark kitchens or developing entirely new formats that are fine-tuned for a multi-channel world.

Lastly, companies need to approach delivery in different ways. From a packaging perspective, the larger companies need to move up the supply chain and work with manufacturers to develop smarter packaging. They also need to work in partnership with platforms to develop bespoke delivery menus and pricing that can provide a consistent quality at value.

Despite the obstacles, there are examples of success in this field. When done well partnering with delivery companies can be transformative and for some has been a blessing. Uber Eats, for example, uses logistics data from its parent company Uber to provide information on traffic, weather and live metrics to its restaurant partners for the smooth running of delivery. Provided they can meet the orders, restaurants can use this infrastructure to send out dozens more meals each evening.

Delivery has the potential to be great as it gives people the opportunity to easily recreate restaurant quality dining and variety in their homes. However, it will be a wasted opportunity unless tech companies and restaurants can find a way to work together more seamlessly. And the complexity should not be underestimated – a vacuum cleaner that takes 30 minutes longer to deliver from Argos is still a vacuum cleaner. A dish that takes 5 minutes longer to arrive becomes a completely different meal altogether. | @TheMBSGroup | The MBS Group