Food delivery is big business. Consumers demand convenience and choice when it comes to takeout. Food delivery options used to be limited to pizza and Chinese food, but now virtually any type of cuisine is available to the public. The opportunity is huge. Morgan Stanley Research points to a core addressable annual restaurant spend of $210 billion in the United States alone, of which online food delivery currently comprises only $10 billion – less than 5 percent.
Change and growth isn’t easy but it shouldn’t be painful either. To a certain extent, most restaurants chains are new to the food delivery game, with the exception of established players such as Dominos or Pizza Hut that created their business with delivery at the core of their value proposition.
Technological innovation has seen the rise of third-party delivery companies such as Postmates, Deliveroo or DoorDash. All of which aim to give a quick and efficient solution for restaurants chains that might not have the resources available to build an in-house fleet. On the other side of the spectrum, new software solutions are helping companies manage their existing fleet and optimize operations with a wide range of solutions; from real-time tracking to billing and analytics.
Restaurant chains are under increasing pressure to evolve, and different chains are building out their delivery operations and business models in different ways. Some companies such as Panera Bread have decided to build and scale an in-house fleet in order to retain full control over their brand and supply chain by vertically integrating and aligning their business processes. Other players such as McDonald’s are using third parties to rapidly expand their delivery capabilities. Their McDelivery service, for example, runs via UberEATS, and the fast food chain expects to enable the service at over 3,500 restaurants by the end of June.
Restaurant chains are under increasing pressure to evolve, and different chains are building out their delivery operations and business models in different ways.
Food chains need to carefully assess which delivery strategy would be best for them. These are five main strategic parameters which every food chain will have to take into consideration as they develop their delivery operations plan:
1. The Right Timing
Most restaurants, whether they’re a small family-run business or a global chain, are fully aware of the need to build and expand their delivery offering and capabilities. However, it’s important to remember that it’s still early days for most people in the industry!
New entrants to the delivery game can easily feel ‘left behind’ as other local restaurants and global chains seem to be ahead of the curve and have everything ‘figured out’ already. But in reality, this is not the case even for the biggest players in the industry – both restaurant chains and third party delivery companies are still learning through trial and error. Technology is enabling new capabilities and opening up a world of opportunities, all of which still need to be tested and refined.
So while it’s true that this is the right time to leverage the power of delivery to scale a restaurant business, it’s also important to remain open to the fact that this is still an industry in its infancy and success will be determined by having both the flexibility to iterate, and an open mind to adopt new emerging technologies.
2. In-House Fleet vs. Outsourced
There is no right or wrong approach to scaling a restaurant chain’s delivery operations. Penetrating new neighborhoods, cities and countries is a complex task. Consumer behavior, city infrastructure and legal regulation can differ significantly – and must be taken into consideration as businesses grow far and wide. Having an in-house fleet gives companies the opportunity to maintain control over their entire supply chain: from the uniform of the drivers, down to every cent they bill. On the other hand, it’s easy for restaurant chains that want to quickly grow their delivery operations to choose a delivery partner that will manage the process with an established platform and operating fleet.
It’s important for companies to remember that besides the direct costs related to using an external partner to manage deliveries, there are other indirect costs that come from relying on another brand to handle your product. In a way, restaurants enter a marketplace and compete with all the other chains available through these third parties. Customer loyalty might not lie with the restaurant brand but with the delivery company, so that their ‘delivery experience’ which includes the opportunity to upsell customers would rest almost completely in the hands of a ‘frienemy’.
3. Choosing a Delivery Partner
For independent restaurants or small chains without the human or financial capital to build their own fleet, delivery apps are a fantastic way to spread their wings and expand their business. There’s also the issue of space limitations in restaurants which limits the amount of clients that can be served every day. In addition, delivery prices often match those on the menu which means that delivery overheads can be offset by the savings created by not requiring waiters and other staff needed to serve diners.
It is important for restaurants to choose the right partner/s and thoroughly look into the terms of the different contracts. To ensure a healthy business pipeline a restaurant needs to find a partner with a suitable pricing model, a robust fleet in the regions which are relevant to its business, and a solid reputation with customers. Larger chains might be able to find a delivery partner that can provide them with a full fleet at their service from day one – and they might even get special terms and conditions due to sheer size, but they still need to carefully assess if putting their delivery logistics in the hand of a third party is the right thing to do in the long term.
To ensure a healthy business pipeline a restaurant needs to find a partner with a suitable pricing model, a robust fleet in the regions which are relevant to its business, and a solid reputation with customers.
4. Expanding a Delivery Operation
Scaling a delivery operation successfully requires careful planning. The lure of scaling too fast can backfire if not handled correctly. Properly training restaurant staff, recruiting drivers, and educating customers are all essential for growth. Technology can be adopted at lightning speed but businesses need time to adjust and familiarize their staff with the new processes.
A typical way to approach this is by choosing one pilot restaurant, followed by one neighborhood, and finally rolling out to a full city before moving on to the next. Other chains also use smaller countries in more remote regions, such as the middle east or the far east to beta test new delivery logistics tools, technologies and processes.
When it comes to third party delivery companies, scaling can be much faster since they already have the infrastructure. However, different companies cover different regions so it’s important to understand their coverage and if it fits a company’s growth roadmap. The reputation and popularity of some restaurant delivery companies can vary wildly between cities and countries.
5. Focus on Long-term Vision
A future-proof vision and strategy is essential to building any business. Delivery logistics isn’t something that can be instantly switched ‘on’ or ‘off’. It requires a lot of time, effort and resources, and the decision to gear a business towards deliveries has an impact across the entire business supply chain. A customer-centric delivery operation will change both how employees operate and how customers will perceive the business. Shifting from brick and mortar chains to an on-demand business is a major strategic shift that will add a whole new layer of service to a company’s value proposition – building and cementing brand loyalty and appreciation beyond restaurant premises.
The industry is ripe for change and there’s never been a more exciting time in the food delivery business. Marketing a superior supply chain can help restaurateurs establish a competitive edge, however, as competition for food delivery market share intensifies, companies that leverage deliveries as a core pillar of their business rather than as ‘just another channel’ will outperform their competitors.
Restaurant chains that genuinely understand the pivotal role of deliveries and the opportunities that come with it will reap the benefits of creating a deeper bond with their customers – turning technology and operational efficiencies into superior brand experiences and lasting customer loyalty.