Food On Demand: Not All Delivery Tales Are Rosy
For anyone tired of success stories and positivity comes the other shoe dropping—the troublesome experience in delivery by Gino’s East Pizza of Chicago and Hell’s Kitchen in Minneapolis, both iconic restaurants in their respective cities.
Cynthia Gerdes is CEO of Hell’s Kitchen with its 35-foot-long bloody Mary bar and sales topping $7 million. “Our costs also expanded,” she noted at the Food On Demand Conference, including $152,000 in payroll every two weeks and rising rent. “I got the brilliant idea and we turned to delivery for additional revenue.”
By the end of 2017 revenue from delivery was hitting $2 million and “we were a $9 million company, but we were always strapped for cash.” She enlisted consultant Rodney Johnson, now on the Hell’s Kitchen board, for an analysis, and he determined delivery was costing the restaurant 40 percent of sales, an unsustainable amount.
“The first principle everyone needs to appreciate is: Incremental sales does not necessarily equate into incremental profit, especially if you’re an independent restaurant. Very few independent restaurants really know their numbers,” he said. They ended up stopping delivery, at least for the time being, and began climbing back from the brink. “A couple of things happened when we pulled the plug. No. 1 our bottom line started to improve, but also the staff started loving us again,” Gerdes said, because the restaurant returned to operating smoothly.
Jordan Himmel, chief information officer of Bravo Restaurants, including the madly popular Gino’s East, has pointed ideas for improvement for delivery providers. His best idea, to this observer’s mind: If there are demand-based delivery fees there should be demand-based pricing, meaning restaurant operators should be able to charge more for products when everyone wants to buy them, just like ride-share apps charge more when everyone wants to move around.
Ryan Palmer and Eli Portnoy
Much is made of the perceived leverage third-party services have over the restaurants whose food they deliver, but in reality, “Operators have the real leverage because the third-party apps need you as much as you need them.”
That was the conclusion from Eli Portnoy, founder and CEO of data insight firm Sense360, after he analyzed survey responses from 5,000 consumers, along with transaction data, to learn how they think about and use convenience-oriented services. “At the end of the day, fees are the No. 1 consideration” for customers, followed closely by restaurant selection, said Portnoy. Ryan Palmer of Gray Plant Mooty moderated the panel.
Ninety-three percent of respondents said they already knew about the restaurant before ordering through a delivery platform, and 91 percent had visited in person, meaning delivery services aren’t the driver of customer acquisition for restaurants—it’s the other way around.
“Restaurants and brands are actually the customer acquisition tools for the apps,” said Portnoy, and partnerships with franchise and chain restaurants are driving growth for the likes of DoorDash and UberEats.
“Having the right restaurants and variety of chains are massively important” to customer acquisition, said Portnoy, who encouraged operators to first determine how they want delivery to function in their restaurant, such as to boost incremental orders during a specific day part, and then identify the best service. DoorDash and Postmates capture more delivery orders during breakfast; Grubhub has higher market share during afternoon and dinner day parts, and UberEats is popular for late night orders, he said.
The numbers from Sense360 showed 63 percent of orders are incremental, but “cannibalism is a real threat,” said Portnoy, and operators need to closely track delivery sales to continually validate performance.
— Laura Michaels