Food on Demand Conference Highlights
The Minnesota contingency that took the stage at the Food On Demand Conference in Chicago April 1-2: Clockwise from center: Ben Cattoor, founder and CEO of Foodsby; Keynoter Celebrity Chef Ivan Orkin (OK, he’s from New York); John Berg, Monroe Moxness Berg; Cynthia Gerdes, founder and CEO of Hell’s Kitchen; and Ryan Palmer, Gray Plant Mooty.
Owning the customer is critical for restaurant operators as the delivery and mobile ordering business evolves, said Andrew Charles, senior analyst for Cowen & Company, in opening remarks at the Food On Demand Conference in Chicago April 1 and 2.
“The best thing that restaurant operators can do is…own that customer and the customer experience,” he said. In May of 2017, he said, 52 percent of customers Cowen surveyed said they placed their orders through a restaurant’s app or website; now it’s down to 30 percent as third-party platforms rise. “Restaurants, this is your wakeup call,” he said, and operators should look at delivery companies as their partners.
He pegged delivery as a $40 billion industry—7 or 8 percent of the entire restaurant business—and set to rise to $60 billion.
He chronicled the rapid progression of development. “Think about the first day, in 2015 it was kind of like caveman discovering fire. What is this? Is it a tool? Is it a threat?” he said about the attitude at the time. “I’m reluctant to say we’re at the halfway point to this though, because there are so many restaurants getting into it. I would say we’re in the third inning.”
Remember, it’s hospitality
Up next was keynoter Ivan Orkin, who has a compelling backstory chronicled in Netflix’s “Chef Table” in 2017.
When the famed ramen chef opened a tiny ramen shop in a suburb of Tokyo in 2007, he’d look out his shop window and see an old lady who ran a tobacco store. “This old lady and I became fast friends,” he recalled, and ultimately taught him a lesson in hospitality and delivery that he shared with the crowd.
“She would cock her head a little bit and I knew that meant she wanted delivery,” so he would prepare her ramen just the way she liked it, put it on a wooden tray, nod to his guests and “walk the precisely 17 steps to her shop. Together we would inspect the tray to make sure that everything she wanted (was there). She would pay me 1,000 yen, and I would warmly depart and go back to the shop,” he recalled.
“That, ladies and gentlemen, is the perfect delivery,” Orkin said, urging the audience to think about how integral hospitality is to successful delivery. “Restaurateurs like myself are ultimately going to choose the vendors that have a robust hospitality quotient in their model.”
Orkin recalled the many times people fed his “obsession with hospitality.” Chief among them was one of his first jobs at a famous restaurant, a four-star New York Times establishment where “the chef was a sight to see. He wore a starched white chef jacket … and he had incredible posture. He would whisk through the dining room touching tables,” Orkin said. “I learned a lot about cooking but the thing I remembered most was the way the chef handled hospitality.”
Heads of state dined there and Hollywood stars. “The chef would walk into the dining room and Henry Kissinger himself could be sitting here, and a college kid could be sitting here with his girlfriend, and the chef would treat both of them the same way,” he said.
Orkin, who owns Ivan Ramen restaurant and Ivan Ramen Slurp Shop in New York City, is now working on a franchised version he expects to launch late this year. He exhorted the delivery providers in the audience—everyone from Grubhub to Google to Amazon Restaurants to UberEats to Postmates to Delivery Dudes—to put that same sense of hospitality at the center of their businesses.
“As everybody here is talking about their algorithms and their software and their earth-friendly containers,” he said, but he believes the most important thing to discuss is hospitality. “What do we need to bring that warmth? How are you going to inject hospitality into what you do? Because I guarantee you that people like me are going to choose the vendors that have embraced hospitality the best.”
Everyone at the conference wanted stats, and the session moderated by Nick Upton, Food On Demand news editor, was packed with data from a SeeLevel survey.
“To the victor goes the wallet,” read the headline on exclusive research prepared by SeeLevel HX, and the victors in the food delivery business are clear—so far.
According to respondents in Minneapolis and Moline, Illinois, where the study took place, DoorDash had 58 percent of the market; Grubhub, 50 percent; UberEats, 39 percent; Postmates, 21 percent; Amazon Restaurants, 13 percent. Bite Squad had 3 percent, but with its recent acquisition by Waitr, National Sales Director Scott Leffel, who helped to explain the research, expects growth ahead.
Part of what this tells us: “When somebody uses your app, you want to keep them,” said Lisa van Kesteren, CEO of SeeLevel HX. “These days because of technology, things are evolving so quickly. The ability to order food on demand is becoming more of a commodity. And I think it’s moving further up the commodity continuum.”
The reasons people use delivery apps have changed since 2017, the first time the survey was given. Replacing cooking at home was the reason for 47 percent of respondents in 2017; that dropped to 43 percent in 2019. Replacing visiting a restaurant in person was the reason for 20 percent in 2017, rising to 24 percent in 2019.
“It’s a tough decision for restaurants, but more and more we’re seeing if you’re not there it’s going to be tough to retain those customers,” van Kesteren said.
Half of users have had a negative experience with delivery, the 2019 survey said, about the same as last time. Leffel offered tips to avoid the complaints: Make sure your menu matches what you have in the restaurant, he said, also recommending “coaching of the drivers, to make sure they’re doing their due diligence” and checking their orders and addresses.
The Foodsby Story
Ben Cattoor, the founder and CEO of Foodsby in Minneapolis, said he came up with the idea for his office lunch delivery app while watching the same drivers make multiple deliveries to the same buildings. The difference with his company and software companies in the Silicon Valley, he said, is that they start businesses out of their garages. “I’m from Minnesota, where it’s too cold to start businesses in our garages,” he quipped. Businesses in Minnesota start in the basement.
In Cattoor’s model, the restaurants he signs up are in control of how many lunches they make and when. Office buildings sign up and workers can then order online, receiving normal menu pricing with an added $1.99 delivery fee and no tipping. Since it’s group buying, there’s no minimum order. When the restaurant makes the drop off, the office worker is notified through the app that the meal is downstairs, or where ever the designated pick-up is located.
Since Seth Priebatsch, founder of LevelUp, joined Grubhub after his company’s acquisition, he’s been bombarded by requests from restaurant operators to give a discount. What he’s heard most often: “Sharpen your pencil,” he said, but he joked there’s a problem with that phrase. “I’m a millennial so I’ve never even used a pencil!”
Now the head of enterprise restaurants at Grubhub, he says Grubhub is trying to figure out how to “break the dysfunctional model” in the food delivery business today, in which the restaurant operators want to own the data that third-party delivery providers collect, but the third-party folks consider that their most valuable asset.
He described Grubhub’s recent partnership with Yum Brands as an exclusive deal, in which Yum restaurants like Taco Bell and KFC use only Grubhub’s ordering platform and in turn Grubhub shares customer data with Yum and “similarly we make the best of our technology and build that into their channels.”
There are two things restaurant operators want to know when it comes to delivery: Can I make any money at this and what are the real costs?
The first question is still under discussion, but Spencer Manke, CFO of the ADF Restaurant Group, a franchisee of Pizza Hut, did break down the costs of a pizza delivery during the first of two franchise breakout sessions at the Food On Demand Conference in Chicago April 1. John Berg of Monroe Moxness Berg was the moderator.
Figured into the cost per delivery are the delivery driver’s wages, mileage reimbursement, insurance, uniform, delivery bag and car topper. For his New York area stores, the minimum wage is $15, there is no tip credit and benefits run about 15 percent, he said. Each driver can do two deliveries an hour, so figuring in salary/benefits, mileage and insurance, a delivery runs about $11.50. The delivery fee in New York, however, was just raised to $4.99. So basically, each delivery costs the company $6.51.
Customers, he added, aren’t willing to pay more than $5 for delivery. But delivery is an important component in customers’ expectation around pizza.
The restaurant group is testing out third-party delivery in New York and Washington, D.C., gauging both the cost and customer reaction. “It’s last-mile delivery,” he stressed, “not ordering through an aggregator.”
Third-party players are currently used for overflow, but so far the results have shown that “they’re more efficient…and can make more deliveries per hour.” The pizza restaurant’s fee from the delivery service is $6.50 to $7.50 per delivery.
There were some complaints in the beginning, he admits, so there are still factors to be considered in changing from the employee model.
And even though the cost of delivery sounds daunting in an industry known for slim margins, “delivery is not going away,” said panel member Rob Grimes, CEO of the International Food and Beverage Technology Association.
But then again the cost and problem of managing drivers may be moot in a few years, he said, as we’ll be seeing autonomous cars doing deliveries.
Perhaps the most colorful presentation was by Jayson Koss, founder of Delivery Dudes, one of the first to enter the third-party delivery space back in 2009. They currently deliver in 60 to 70 cities country wide, but not yet in Minnesota.
Without mentioning Uber by name, he confided that he’s never had a drivers strike, and that many of his drivers move up through the company and eventually have their own city to run.
While definitely high-energy, with a bit of a conspiracy theory vibe— especially around Postmates—Koss had some solid advice for restaurant owners, including: “You’re brick-and-mortar, but you live in a digital world.”
Since he was pitching the model before chefs were familiar with third-party delivery, he had a rather unorthodox way of counter-punching objectives. When a chef told him their food wouldn’t travel well, he would order the most popular dish on the menu. “We’d put it in the thermal and sit around for 10 minutes or however long the drive will take,” he said, and then invite the chef to sit down and eat the meal with them in order to prove it was deliverable after all.
His advice to restaurants using third-party services—or their own drivers, for that matter—is to order from your restaurant at least once a week to see how your food is being transported.
In addition, he suggested, checking out competing restaurants to see how their food arrives and what kinds of packaging they’re using.
Koss’s homework assignment was for operators to go on the various search engines and look up their restaurants. “Do you know how many delivery or takeout (sites) have your restaurant listed?” he warned. Most likely, you’ll find some you never signed up with have you listed, he added. Also check on where your site ranks on the landing page, because often the services delivering your brand will be higher than your own site. Data is powerful, he said. And it’s not enough to just deliver, you have to ensure that the customers’ experience eating your food in their home or workplace is representative of the experience in the restaurant.