Is Self-Delivery the Future of Restaurants?

Many full-service brands are taking control of the experience.

August 2018 Gary M. Stern

For years, it was the local pizza shop and pizza chains like Domino’s that delivered dinner to your door in a half hour or less, or the meal was on them. Those were the days.

Now most full-service eateries offer home delivery through third-party vendors like Seamless, Gruhhub, and DoorDash. And now many eateries are exploring presenting their own version of home-delivery, taking control of the situation, and reclaiming more of the increasing revenue of shipping out meals.

Full-service eateries are keeping pace with changing consumer trends. Pressed for time and often in a rush, many customers don’t have the time to dine out, but still want the food quality offered by sit-down brands. Families and millennials alike are target audiences for quick home delivery of meals after work. Hence, home delivery has proliferated nearly everywhere, except in remote and rural locales.

Providing home delivery is a facet of the customer service that full-service eateries extend to their clientele. “Service is important to full-service restaurants. It’s how they distinguish themselves from not full-service restaurants, besides quality of the food. It’s one way they charge premium prices,” says Gary Stibel, founder and managing director of Westport, Connecticut-based New England Consulting Group.

Most restaurants have introduced home delivery by relying on easy to use third-party vendors. But it seems only a matter of time before many eateries consider offering their own home delivery and then can choose which option to use: deliver it themselves or choose the vendor.

At this point, most full-service eateries rely on third-party vendors because costs are high to set up, “and if you join a platform you benefit from scale of having other restaurants already on it that can drive traffic to you,” says an industry analyst, who prefers anonymity.

When orders are placed by phone, app or via the eatery’s website, the restaurant can determine whether to use its employees or delegate it to the outsourcer. The decision is primarily based on “how busy the restaurant is at that time and whether there’s staff available to fulfill the delivery,” Stibel says.

When using Seamless or Grubhub to fulfill the order, restaurants relinquish 15–25 percent of the check, or more, to the third-party vendor. “While these fees may not bode well with owner operators, the orders generated from third-party vendors are incremental,” Stibel says.

The trap is when third-party vendors do something that maligns the chain’s reputation by rude or brusque service. “The level of operational excellence differs greatly not only by third-party vendors, but also by driver,” Stibel says.

"We don’t have visibility about data, nor is it integrated into our loyalty program." — Red Robin VP of business operations Jason Rusk on third-party delivery.

Red Robin

Red Robin reported an increase in off-premises sales of more than 40 percent from the previous year.

Red Robin dives in

But deciding whether to provide home delivery and not just rely on third-party vendors is a complex issue for most restaurants involving staffing and execution. Take Red Robin, which has 560 restaurants located in the U.S. and Canada. It is currently testing whether to introduce home delivery, though it currently relies on Grubhub, Amazon, and DoorDash, depending on location, says Jason Rusk, its Greenwood Village, Colorado-based vice president of Business Innovation.

“Because online ordering has shifted retail, restaurants are less of a destination. As more purchases are made online, our approach is go where the guests are, and that involves more catering and for families dining at home,” Rusk says.

Currently, “it’s capturing incremental sales” via its third party vendors, Rusk says. But Rusk emphasizes that by relying on third-party vendors, restaurants “lose control of the experience, including temperature and timeliness.”

Moreover, the customers see themselves as ordering from DoorDash, not Red Robin, and that reduces brand identity. “We don’t have visibility about data, nor is it integrated into our loyalty program,” he says.

Though Rusk says it has maintained positive relationships with its vendors, “if something is wrong, they [the customers] don’t blame DoorDash, they blame the restaurant, which may or may not be our fault.”

While home delivery appeals to a range of customers including baby boomers and GenXers, Rusk says millennials drive it. “It’s a culture they’ve been brought into; the convenience at the tip of their fingers,” he says.

Rusk adds most home delivery orders don’t include alcoholic beverages or soda, but often customers order additional food, knowing it can be immediately be stored in the refrigerator. Further, they “don’t feel guilty in front of servers,” he says. Customers prefer ordering home delivery from the full menu, without any restrictions.

In its April 22 first-quarter financial results, Red Robin reported an increase in off-premises sales of more than 40 percent from the previous year.

Determining whether Red Robin green lights home delivery is based on “figuring out how we can do it,” Rusk says. Will home delivery work in most locations? Might third-party delivery work in some locations, but not all?

It also has to contend with staffing since finding trained delivery staff has become extremely difficult based on competition from Amazon, Uber, Lyft, and third-party delivery services. It also must ensure it can grow the volume.

“You want home delivery to offer the same emotional connection that customers receive from their server,” Rusk says.

Famous Dave's

Famous Dave's is seeing a delivery check of $27 per person.

Barbecue on the move

When Famous Dave’s, a Minneapolis-based barbecue chain with 151 locations in 32 states with 135 franchises and the rest company-owned, introduced third-party home delivery via Uber, DoorDash, Grubhub, and Amazon in August 2017, several operators were skeptical of its benefits, says Geovannie Concepcion, Famous Dave’s COO.

Franchisees wondered why they had to relinquish 20 percent or more of the revenue to the vendors, whether it would cannibalize its business and attract new customers. Moreover, Famous Dave’s was in turnaround, closing stores that didn’t work.

After a year of offering home delivery, revenue in stores that offer it has spiked 4 percent, Concepcion says. “We’re reaching a younger demographic that wouldn’t have walked through the door,” he says. In a test run with DoorDash, 20 percent of home delivery customers reordered a second time.

Furthermore, its in-store average check was $17 but home delivery’s check was $27 per person. “People in social scenarios are more hesitant to make impulse buys,” Concepcion says.

Though it will likely maintain its third-party vendors, Concepcion says that in a year or two, it is considering introducing Famous Dave’s home delivery service to add to the mix. He compares it to airlines that use third-party online booking sites but prefer that customers rely on its own website.

How can you stand out?

To make home delivery a differentiator, full-service eateries must ensure that it is done right, and superior to what is offered by the local pizza shop, Stibel says. It must be delivered by staff that is polite, responsive to customers, well-dressed and professional. For example, full-service delivery staff is trained not to make the customer feel inadequate if the tip isn’t large enough.

“It can’t be the same as the guy who drops off your pizza or submarine sandwiches going from house to house and not make the customer feel special,“ Stibel says. “A full-service restaurant needs to deliver more than that,” he adds.

To develop a successful delivery service, several ingredients must be in place, Stibel says including:

One: “It starts with an app that has to be engaging, appetizing, inviting,”
Two: The experience that the restaurant provides in its eatery must be extended seamlessly (no pun intended) to the client ordering from home.
Three: Food must be of comparable quality to what is served in the restaurant; hence packaging must maintain the fresh, texture, and taste. Even pizza, which travels well, must be packaged effectively. “You don’t want to see half your pizza on the top of the lid,” Stibel notes.

Foods that don’t travel well—such as fries that lose their texture or sandwiches that turn soggy—shouldn’t be included on the delivery menu or must be packaged to ensure freshness.

"What you don’t want is to have people waiting. The worst thing is to promise delivery in 30 minutes that takes an hour." — Gary Stibel, founder and managing director of New England Consulting Group.

To keep costs down, many restaurants hire Ubereats, which is an easy way to make deliveries. “That’s the easiest way to launch but gets expensive,” Stibel says. Many restaurant chains hire drivers with their own vehicles. But if delivery revenue proliferates, buying an automobile, which can also be used for catering, can make financial sense, Stibel says.

Industry-wide, most full-service eateries are generating 7–9 percent of their total revenue on home delivery, but the chains that are more adept can see that income spike to 20 percent, Stibel’s data reveals. “It can start small, and as they learn and word gets out, it can grow,” he says.

Delivery time can vary depending on the restaurant. “What you don’t want is to have people waiting. The worst thing is to promise delivery in 30 minutes that takes an hour,” Stibel says.

It’s tough to compete with the pizza chains that guarantee service in a half-hour. It can be done at 5 p.m. when demands on the kitchen are modest, but tough at prime time when the kitchen staff is fully engaged. Being honest and forthright with customers about waiting time usually helps avoid any snafus, Stibel suggests.

Another trap is when most customers order home delivery they forgo choosing high margin beverages including liquor or soda. “The only way around this is for restaurants to offer promotions that entice guests to add beverages to their order during specific days,” Stibel says.

Furthermore, restaurants relinquish their established relationships since guests don’t see their favorite waiters or maitre d’s. Nonetheless, many restaurant chains are exploring introducing their own branded home delivery, in response to growing customer demand.