Delivery: How Do Operators Make Money? By Neil Culbertson, Founder and President, Growth Partners LLC
The rush is on to 3rd Party Delivery but how “economic” is it? I was fortunate to moderate a terrific panel at the recent Restaurant Finance & Development Conference. Our focus was on the cost side and the resulting margins and included executives from Red Robin, CoreLife Eatery, McAlister’s Deli and Pincho Factory.
Despite the fact that Delivery has been growing at a double digit rate and is forecasted to accelerate further, the majority of our RFDC audience was either unhappy or uncertain with their current delivery situation.
The panel agreed that, overall, 3rd party delivery is “a mixed bag”:
McAlister’s Deli and Pincho Factory shared actual results on overall Delivery margins:
McAlister’s uses a full labor allocation; the resulting dollar margin is approximately 50% of their Takeout margin. The company is testing slightly different pricing that would enable them to get to 90% of Takeout. It’s noteworthy that Delivery is providing good incrementality, outside of its core dayparts.
Pincho Factory has seen only a marginal increase in labor, so they assign only “incremental labor” to delivery. This allocation results in margins that are much better than if they were loaded with full labor. With the highest delivery percentage of sales at >15%, Pincho is paying very close attention to the economics. The panel offered several strategies for improving profitability:
Job 1 is to manage labor very closely. One brand adds no labor hours. Another brings in one additional team member to work peak hours only.
Be smart about the delivery menu offered. Sell items that both travel well and that offer a favorable food cost. Menu layout and what you feature will have a major impact. Consider including catering items.
Price Elasticity. Two of the four panelists are actively testing this with delivery.
“Push” incoming orders to more profitable delivery providers.
Finally, there were two other noteworthy takeaways:
Red Robin brought up the recent decisions by Chipotle and Zoe’s to use third-party providers only for the delivery, with orders being placed thru the brand’s websites. This enables these brands to gain the key customer data that is a must-have.
Relatively new brand, CoreLife Eatery ( ~50 units ), prioritizes delivery as 4th in importance to their model behind 1) Dine In, 2) Rapid Pickup, and 3) Catering. In other words, keep delivery in perspective, and focus on more profitable pieces of the business. I felt this was an excellent strategic insight…not only for new brands, but for any brand.
For 15 years, Neil Culbertson (www.growthhq.com) has provided outsourced Chief Marketing Officer consulting to restaurant companies. He is a fresh set of eyes for current CEO’s/CMO’s, as well as an Interim or Part-Time CMO for concepts looking to grow their business to the next level.
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