Three delivery, pricing and operations experts—Meredith Sandland, Michael Lukianoff and Jim Balis—joined Food On Demand’s Bernadette Heier at this year’s Restaurant Finance & Development Conference for the latest ways restaurants are improving the economics of their delivery programs.
On day three of this year’s RFDC, Heier moderated a panel titled “Boosting Your Off-Premises Economics, which examined the current state of delivery in the wake of ongoing inflation, delivery providers cracking down on off-premises price premiums, along with new options in customer engagement and menu management.
Sandland, co-author of the Delivering the Digital Restaurant book series and CEO of Empower Delivery, said this year’s Food On Demand Conference was a notable moment as “all the restaurants in the room realized at the same time that they had all taken price [increased their delivery pricing], that they had all gotten the same letter [from DoorDash], and that they were going to act as sa union together against the delivery platforms and continue to keep their prices elevated.”
She added that a recent Federal Trade Commission lawsuit against Amazon for similar tactics, de-prioritizing merchants based on price differentials between channels, will be interesting to follow given the similarities to third-party meal delivery platforms.
“It was a very interesting conference to be at, because it seemed like it was happening in the room live that the restaurants decided, ‘No, we’re not going to pay for the profitability of these third-party platforms.’”
Lukianoff, a data science expert and CEO of Extropy360, said on the heels of a positive consumer price index report that inflation has dropped to about 3.1 percent, which is clearly good news after the previous two years.
Diving deeper, he said that restaurant-specific inflation is higher, currently at about 5.4 percent, and even higher in the limited-service category.
“That’s about triple what the run rate has been over the past 20 years,” he added. “When you look at food at home, that’s come down to normal,” around 2 percent. The big difference for restaurants, he noted, is a tight labor market that he said has become “structural” in the foodservice industry.
In addition, Lukianoff said that different parts of the country are seeing divergent inflationary numbers, so it’s not nearly as simple as one number that applies across the country.
“You really need to look locally,” he said. “It’s not just going to be the headline nationally; it’s going to be what’s happening in the local areas.”
Jim Balis, head of strategic operations at CapitalSpring, a restaurant owner and CEO of the Sizzling Platter restaurant brand, said restaurants have no choice to “protect margin at the end of the day.” That practice, combined with enduring consumer preference for delivery, means today’s restaurant consumers are more elastic than those in previous years.
“It does make sense to keep your prices lower or offer lower pricing than the competitive set when you go on the [delivery] platforms and compare your prices to others in the same category,” he said, adding that these decisions are more challenging for brands that aren’t as financially healthy as they could be.
“My recommendation is if you do that in advance…develop a strategy to convert those third-party guests to your own online ordering platforms, whether it’s bag tags, cards and bags.”
Balis added that restaurants need to be careful with those type of first-party marketing campaigns, as he’s seen some delivery drivers taking issue with the practice, “so sometimes you have to conceal it from them.”
More specifically, Balis said brands need to be more thoughtful about pricing on certain incremental items, like fries or other sides, which can be key for restaurants to improve delivery margins.
“Even if food costs might be a little bit higher,” on more incremental menu items,” it’ll pay off in the long run as you’re going to get extra dollars from each sale.”
Building upon what Sandland said, Lukianooff observed that restaurants increasing their delivery prices “saved the value chain” because it helped improve the economics for restaurants that he said previously wasn’t sustainable.
“This whole push to say we want parity, they don’t understand that they’re subverting themselves in trying to enforce that,” he added of meal delivery platforms. “This isn’t the airlines, right? This isn’t the hotels.”
On an operational level, Balis said quoted delivery times are key for providing a positive delivery experience for customers, and said there’s more forgiveness on delivery food quality than the time it takes—and how that ultimate time compares to the initial quote.
He said that Flybuy and Curbit are two companies integrating with kitchen display systems and geolocation to improve those times, and ultimately reduce the time between customers placing an order to when it’s finally picked up or delivered.
Heier asked her panelists if restaurants should be streamlining their menus for delivery as part of an evolved off-premises program.
“If every single item in your kitchen takes 10 minutes [to cook] and one takes 20, I mean, maybe you shouldn’t have that” on your delivery menu, Sandland said. “You should think about that for your entire menu, your entire brand, not just delivery because that’s probably affecting in-store, as well.”
Balis said he’s opposed to scaling back delivery menus, unless an operator isn’t able to execute at the needed speed during peak periods.
“There are certain items that are very complex, [and] you might consider removing those,” he said, “but the end consumers are going to be angry if they’re looking for an item and it’s not there.”