Almost $10 billion flowed through the leading third-party delivery services in 2018—a number that adds up to 55% growth in that sector, said Technomic Principal Melissa Wilson at the Restaurant Leadership Conference, held earlier this month in Phoenix. But the model is changing, as operators are continuing to balk at high third-party fees as well as other logistical challenges, she added, during a panel called “Driving Tech Before it Runs You Over.” The third-party marketplace is becoming more flexible as a result.
One of the most tangible changes for operators has been the reduction of commissions by some of the larger third-party delivery partners, said panelists. These companies have moved out of “growth at all costs” mode, said Sterling Douglass, CEO of Chowly. Now, they are dropping commissions and making other changes in order to better align with restaurants. “We’re seeing a difference in relationships,” said Michael Verdesca, CIO of Focus Brands. “Third parties are willing to work with restaurants more than before … building partnerships.” For Verdesca, that’s been especially crucial with Focus’ franchisees.
In addition to reduced costs, data sharing is also a goal of these partnerships, said Douglass. Both operators and delivery companies want to see customer data, he said, and it can be mutually beneficial. “It’s not their customer vs. our customer.” Operators are now starting to see more advanced reporting, depending on the partnership—something that should be spelled out clearly in the contract.
That sharing and agility is key when it comes to integration with third-party delivery companies, as well as other technology partners—and it’s an area that’s continuing to see improvement, though it’s not yet solved. The off-premise evolution in recent years has had a huge impact on point-of-sale systems. There are 250 POS systems operating today, 14 of which dominate the market, said Douglass. Now, the POS has to be more agile, with API integration a key factor behind partnerships.
Operators are also being proactive with their delivery strategy, said Wilson. Optimizing the menu for online ordering, whether via a third-party delivery partner or a branded site or app, is a winning strategy, the panel suggested. While it was once prevented through the partnerships, operators now seem to have more flexibility to inflate prices on the delivery menu to cover delivery fees and commissions, for example. It’s a balance, said Verdesca, in terms of how much operators can raise prices without hurting sales.
And operators don’t need to list everything on the regular menu when it comes to off-premise orders, the panelists contended. Operators should not only think about which items travel well, but they should also consider simplification. That often means examining where customers drop off in the ordering process, said Douglass—are there too many modifiers or combination options? While a fully customizable menu makes sense for someone walking down a make line in person, it can cause “decision paralysis” when offering so many suggestions in a digital format, especially for consumers outside of the core customer set that is very familiar with the menu. Instead, Douglass suggested, choose a few preset bowls, sandwiches, salads and other frequently ordered items and combinations, and put them near the top of the digital menu.