Food delivery is a big mess. Here's how the companies do business.

But there was a reason many restaurants didn’t focus on delivery before the pandemic: Childbirth is pain. It is expensive, as restaurants have to hire drivers or outsource to third party providers like DoorDash (dash) or Grubhub (grub), which charges fees that are cutting its already meager margins. it’s also stressful for employees, which must balance interest in in-store customers with filling increasing numbers of ready orders. And when deliveries go wrong, restaurants take the blame, whether it’s their fault or not.

On the other hand, customers don’t see it that way. Convenient delivery. It’s usually very fast and, perhaps best of all, they can do it through the app – without having to talk to anyone at all.

Although eating restrictions have been relaxed in most places, delivery rates are still higher now than they were before Covid. In 2019, delivery made up about 7% of all US restaurant sales, according to Euromonitor International. After rising sharply in 2020, it settled at around 9% in 2021, according to Euromonitor’s forecast for last year (the company’s 2021 foodservice data has not been released).

So whether restaurateurs like it or not, delivery is here to stay.

Consumers are used to having products delivered to their homes,” said Joe Pollack, managing director of Technomic, a food service consultancy. Now, restaurants have to “figure out what needs to be done to make it profitable.”

For restaurants, overhauling delivery means not only making it work better, but also finding ways to convince customers to choose delivery or carpooling instead.

Delivery problem

During the pandemic, restaurants have had to switch to a delivery or takeaway model to survive, said Tom Bailey, senior consumer food analyst at Rabobank.

“They didn’t necessarily do the most effective modification,” Bailey noted.

For some restaurants, the economics of delivery simply don’t add up. Third party service providers charge a fee of up to 30%. Restaurants, particularly independent restaurants, already have tight margins. For some, delivery charges can mean working in the red.

Certain measures have been taken to help make delivery less expensive for restaurants. Cities were capping fees at lower rates. Third-party providers have also begun offering lower prices for limited services, allowing restaurants to choose affordable, albeit less comprehensive, services. Some restaurants are able to negotiate direct lower prices. Others pass the costs on to consumers.

Another problem with outsourcing delivery is that when conditions beyond a restaurant’s control go wrong, their costs can rise. Starbucks (SBUX) CEO Kevin Johnson guided analysts through a recent scenario that drove up the coffee chain’s costs during a February call.

“Our third-party delivery providers were understaffed with Omicron, which affected their ability to meet part of our distribution needs,” he said. “This has required us to increase the use of alternative delivery solutions that are much more expensive in order to meet strong customer demand,” he added. In the end, the disruptions meant a “rapid increase” in costs.

Virtual Brands

One way to tackle the delivery challenge is to separate service from normal restaurant operations, primarily using it to attract new customers. This is especially important for casual dining brands like Applebee’s and Chili’s, which are designed to serve diners primarily in their restaurants.

The pandemic has prompted these and other chains to put online-only concepts tailored for delivery.

Applebee’s launched cosmic wingsWhich serves chicken wings with chito flavor. Brinker International (Eat)the owner of Chili’s and Maggiano’s Little Italy, has two virtual brands as of now: Just Wings and Maggiano’s Italian Classics.

Online-only brands allow restaurants to promote products that travel well for delivery, such as sandwiches and wings, helping turn service from a burden to a competitive advantage.

These virtual brands “offer some truly unique opportunities to explore … delivery-centric urban and smaller prototypes,” Brinker CEO Wayman Roberts said during an analyst call in February.

For fast food and fast food restaurants, which are already designed to get people out of the house quickly, the best route may be through drive-through and express delivery incentives.

Better drive and easier to pick up

Restaurants like Burger King are investing in more cars.

As customer habits change, restaurants are rethinking their schemes. For many, that means more driving.

strings of Taco Bell to burger king They add traffic lanes to restaurants. More lanes can help with quick pickups – and a quick drive-thru may eventually be a more attractive option for consumers than delivery.

Chipotle (CMG)for example, planning to Unlock about 4000 additional websites in North America. Most will have Chipotlanes, which is a dedicated car drive for customers who place orders digitally.

What we saw with Chipotlane [is]The company’s CEO, Brian Nicholl, told CNN Business in a recent interview before the chain’s 3000th location opened. “From an economic point of view, the best margin transaction for us is in order for the future, after which the customer comes in.”

If chains can’t convince customers to use the express checkout method, they might try something else, like a small reward for skipping a delivery.

late last month, Domino’s (DPZ) Offered a deal: Pick up your own pizza, the company said, and Get $3 credit for your next order. Earlier this year, the chain also pledged to serve customers pizza in less than two minutes — but only if those same customers drive to Domino’s and stop in the right spot.

If all else fails, companies may see delivery naturally decline as service prices rise.

higher prices

To make delivery more profitable, companies were making it more expensive.

In many restaurants, Paulak said, “menu prices are higher for delivery than they are…when someone goes to the restaurant.”

Why & # 39; You'll see more red & # 39; undo & # 39; Price tags at Walmart

This is definitely the case in Chipotle (CMG). “The reality is that the channel comes at an additional cost,” Nicholl said during a recent phone call with an analyst. “What we’ve seen is that people realize that and are willing to accept that on those occasions.”

Companies raise prices on everything from menu items to consumer goods and say that for now, customers are still stuck. But this will not last forever.

“It’s easier to do pricing in a stimulus environment where everyone is up,” Coca-Cola CEO James Quincey said. He said during a recent analyst call. “It’s more difficult when there is real pressure on income.” Coca Cola (KO) It raised prices last year, and may do so again this year if necessary.

The danger is that with Inflation is on the riseCustomers may run higher prices, including delivery rates. ‘Consumers are willing to pay for it [delivery] Now, Pollack said, “At some point, there’s going to be some undoing of that.”

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