How to respond to the third-party restaurant delivery challenge
Zach Goldstein, left, of the Thanx loyalty reward program, and Mike Speck of Halal Guys acknowledge the challenge posed by third party delivery services.
Third-party delivery has emerged as one of the major challenges facing foodservice operations, as the service has grabbed a significant portion of foodservice sales. Mike Speck, COO of Halal Guys, offered insight into how restaurants can address this challenge during the National Restaurant Show at McCormick Place in Chicago.
Zach Goldstein, CEO and founder of Thanx, a loyalty rewards platform for foodservice, questioned Speck on how his company has met his challenge during the presentation. Goldstein noted that third-party delivery services currently represent $9 billion in restaurant sales today and are expanding 50 percent annually, and are predicted to account for $16 billion in sales by 2022.
Goldstein said that larger chains are meeting the challenge by developing their own delivery services, an option that is difficult for many small foodservice chains.
He said the CEO of one small foodservice operation told him his company at best is breaking even by hiring third-party delivery services, which charge between 15 percent and 40 percent of the orders they deliver.
"Anything over 20 percent is ridiculous," Goldstein said. "You're selling your soul. Unless you can prove it is making you money, I don't know why you would do it."
The small chains also find they have little quality control over the food that third-party delivery companies deliver, and that the delivery services are becoming increasingly competitive.
More importantly, according to Goldstein, is that restaurants have no way to engage with the customers taking advantage of the delivery services. It is important for restaurants to be able to deliver personalized messages to customers, he said, restaurants have no idea who these third-party customers are.
Halal Guys responds to challenge
Halal Guys has not escaped the problems posed by third-party delivery services. A competitor calling itself Halal Boyz has gained a presence with some third-party delivery services.
"This isn't Halal guys," Goldstein said.
Halal Guys has hired an attorney to address this competitor, Speck said.
Speck, who noted that 10 percent of his company's business is now through third-party delivery services, agreed on the importance of being able to know who these customers are.
"I woke up thinking I need to know who these people are and how we can market to them," he said. "I need to know more about the people who are spending money with us."
Speck said the growth of delivery has necessitated changes in the business. He said the company has made changes to the physical layout of its stores to accommodate delivery. This includes providing more space for pickup orders and allocating parking space to specific third-party delivery companies.
Halal Guys has also adjusted its bagging to accommodate multiple delivery orders, Speck said. He said his company has an advantage in that the food it prepares is easier to deliver than other types of food.
Speck said that the problem is a good problem to have, but it is still a challenge.
Halal Guys has been evaluating the different delivery companies, Speck said. At the present time, its franchisees have the freedom to work with whichever companies they want.
Evaluating the different players
One challenge the company faces is that the performance of the different delivery services varies by locale, Speck said. In his experience, he said Door Dash and Postmates are the most business friendly delivery companies.
The challenge is a serious one for restaurants as the third-party services continue to grow, Speck said.
"I would rather not collect a royalty on a sale that you can't make money on," he said.
Goldstein said the emergence of delivery services that have no physical presence is especially alarming. He said he has advised restaurants that if they can't make money with third-party delivery, they should not do it.
Being able to engage customers personally can double or triple sales, Goldstein said.
Elliot Maras Elliot Maras is the editor of KioskMarketplace.com and FoodTruckOperator.com.