Mastering the Third-Party Delivery Landscape
Unlocking Revenue Potential: Harnessing the Power of Third-Party Delivery
E-commerce is everywhere. It’s so easy to order an item, a meal, or a movie online. There’s a fierce battle for market share in the restaurant industry, and third-party delivery (3PD) can help with top-line revenue.
89% percent of Financial Intelligence (formerly Black Box Intelligence) survey responders report that 3PD represents incremental sales, which means 3PD can help reach customers who otherwise wouldn’t visit the restaurant. The average 3PD check per transaction is also higher for other to-go sales because consumers carefully consider the additional costs associated with delivery. Delivery costs are often rationalized by placing larger orders.
Delving Into Delivery Preferences
The Consumer Viewpoint
We all have busy lives, and this is reflected in customer behavior. Black Box Intelligence (formerly TDn2K) research reveals a growing gap between to-go and dine-in sales. The full-service segment is experiencing rapid growth in to-go sales; in the second quarter of 2019, upscale casual comp to-go sales were 16.4 percent, while comp dine-in sales were -2.8 percent.
Consumers aren’t using 3PD to find a particular restaurant. Instead, they use 3PD to find menu options and offerings. According to research from Gallup, 81 percent of consumers browse through restaurant selections, and then 70 percent check the estimated time to deliver. In other words, customers want to know what they can order, and how quickly they can get their food.
The rationale behind using 3PD is very straightforward. Consumers want convenience but without the cost. Gallup research indicates that 72 percent of consumers use 3PD so they don’t have to leave home and 50 percent choose 3PD so they can continue their activities.
Contrast this with the top reasons people don’t use 3PD. It’s not surprising that 55 percent of consumers don’t want to pay for delivery fees and/or tips. But remember, when they decide to order through a third party, the check is usually larger than a drive-through or other takeout transaction.
Is third-party delivery profitable? It’s a $17B industry, but it’s still not clear if it’s profitable. Black Box Intelligence (formerly TDn2K) reports that 28 percent of limited-service and 46 percent of full-service restaurants made staffing changes for 3PD. Incremental changes need to be made in the back of the house for orders and packaging, and to the front of the house for dealing with delivery services. Since staffing models may vary wildly depending on individual business models and brands, this is an area that should be measured carefully and reviewed frequently.
Managing the Final Mile
Managing the final mile is always the most challenging aspect of deliveries for trucking companies, logistics firms, and restauranteurs. There’s a lot of commonality between managing a package delivery and a meal delivery. It’s all about cost and service.
For example, think about the last time you ordered an item online. Did you decide to pick it up in-store to avoid shipping charges? In the restaurant industry, the lowest barrier for all consumers in using 3PD is the cost of delivery and tips.
Similarly, logistics companies are obsessed with quality. They worry about items arriving damaged or that the wrong order will be processed. Restaurant industry consumers have the same concerns. Gallup’s study revealed that 27 percent of consumers fear the food may arrive cold and 25 percent are concerned the order may be wrong.
Gallup research indicates that the tipping point for restaurant consumers is a 30-minute (or less) delivery time and a $5 (or less) delivery fee.
Supply Chain Insights for Seamless 3PD Management
Think of 3PD as 3PL
Allow me to share some insight from the supply chain world. Years ago, many companies still had private fleets and were worried about how third-party logistics (3PL) companies would handle their deliveries. Would they be on time? Would orders be correct? How would the delivery person represent their brand?
I worked with a large retailer that struggled with these questions internally. In the meantime, they did a great job of processing orders and loading them onto their vehicles for delivery. The issue was that although they were a world-class retailer, they didn’t manage their deliveries very well once they left the loading dock. Managing deliveries just wasn’t their core business and eventually, they outsourced this function, which saved money as well as avoided mistakes and liability, while also giving them a lot of data about their delivery providers.
It’s Always About Measurement and Management
Your choice of a 3PD partner matters to your business and your customers. Gallup studies reveal that 43 percent of consumers prefer to use a specific third-party service over others. The top three choices for consumers based on the Gallup study are Grubhub, Ubereats, and DoorDash. Research from Black Box Intelligence (formerly TDn2K)’s new Consumer Intelligence tool indicates that DoorDash has been steadily stealing spending share from competitors.
Restaurants sometimes limit their delivery partner, and 24 percent of consumers say they use a particular app because it’s the only one used by the restaurant they want to order from.
In the supply chain industry, it isn’t uncommon for a vendor to try several different delivery companies before they settle on one. Some shippers break down their vendors based on the size of the order and delivery location.
Restaurants are in a similar position, but with a different twist. We need to advertise on a few different platforms to attract customers. Black Box Intelligence (formerly TDn2K) research reveals that although 80 percent of restaurants use DoorDash, 65 percent use multiple vendors. Guest Intelligence (formerly Guest Intelligence (formerly White Box Social Intelligence)) shows positive feedback on third-party platforms for both limited and full-service brands.
Here’s where you can take a cue from the supply chain industry:
- Use different 3PDs and measure/monitor their cost. DoorDash has the lowest commissions (22 percent), while Uber Eats has 28 percent. Is this a case where you get what you pay for in terms of quality?
- Measure quality carefully. Most large companies that use 3PL have an entire department devoted to measuring on-time deliveries, damages that occur during delivery, and customer feedback on the delivery person. Your 3PD should have similar data available, so monitor it carefully and point out opportunities for improvement to them. Remember, you’re their customer and they’re representing your brand.
You can do an outstanding job of cooking, presenting, and packaging an order, but if you don’t manage the order once it leaves the restaurant, you’ll lose an opportunity to improve customer service, save delivery costs, and protect your brand.