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Delivery poses conundrum for restaurants Ron Ruggless
Gene Lee of Darden Restaurants Inc.

Delivery poses conundrum for restaurants

Brands weigh providing convenience against service costs

Delivery remains the Rubik’s Cube of service for most big restaurant brands outside of the pizza segment.

And executives at the recent ICR Conference said they were working in various ways to solve the intricate puzzle.

Faced with consumers demanding more convenience and growing options among third-party courier services, many big restaurant companies said they were struggling to make the economics work and even veteran pizza brands were assessing the delivery landscape. 

Domino’s on delivery

Jeff Lawrence, chief financial officer at Ann Arbor, Mich.-based Domino’s Inc., admitted that food delivery is a challenge.

“We’ve been what I guess is ‘first-party delivery’ for 57 years,” Lawrence said. “We know a little bit about food delivery. … It is extraordinarily difficult. It’s not an easy business to do well at scale.”

Third-party companies continue to eye the space, however.

Noah Glass, CEO and founder of New York-based Olo, said he was taking an aggressive stance on delivery’s role in the restaurant space. Olo provides white-label digital ordering and delivery technology to more than 200 restaurant brands at 40,000 locations.

“I think that delivery is a must-have,” Glass said. “It’s table stakes.” 

Ron Ruggless

Noah Glass of Olo and Gus Lopez of Amazon Restaurants

Amazon on consumer expectations

Amazon with its same-day Prime delivery and other white-glove companies that offer in-home product setup has changed consumer expectations, he said.

“There’s a whole set of consumers who are what I call ‘on-demand consumers,’” Glass explained. “They will not have you in their consideration set if you don’t offer delivery to them. Brands have to engage, and to do so thoughtfully.”

Gus Lopez, general manager of Amazon Restaurants, added in a panel discussion that the online giant has found that speed and reliability determine customer attitudes toward brands as well.

“One of the big commitments we have as a company in general is focusing on the customer experience,” Lopez said.

“This is a space that’s prone to lots of errors. What we are trying to do is sit back and go through every possible thing that could go wrong and try to prevent that from happening.”

Amazon Restaurants aims to change the way people think about food delivery and to make it completely reliable, Lopez said. And through Amazon’s data, it can help restaurants determine which foods travel best and fastest and also what containers might help quality.

“Customers who get orders within 30 minutes from click time to delivery time vs. 50 minutes — the feedback is really, really different,” Lopez said. “When it’s piping hot like you’d get at the restaurant, it’s through-the-roof positive in what they say about the experience.” 

Ron Ruggless

Denny Marie Post of Red Robin

The cost of doing delivery business

Lawrence of Domino’s said the economics of delivery will rule the day, especially outside the dense urban areas of New York and San Francisco.

“If you go to Indianapolis and Denver and Kansas City and Milwaukee and Detroit, I’m not sure they are going to pay the kind of consumer fees and menu prices,” Lawrence said.

Third-party charges of 20 percent to 30 percent would be too burdensome for many restaurants, he said, adding that there is a “Grand Canyon-sized difference in economics” for that an in-house delivery operations.

But Nick Kenner, CEO and Founder of New York-based Just Salad, which has more than 30 locations, said delivery remains a growing part of his business.

The company targets a 29-minute delivery time that uses courier services.

“We have a delivery command center in New York off site that tracks every order,” Kenner said. 

The delivery ‘noise’

But for larger brands, such as Darden Restaurants Inc.’s 849-unit Olive Garden, enthusiasm is not as intense.

Gene Lee, CEO of Orlando, Fla.-based Darden, said larger deliveries are profitable for the Italian brand and the food “travels very well.”

“For Olive Garden, we’re doing delivery today for orders over $100. We think that’s a very lucrative business,” Lee said, who cautioned that not all restaurants should get on the delivery bandwagon.

“There’s a lot of noise around third-party delivery,” he added. “This isn’t the first time third-party delivery surge has come into our industry.”

Lee recalled companies like Takeout Taxi in the 1980s aimed to revolutionize the restaurant business

“After two years, it kind of faded away,” Lee said. “So I’ve seen this movie before. It may be a different ending, but we want to go slow.

“There’s no one that has developed as a third-party delivery as a clear winner that built scale and has technology that we want to partner with,” he said. “We’re testing doing it ourselves to see what the economics are.”

Lee added that Olive Garden was “not going to live with the economics that some of the players are asking for” in the current market.

“At the end of the day, we’re testing and we’re being diligent, but we’re not willing to give up 20 to 25 percent just to get a sale,” he said.

Other brands are dipping toes into the delivery waters.

Greenwood Village, Colo.-based Red Robin Gourmet Burgers Inc., in November began testing a delivery-only Red Robin Express unit in Chicago, taking over space from one its shuttered Burger Works locations.

“We know we have future that requires us to give guests what they want, when they want it, where they want and how they want it,” Denny Marie Post, Red Robin CEO, told ICR attendees.

Russell Bendel, CEO and president of Irvine, Calif.-based Habit Restaurants Inc., said his burger chain was looking at delivery as well.

“We’ve met with all of the third-party delivery companies,” Bendel said. “People want convenience, but we’re not willing to give 30-plus percent of proceeds to a third-party delivery company.”

The 209-unit brand plans to do a delivery test in the first quarter, he said. “Some of that cost of delivery has to be borne by the consumer,” he said, “not totally by the restaurant.”

Contact Ron Ruggless at [email protected] 

Follow him on Twitter: @RonRuggless

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