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Third-party delivery—why it matters and 5 ways to prepare

Jim Sellers | Jul 6, 2017 Jim Sellers 07/06/17

If you’re not exploring third-party delivery (3P) for your restaurant brand, you’re already behind. But trusting someone else to get your product to your customer can make plenty of brands nervous—and with good reason. Introducing an outside delivery service to your customer journey means a loss of control over many factors that contribute to a highly satisfying customer experience. And a poor delivery order can have a big effect on your brand perception.

I’ve had less-than-stellar experiences with 3P delivery. In one instance, I received the wrong order and it was unclear who made the mix-up. The delivery provider’s customer service was only reachable by email, and the restaurant took no responsibility after I mentioned using a 3P service. The unwillingness to right the wrong reflected poorly on both parties, even though I eventually got my money back.

It’s up to your brand to determine how to use these services to the best of your advantage, and to do what you can to ensure no loss of quality along the way—especially since the trend isn’t going away anytime soon. Big changes in customer demands and the restaurant industry as a whole have made the 3P delivery service industry explode in the last few years:

  • Customer demand for convenience continues to grow—especially among millennials
  • There are more and more 3P providers to choose from
  • Economies of scale offered by 3P providers are making delivery more affordable for consumers

Many restaurants struggling with a decline in traffic—especially in the highly-competitive casual dining space—are eager for new ways to increase sales volume. That, combined with strong customer demands, makes offering delivery a must if your brand wants to stay ahead. And 3P services are a way to get on board quickly, without the investment of an in-house delivery service.

A force to be reckoned with

It’s important to know who uses 3P services and how they’re spending within the restaurant space if you’re going to take steps to mitigate the challenges that come with using an outside delivery provider. A recent study estimates that off-premise dining accounts for $210B of the $490B in total annual restaurant sales—with $30B representing delivery alone. Excluding pizza delivery, online delivery sales represent $4B of the total market—and that’s where restaurant CEOs and CFOs are now looking to gain share.

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The average 3P customer demographic skews millennial, has an average annual income of $75K+, and tends to live in the Northeast or West Coast regions of the U.S. Baby boomers and people living in the Southeast substantially under-consume 3P services. For those who do use 3P services, consumption is strong—85% of 3P customers have used the service in the last 30 days. 

Proceed with caution

The sheer market size, strong customer demand, and availability of provider options mean that an estimated 80% of publicly traded restaurant chains are at least testing delivery services—if they’re not using them already. And those who have integrated these services successfully are seeing big leaps in delivery sales. One SMG client has seen delivery volume double to over 15% of total sales in just the last 12 months! But there are some snags we’ve seen some of our clients encounter that your brand should be aware of before going all-in:

  • Lobbies with limited space can get congested quickly with the addition of 3P drivers to the usual dine-in and take-out customers
  • Kitchens unprepared to deal with rapid growth in volume can struggle to keep up quick service and good quality
  • Commissions on 3P sales put pressure on your brand’s revenue margins
  • Limited or lack of POS integration can lead to transactional and order accuracy issues
  • 3P means loss of control over service standards—which may affect your brand perception, especially when things go wrong

Put it into action

Knowing how to prepare for these snags will put you far ahead of your competition if you decide to offer 3P delivery. Here are a few specific ways to do it:

  1. Review and optimize your current take-out procedures with an emphasis on service standards—particularly staff friendliness and order accuracy  
  2. Dedicate enough staff to help manage the increase in take-out and delivery orders
  3. Consider a limited menu of popular items for delivery to manage kitchen throughput
  4. Include delivery-specific questions on your customer survey to better understand your customers' experiences all the way to the front door
  5. Test your strategy in 20–30 locations before rolling it out across the entire company, so you can better understand the full range of challenges and opportunities 3P delivery presents

Putting these steps into action can help you successfully integrate these 3P services into your regular operation. SMG has been working closely with our clients to find the right ways they can make the best use of the 3P delivery experience—and maintain their brand perception and loyalty in the process.

Jim Sellers
Director, Client Insights