The Pros and Cons of doing Delivery

Give your clients the earliest delivery consistent with quality – whatever the inconvenience to us.  Arthur C. Nielsen

Delivery is such a huge aspect of the restaurant business that we could probably write an entire chapter just on the different methods and concepts within the realm of delivery. There are so many more option today for restaurants to engage in different types of delivery services than there were just a few years ago. Technology has also made delivery super easy and fun to use, offering customers apps that track their delivery and send them text message. Some restaurants even have their version of a food truck going around town and serving their fares to sidewalk employees. The restaurant industry landscape has changed a lot.

Before we talk about some of the great things delivery entails let’s get the negatives out of the way. Driving in California, particularly driving for employees, carries a huge liability. Insurance for these types of vehicles and drivers is very expensive, typically more expensive than regular car insurance. It’s an added premium on a business that is considering running a delivery service to better serve their customers. Many accidents occur every day on our streets and freeways here in LA, and presumably all over the United States. So far, in the entire history of Zankou Chicken, to my recollection, only two people have passed away while in the “line of duty”.

One was about 20 years ago, my father had asked one of our employees, let’s call him Frank, to go to our Anaheim store and fix a leak. Apparently the sink in the men’s bathroom was leaking pretty bad, and Frank was one of our managers who also knew how to fix a sink. This was during the time Caltrans was fixing the aging 5 Interstate freeway. There is this huge intersection as you get closer to Disneyland on the 5 south. There are bridges, byways, highways, and tall lights everywhere. It is a dangerous area because the freeway quickly “spreads” out just as people seem to be going faster. It’s a place that opens up right after heavy congestion, so often people just accelerate to dangerous speeds in that area.

On this particular night, it was dark and Caltrans was working on the onramps. “Frank” jumped on the freeway and he did so with great speed. A truck driver was entering from the onramp quickly as well. Sadly the truck driver did not consider how fast he was going, and just as he was entering the freeway from the onramp did not negotiate the turn very well. The truck tipped over to its side and fell directly on top of Frank’s car. The truck was an oil rig, so the gas it was carrying exploded immediately.

Frank was burned so badly they had to use dental records to recognize him. They say he did not suffer much because the impact would have killed him immediately. The truck driver was burned very badly. He died the next day. The crazy thing about this story is that night I got home and a CHP officer was outside our house. He said to me, “Are you Steve’s brother?” I said yes, why. He said “He may have died tonight in a terrible car accident, I’m sorry.” Now when he said this immediately my mind just shut off what he said. I just told myself my brother was all right.

I ran upstairs and Steve was sleeping. So surely he must have been mistaken, I thought to myself. I went back down and told the officer Steve was fine, he was fast asleep. See the car was registered to my brother’s name so he just assumed it was Steve, but it was Franck. I will never forget that night.

The second time was another unfortunate incident where an employee died while driving to work in the early morning on the 405.

When people are using company cars, or doing anything at all for the company, we must make sure that there is adequate insurance. One bad accident or situation can potentially set you back tens of thousands of dollars. Trial lawyers don’t care about our businesses, or that owners may not even survive if they have to pay thousands of dollars in bullshit settlements. They only care about themselves and how much money they can suck off businesses. The onus is on you as the business owner to do everything in your power to make sure you are protected.

Besides bad things happening and insurance, there are other issues related to delivery:

• Food theft from employees and /or delivering free food to their friends and family without charging them for it
• Drivers with potential fake ID’s that don’t REALLY have driver licenses. They are putting you in a huge potential liability. The law doesn’t care if they have a driver’s license or not. If they are driving YOUR vehicle and/or making deliveries directly for YOUR businesses, then guess who is liable? That’s right, you.
• The quality of the food not being as hot or as fresh since it takes longer to deliver during rush hour.
• The food is not as hot because there are too many orders with too few drivers.
• Accidents, freeway closures, terrible traffic, and general mayhem on the streets. In Los Angeles we call this Thursdays and Fridays.
• Bad service on the part of the delivery person.
• Delivering it to the wrong address, or the address is potentially difficult to get to because of shut gates, locked doors, or inaccessible lobbies in apartment buildings. In Los Angeles call this Beverly Hills and west LA.
• Getting the order wrong. Now they drove 30 minutes and have to drive back another 30 minutes, then another 30 minutes to bring back the correct order. This is gas money that comes out of your pocket.

These are still not all of the problems and issues that can arise out of offering delivery. This is why so many 3^rd party delivery businesses have sprung up all over the country recently.

Usually these companies, like Grub Hub for example, take this entire headache away from restaurants in exchange for a fee. Typically this fee is a percentage of the sales and also some added service fees. In the case of LA Bites, a specialty service delivery company that operates mostly in west LA and Santa Monica but has branched out to most of LA County, this fee is now about 30%. That is pretty high. I told them this and they told me their profit margin is about 7-8% of that number. So their cost is about 23% and their profit margin is 7%.

Since food profit margins are very thin for restaurants, some can afford this 20-30% markup while others cant. Places like Cheesecake Factory, California Pizza Kitchen, and Granville can afford the markup. Places like Chipotle or Urth café do their own delivery. Everyone follows a different model, one that suits their business best. It’s difficult for businesses like ours that have such thin margins to deal with such a high cost working with these third party delivery companies entail.

Which begs the question, what do their costs entail and why is it so expensive just to deliver food?

Well, consider what these third party companies are doing for us:

• Paying the cost of gas
• The cost of the drivers, their wages and bonuses
• Liability insurance (expensive premiums in LA county and I am sure other heavily congested counties as well)
• The cost of live operators to receive calls and orders via phone
• The cost of creating and maintaining their web sites
• The cost of software that helps them receive orders.
• Their marketing and advertising costs as well as additional overhead and rent of their office

Remember if these companies don’t spend money on these things, we do. That is to say, if they don’t spend money on gas we will. If they don’t make and distribute fliers offering delivery to local residents, you have to do that.

So essentially you are not just buying a delivery person, you are purchasing your way into a partnership. It’s effective because these companies like Grub Hub and LA Bite have their own clientele, which will be happy to order from you.

Just as in everything else, it boils down to teamwork. Our job is to make the food in a high quality way., as fresh and delicious as possible. Their job is to get it to the hungry people that need it during lunch who don’t want to drive. In many heavily congested neighborhoods like west LA and parts of the valley alongside Ventura, people don’t have much of a choice. Driving is very inconvenient. Bosses are happy to pay for their lunch if it increases productivity and no one has to leave the office.

Everyone wins, but for a price. Just remember to use the market and supply and demand to your advantage. There are many companies you can do business with that offer delivery. Or you can do it on your own, or as in the case of many restaurants, not at all. The choice is yours. Just remember to use their own competition amongst themselves to your advantage. Stake the claim that you will negotiate the best price for your business. For the amount of time we used LA Bite to offer delivery in west LA, we had the best price. For the sake of future negotiations and because of the sensitivity involved in these types of negotiations I will not say exactly how low I negotiated their price, but I will say this: It was lower than anyone else’s price they were getting. How did I do that? The 21 important steps in the process of negotiation, which is its own entire chapter.

“We use competitive markets to arrange for delivery of our food supply.”
Kenneth Lay

Questions for Review

1) Name a few of the bad things that can happen during the course of offering food delivery.

2) Why must business owners have the best insurance coverage for their drivers and their employees during the course of a delivery? How much does a business owner stand to lose in case they are open to liability?

3) Name a few of the things customers love about getting their food delivered.

4) What are a few of the costs associated with delivery? What is your plan to offset these costs?

5) By not offering delivery, do you stand to lose customers that want to order from restaurants that ONLY offer delivery? Why or why not?

6) Would it make sense to offer delivery even if the profit margin is a bit lower? Why or why not?