Way to Go (Restaurants USA, September 2002) | National Restaurant Association

September 2002 issue

Way to Go

Restaurants USA magazine's final issue was published in September 2002 but these archived articles remain available for our readers' convenience.

Restaurants USA, September 2002

Delivery service can boost revenue and build customer loyalty.
By Ira Apfel

September 18, 2002

Alan Levine loves delivering food. He loves it so much that he expanded his pizza restaurant into a late-night delivery service for restaurants around Northern Virginia. As a result, delivery sales have increased more than 200 percent since Dr. Delivery, an off-shoot of Mario’s Pizza, opened nearly two years ago. Now, Levine wants the good doctor to make house calls nationwide. “We want Dr. Delivery to become the McDonald’s of late-night delivery,” he says.

Doubling sales should be enough food for thought for any restaurateur to consider delivery. Yet many operators, wary of diminished food quality, botched orders and other logistical nightmares that sometimes accompany delivering food, shun delivery. That may be a mistake, if current eating trends continue. According to the National Restaurant Association, in 2001, off-premises traffic accounted for roughly 58 percent of total restaurant traffic.

Whether they employ drivers or use a restaurant delivery service (RDS), restaurants that deliver food can boost sales by appealing to busy consumers. “There are more dual-income families now, and this generation doesn’t cook,” says Mike Caito, who owns and operates one of the oldest RDS companies, Restaurants On the Run (ROTR), in Southern California with his brother, Anthony, and Matt Martha.

Speedy delivery

Delivery has long been a staple for many restaurants, especially pizzerias, which dominate the delivered-food category, according to Association research. Levine’s pizza shop has delivered pizza to hungry customers throughout Northern Virginia since 1957. However, a growing list of midscale and fine-dining restaurants have started delivering food—even chain restaurants like California Pizza Kitchen and Chili’s—reasoning that customers who wanted their food are so busy that they no longer have the time to dine out.

Delivering food presents unique challenges, such as hiring and retaining reliable drivers and packaging food properly to maintain its quality. Many restaurants, after struggling with these two issues, have decided to use an RDS.

Martha saw a need to relieve restaurants of their delivery service as far back as 1993. He and his partners had worked in the restaurant industry, noticed industry pioneer Takeout Taxi open an RDS service on the East Coast and decided to try their luck in Southern California.

Restaurants on the Run started delivering lunch at first, so Caito and his partners could support themselves by holding other jobs at night. The business quickly grew and today their company has five offices between Los Angeles and San Diego, employs 225 workers and was named one of Inc. magazine’s 500 fastest-growing privately held companies.

ROTR’s operation serves as a template for the RDS industry. A consumer telephones an ROTR customer-service representative or goes online to order from a restaurant menu. The menu is in a booklet on the Web site that features participating restaurants in the ROTR service area.

After the customer places the order, the customer-service representative faxes the information to the restaurant and then calls a driver via two-way radio to alert him or her to pick up the order. The driver picks up the food when it is ready and delivers it to the customer, usually in less than an hour. The customer pays the driver by cash, check or credit card. ROTR settles the balance with the restaurant later.

Like most RDS companies, ROTR persuades participating restaurants to discount their food prices roughly 30 to 35 percent. That discount represents ROTR’s profit margin, explains Caito. RDS customers also pay a flat delivery fee, usually $4 to $7, he says.

Operating under razor-thin margins, restaurants often balk at the steep discount. But Levine points out that RDS-related business translates into incremental sales. “You don’t have to add tables or staff to build your business,” he says.

Caito usually wins hesitant operators by explaining that ROTR solves a potential headache. “The delivery business is an entirely different business. The operators realize that their core competency is cooking food [and it makes sense to rely on an RDS for delivering that food to the customer].” ROTR also brings new customers to the restaurant, he says.

Work orders

ROTR’s target customers—residences and businesses—are similar to those of other RDS companies. Caito, who is past president of the Restaurant Delivery Services Association, says that lunch business is the main growth engine for traditional RDS companies. “Corporations use [RDS firms] because they realize that it’s more productive to keep people inside and feed them rather than let them leave the building,” he says.

Because companies typically have more than one employee ordering, their average check size is three times that of residential customers, says Caito. Office business also is more attractive than far-flung home customers because they require greater marketing and advertising costs compared to businesses that may be closely located in an office building or city. Hungry office workers have started to appreciate the convenience of delivery services, and many open corporate accounts with ROTR and other RDS companies.

Despite building incremental business, many restaurateurs worry that their reputations will suffer if they deliver food or use an RDS because the food is late or arrives in poor condition. Operators fear that a customer who samples their food for the first time via delivery likely will never use the restaurant again if that first delivery experience is poor.

Caito says the solutions to these problems are better food packaging and better communication between order-takers and drivers. Unfortunately, there is no magic bullet to solve balky two-way communications between service reps and drivers, or unreadable faxes to restaurants. “And we still haven’t gone beyond the insulated delivery bag,” he says.

Insulated delivery bags can maintain the food’s temperature, but they are expensive. Therma-Pak of Hazel Crest, Ill., uses patented insulation material in its delivery bags and can maintain temperatures of greater than 150 degrees Fahrenheit for more than one hour, says Bob Haberkorn, vice president of Q-Sales and Leasing, the company that distributes Therma-Pak.

Therma-Paks typically cost as much as $130 dollars. That’s a lot of dough for an independent pizzeria that might need several bags. Haberkorn contends that his bags last longer than less expensive competition. Despite the cost, Haberkorn says he’s receiving more inquiries from independent restaurants. “Delivery is much more competitive today than it was a few years ago and restaurants are finding that it’s extremely important to get the food there as hot as it’s supposed to be,” he says.

Delivery drivers also are a concern to operators, who worry about their reliability or driving records. To combat this problem, ROTR uses a recruiting company to find qualified drivers. The recruiter examines applicants’ driving records and criminal background. “We also just implemented a mandatory driver-safety class that all new drivers must go through,” says Caito. In case of an accident, Caito recommends that operators purchase at least $1 million in coverage on their drivers.

Finding a niche

As the demand for delivery mushroomed, so did the competition. Small players like ROTR sprouted all over the country. A few years ago, Takeout Taxi attempted to franchise throughout the nation. Then, another company, backed with venture capital, attempted to consolidate the RDS industry and trade publicly. That attempt failed after the dot-com bubble burst in 1999. Now the RDS industry is back to square one, with many small companies dotting the nation.

If the ranks of RDS companies has thinned somewhat, the competition only has increased as businesses vie to meet the burgeoning demand while reducing marketing costs. That’s why RDS companies seek market niches like office workers.

Dr. Delivery definitely occupies a specialized market: late-night delivery, primarily to hotel guests. The idea for Dr. Delivery started because Alan Levine wanted to build Mario’s late-night delivery business but feared that his kitchen and staff couldn’t handle additional orders. Then, a business trip sparked Levine’s entrepreneurial spirit. “I was traveling and I noticed that many hotels didn’t offer room service after a certain time,” he says. “I discovered that most hotels lose money on room service after midnight because the critical mass isn’t there.”

Mario’s had a solid reputation with late-night customers and a solid delivery operation, so why not offer it to the many hotels that populate Northern Virginia? Thus, Levine started Dr. Delivery to service hotel guests and other late-night chowhounds between 10 p.m. and 3 a.m.

Hotels love Dr. Delivery, says Levine, because they save hundreds of thousands of dollars by closing their kitchens late at night. Customers love Dr. Delivery because it offers a variety of foods, including pizza, Chinese, hamburgers, Moroccan food and more. Late-arriving hotel guests who find themselves with an airline food voucher but no room service can use the voucher at Dr. Delivery. And Dr. Delivery recently began delivering pharmaceutical prescriptions and other packages.

Levine says many of the usual delivery challenges, such as finding reliable drivers and fast service, don’t apply to late-night delivery. “There’s nobody else out driving or parking and there’s a critical mass of hotels, so they do great volume,” he says.

Another reason Dr. Delivery drivers don’t leave: good pay. Levine pays experienced drivers $5 an hour, plus $2.50 per run and 100 percent of tips. “We have a waiting list of drivers,” he says. “If you have the best drivers, you’ll provide the best service and business will grow.” ROTR drivers earn roughly $30 to $70 per shift.

Delivering customers

One challenge that restaurants and RDS companies face is identifying their typical delivery customer. In reality, there is none. Delivery customers can be a devoted fan of the restaurant, a worker seeking a late-night meal or a family who’s too busy to prepare a meal.

If you are thinking about offering delivery, consider your customer base. You may face little competition if you decide to deliver late at night. However, it may not pay to deliver to homes the restaurant is located in an office park.

If you decide to offer delivery at your restaurant, advertise the service on your menu, Web site and phone-book advertisement. Be sure to include your delivery area so customers will know how far your drivers will go. Your notice also should include a minimum charge for delivery, if applicable.

If you decide to use an RDS, it pays to cooperate with the company to advertise the service. Prominently display the RDS menu booklet that includes your menu in your restaurant. Whenever possible, try to match your in-house menu to the RDS booklet’s menu. Some dishes, such as sizzling fajitas or steamed fish, may not be easily duplicable. However, the RDS experts say customers often use an RDS so they can eat their favorite dish at home and they’ll be disappointed to find that you haven’t included it. Finally, list dishes in the booklet by number. This helps customers and service reps quickly identify menu items.

Restaurants and RDS companies often share marketing costs to enjoy better advertising. Dr. Delivery, for example, will use 25 percent of a full-page ad in the phone book, leaving the restaurant with the remaining three quarters. “Their cost is reduced but they still get a full page,” says Levine. Many RDS firms advertise via cable television; Dr. Delivery frequently purchases 30-second spots and sells 20 seconds to the restaurant.

Dot-com delivery

In its quest to quicken service, the delivery industry has embraced the Internet. Rather than telephone a service rep, customers can log on to a Web site and e-mail their orders, which are redirected via e-mail or fax to the appropriate restaurant. Drivers, either from a restaurant or an RDS, pick up the order and deliver it to the consumers.

Like much of the dot-com industry, Internet-based ordering services have endured a shakeout. Started in 1995, Waiter.com in San Francisco at one time offered menus from more than 2,000 restaurants nationwide as well as delivery service. Today it caters specifically to corporate customers and offers driver service in the Bay Area. “Our corporate customers tend not to be located near restaurants, so it’s a pain for them to get lunch,” says Craig Cohen, president, chief executive and co-founder of Waiter.com with vice president Michael Adelbera. “For example, around tax season, you have accounting firms running 16 hours a day. They want to bring in good food because their alternative is a vending machine.”

Food.com, another San Francisco-based company, produces technology to help restaurants offer online ordering. Customers include Donato’s (a pizza chain owned by McDonald’s), Pizzeria Uno’s, Olive Garden and many independents. “Our real competition is the phone,” says Karen Orton Katz, senior vice president of sales and marketing with Food.com. “But from our research, we know that 77 percent of Internet users who use takeout and delivery would prefer to use the Internet to the phone. The reason is that when you call on the phone, there may be a language problem or you can’t see the whole menu. It’s all about having more control and convenience.”

Food.com recently partnered with Motorola to offer wireless ordering to customers via cell phone, personal digital assistant or laptop computer. Customers can set their menu preferences, including favorite items, pickup or delivery location and payment methods, and order with just a few clicks on a mobile device.

“With 64 percent of the U.S. population online—97 percent of those do takeout or delivery—the Web is a perfect place for restaurants to engage with their customers for online ordering of off-premises meals,” says Katz. “Web users still skews a little higher in income and education than the total population, and they appear to do at least twice the national average of off-premises business than their non-wired peers. From our experience, online orderers are usually your most loyal customers, a most important group to keep satisfied.”

Whether they order over the telephone or online, in the home or the office, delivery likely will continue to grow as a segment of the restaurant business. According to CREST (Consumer Reports on Eating Share Trends), a service that provides consumer-behavior information on restaurant-prepared meal purchases, delivery has grown every year since 1996.

Although most restaurants primarily focus on in-house guests, it makes sense for them to promote takeout and delivery service as a way to satisfy loyal customers and entice new ones. “Since a restaurant’s overhead is a fixed cost, and virtually all restaurants have excess kitchen capacity, incremental sales through delivery orders provide an opportunity to increase profits without adding any more tables to the restaurant,” says Cohen.

Curb-side Delivery

While not every restaurant delivers food to customers, that doesn't mean they avoid catering to these time-pressed patrons. Restaurants such as Maggiano's of Little Italy in Washington DC and Outback Steakhouse offer curb-side carry-out to customers who are really on the go. Customers who pull up to the curb of Maggiano's on busy Wisconsin Avenue will have their meal brought to their vehicle's window by a Maggiano's employee at no extra charge.

"You can even call from your cell phone when you're one minute away, or you can just tell us the time when you'll arrive and the make and model of your car," says Kevin Reynolds, director of Maggiano's Washington DC-area units.

Reynolds says the response has been overwhelmingly positive since Maggiano's started the service after Valentine's Day. "One of the challenges of being located on Wisconsin Avenue was just getting to the restaurant," he says. "And my staff is happy because customers are truly thankful-and they give gratuities."

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Ira Apfel is assistant editor at the National Restaurant Association.