Fast Casual Executive Summit
Starbird, Fuku, Atomic Wings leaders talk love-hate relationship with delivery apps
Brand leaders offer insight on managing third-party delivery apps and the brand app and hurdling challenges.
December 1, 2022 by Judy Mottl — Editor, RetailCustomerExperience.com & DigitalSignageToday.com
There is no denying the critical role delivery apps played in helping restaurants, big and small, survive during the two years of COVID-19.
The pandemic literally shuttered store locations, forcing brands to rely on online ordering and delivery strategies and drove most to partner with third-party delivery service providers such as Door Dash and Uber Eats.
It also drove brands to put brand app strategy into overdrive mode — whether to improve and/or replace current apps or jump into developing and getting a brand app in place in short order.
Managing the brand app approach, while also managing third-party (DSP) partnerships, is a huge hurdle for any brand and a huge cost factor given partnering costs ranged from 20% to 30% in commission fees.
Simply, as one brand leader describes it, there is a "love-hate" relationship between a brand and a DSP.
How to manage that unique relationship, and how to hurdle all the challenges, was the focus of a panel talk during the recent annual three-day Fast Casual Executive Summit which draws executives from leading brands worldwide. The event is one of several industry events organized by Networld Media Group, the parent company of Fastcasual, Pizza Marketplace and QSRweb.
The media company's next event is the Restaurant Franchising & Innovation Summit being held March 20-23, 2023, in Coral Gables, Florida.
The panel discussion, "Order Up! Delivery Apps' Impact on the Restaurant Industry," was sponsored by Curion Insights and moderated by its VP of client services, Valerie Cansler.
Participants included Nick Falco, VP of operations at Starbird, Fuku CEO Alex Munoz-Suarez and Zak Omar, CEO of Atomic Wings.
The cost management hurdle
While most restaurants have long offered some level of delivery service the ability to deliver food in the past two years fast became a critical aspect in business survival once patron visits stopped and foot traffic ended due to pandemic restrictions and consumer health concerns.
Some brands were caught off guard, others were already entrenched in developing their own delivery apps and most, if not all, partnered with DSPs to keep the business operating.
Starbird worked with pretty much every delivery app and has its own app. Starbird has five different brands within its concept, with locations primarily in northern and southern California.
The top challenge, according to Falco, is that while DSPs reflect a tremendous amount of business and offer lots of "exposure" as brands can get food to those who may never have stopped in at a location, there is a big cost factor involved.
"It's a double-edged sword. It comes at a cost, and you have to think carefully about how you do things, what your pricing structure is," he shared during the panel talk.
Initially Starbird wanted to offer the same pricing with delivery as it had in its locations but moved to tiered pricing.
"That helped us offset the cost [of DSPs]. We always thought it would be a huge barrier and people would not order and sales would go down but they [patrons] have come to accept it," said Falco.
The key, he advised, is cost management. "There are a couple of different methods you can use to offset the cost, such as menu engineering," he said, explaining that brands can avoid putting high-cost items on the delivery menu or items that are labor intensive. "Items that are high margin are better as you're giving away a percentage of your revenue."
The brand launched its own app just four months before COVID hit and revised and redesigned the app to improve the customer experience with technology partners.
"One suggestion I would give to anyone out there now is more than ever there's a lot of opportunity, a lot of different systems out there that you can partner with to get an app to get white label delivery. These are things that four to five years ago were really hard to get, and they weren't really very good but there are a lot of good options out there and I would definitely suggest doing it."
Capturing customer insights
At Fuku food delivery orders now represent 40% of total sales and its own app accounts for 50% of that total.
The brand, based in New York City with about 40 locations nationwide, began working with four delivery partners just about two years before the pandemic hit and at that point had no native delivery platform, said Munoz-Suarez. Back then delivery orders were 10% to 15% of total sales.
Three years ago, it partnered with a tech provider and launched a web-based ordering platform and followed that with a loyalty program in 2022.
The big value point in having a native delivery app is capturing customer data.
"One of the challenges for us [in using DSPs] was never getting customer data. You're selling food to someone, and you have no idea who the person is and you're not able to engage with them," he said.
The brand has found big success with a free sandwich incentive for those who sign up with the brand app and migrate off third-party services.
New York-based Atomic Wings, with 17 locations mostly on the East Coast and 90 U.S. agreements in process, works with all the major DSPs, including Grub Hub.
"It's New York City so everyone has something [delivery app] on their phone," said Omar, adding deliveries account for 40% to 60% of its sales. "Third parties play a major role," he said.
An economical saving grace that came from the pandemic was a cap on the DSP commission of 20%, as restaurants were paying 30% or higher in the city.
With its own delivery app, the delivery cost hovers about 5% and the brand has delivery staff using electric bikes.
"It's a love-hate relationship in that you love the sales, but you hate giving up control," said Omar. "You have zero control over the food once it leaves your restaurant."
In addition, DSPs can "turn off" a restaurant on its app if there is no driver/delivery available around the restaurant. In that scenario a restaurant becomes invisible, he explained.
Another big challenge with third-party delivery is that food can sometimes end up sitting for an hour before a delivery person shows up.
"I don't care what you're serving as it's going to be cold and soggy — just bad quality. And now you have a bad customer experience not because of your crew but who you partnered with," he said, adding that another challenge [with DSPs] is the fact that the customer's loyalty lies with that delivery service.
"They are loyal to Uber Eats, Door Dash, etc. So, invest in your own app and try to get your own delivery drivers wherever possible so you have control over that food and customer experience."
About Judy Mottl
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