As restaurants have struggled to accommodate the need for meal delivery during the pandemic, a number of cities have stepped up to limit the steep fees third-party delivery providers can charge. Restaurant Business reported in late July that Philadelphia – which had just joined the effort alongside cities including New York, Los Angeles, San Francisco, Oakland, Portland, Ore., and Washington, D.C. – would immediately cap total fees on delivery orders at 15 percent. The report said delivery commissions could not exceed 10 percent of the order total, and separate nondelivery fees could not surpass 5 percent – until 90 days after the end of the current public health emergency. As for what happens in other cities, and, for that matter, across the country after the threat of this pandemic passes, restaurants need to dissect their data and understand their customer base so they can negotiate the best terms of third-party contracts. Even with the major providers, there is room for small restaurant brands to bargain – particularly as provider consolidation remains likely. This Fast Casual report (https://bit.ly/33vocmi) provides some tips about the best ways to secure a fair deal with third-party companies – including what you should know about your profits, customer habits and existing ordering channels to get the best leverage when negotiating an agreement. If you think in-house delivery might work for your restaurant with a little guidance, you can also check out the Native Delivery Best Practices Work Group, an effort launched by the Restaurant Technology Network.
As if it wasn’t important to know your true food costs before the pandemic, it’s all the more crucial now as many restaurants around the country are having to operate at a reduced capacity, rethink their menus and determine where to best allocate diminished resources. By getting an accurate handle on your waste, over-portioning, theft and even the shrinkage of ingredients, you can see what menu items are really costing you – then adjust your promotions so you encourage guests to select your highest-margin items. A recent webcast from Restaurant365 reinforced the power of tracking actual vs. theoretical food costs as a means of accomplishing this. Theoretical food costs are what your food costs should be based on the cost of your ingredients, while actual food costs are what your restaurant actually spent. There will be variance in those numbers, but getting a more precise understanding of where it comes from can help you minimize it. While there are a number of places to focus to help cut waste, it can be most helpful to analyze your individual ingredients and identify those with the greatest cost variance. Drilling down like this can help you zero in on what needs attention or adjustment, whether it’s your portion control of a certain dish, the prices you are getting from a supplier, or the need for a substitute dish on the menu.
If you currently lease your space, you have likely had some interesting conversations – hopefully productive ones – with your landlord in recent weeks. While restaurant operators may be struggling to pay rent, it’s not like there is a long list of businesses waiting to take your place if you were to vacate. Use any good will you have accumulated to negotiate more beneficial terms to your lease. Even the big guys are testing their leverage: Restaurant Business reported recently that Starbucks has asked its landlords for a year’s worth of rent breaks due to the pandemic – and The Cheesecake Factory claimed it wouldn’t be paying rent in April at all. Of course, landlords have their own bills to pay, so if you’re struggling to pay rent, acknowledge your shared challenges. Can you get your rent reduced for a few months initially and then deferred over the course of your lease if you continue to pay taxes, maintenance and utility costs, for example? Can you pay rent on a sliding scale based on your revenue in the coming months – and provide proof of your efforts to keep business flowing? If you are getting support through the Paycheck Protection Program, how can you factor that into your negotiation? Refusing to pay rent likely won’t help your case, but if you can have a discussion about what fixed costs need to be met, you may be able to come to an agreement that’s preferable to the one you started with. What’s more, you may buy yourself a bit more time to adapt your business to current challenges and keep business coming in.
When it comes to restaurant food delivery, the numbers don’t often add up – for the operator, the customer or even the third-party delivery company. A recent New York Times report found in a survey of GrubHub, DoorDash, Postmates and Uber Eats – the four largest third-party delivery apps in the U.S. – that customers were paying as much as 91 percent more for food delivered via these apps. In the meantime, operators are trying to carve out razor-thin profits from delivery orders and delivery companies are struggling to make money in a sea of competition. But since off-premise demand continues to climb and restaurants are adjusting their sales models and even their physical structures to accommodate it, how can operators make the costs easier to swallow for both customers and themselves? Offering delivery by hiring in-house couriers can help, though it isn’t necessarily feasible for everyone. A Restaurant Dive report says industry analysts predict restaurants will adjust prices, use virtual kitchens, adopt their own branded platforms or renegotiate their commission rates with third-party delivery companies in an effort to get ahead. Renegotiation may come in the form of changes in sales structure too: Technomic says a key way that providers are evolving right now is by offering delivery subscriptions – all-inclusive delivery for a monthly fee, as well as delivery discounts for loyal customers – incentives that can come directly from restaurants too.
Last year, restaurant prices climbed 3.1 percent year over year, according to the U.S. Department of Agriculture, and they are set to increase again this year between 1.5 and 2.5 percent. If you’re among the many operators that must raise prices this year, consider how you might achieve that without turning off your guests. First, try adding some value to the dishes you serve and the experience you provide. Some low-cost ideas that guests may perceive as adding to their experience could include offering fresh-baked bread or a larger side salad with a meal – or finding ways to make your menu more memorable, whether that means writing a guest’s name in chocolate sauce on a dessert plate or creating specialty artwork in the foam of a latte. Could you do a better job of explaining the quality of the ingredients you use? If guests get some extra detail about the steps you’re taking to provide a quality product, they may not mind paying a premium. If you have plans to upgrade your branding or marketing materials (to include your menu design), make pricing changes at the same time so you’re not simply taking your existing menu and plugging higher prices into it. Next, focus on your loyalty program – if you’re offering your best guests a chance to get something at a discount or for free, even if it is just once in a while, you can make higher prices easier to swallow. Finally, at a time when consumers value transparency, consider sharing your cost dilemma with them via social media or your email list – it helps if you haven’t raised prices in a while and can say you’re not willing to cut corners on quality. Of course, be sure to encourage them to share their feedback about what’s working well and what isn’t so they feel they are contributing to your success.
Looking to streamline your off-premise business? Many restaurant industry experts are placing their bets on ghost kitchens as the future of the industry. They have their benefits: For small brands and large, these spaces can help ease labor and rent burdens, meet growing off-premise demand and help restaurants connect their food with customers quickly. On the negative side, restaurants with ghost kitchens are generally relying on (and paying) third-party providers to deliver food to customers, and in the absence of a front-of-house team, they may also encounter challenges in connecting customers with their brand – unless it’s already well established. As the ghost kitchen industry expands, various models are emerging. Check out this map of the landscape from Spoon to get a sense of where different providers and restaurants are building a presence – and where you might fit in.
Team Four’s corporate chef identified the rise of food halls as a trend to watch in 2020, and for good reason: There are many significant food hall projects under development throughout the US and worldwide right now, the ones in operation have a strong track record of success (only three projects have failed of the more than 100 that have opened across the U.S.), and they offer low-risk, potentially high-reward environments for restaurant operators looking to take part. If you’re considering adding food halls to your restaurant marketing plan, Touchbistro says they offer a number of benefits and can reduce the substantial risks of opening a new restaurant, such as lower startup costs, shared maintenance expenses, shared infrastructure and shorter, more flexible contracts than you would have to agree to when signing for a conventional restaurant space. Newly added restaurants can hit the ground running in a food hall, benefitting from pre-existing foot traffic and fewer up-front marketing costs. Just bear in mind that a food hall experience may challenge your brand and require you to adapt your existing menu, service approach and marketing efforts. For instance, when you’re one stall in a crowded food hall, the experience of eating your food may feel different for guests than it would in a standalone restaurant – and the hundreds of options and long queues for food can cause overwhelm for some. How can you make your food memorable and your customer experience positive when your surroundings may be beyond your control?
What would it take for your restaurant to eliminate its trash cans? While it may seem like an impossible feat for a business that churns through goods ranging from food products to linens to cleaning supplies each day, thinking about how you might operate if you didn’t have trash cans – at least in the traditional sense – might help you rethink how your operation manages its waste. A recent article in the New York Times relates the stories of a Brooklyn restaurant, Rhodora, which has strived to become a “zero-waste” business in recent months. While its owners readily admit that its practices aren’t perfect, it has taken important steps – largely with suppliers and within its kitchen – to make it possible to winnow its waste down to nearly nothing. With consulting help from other restaurant operators who have minimized their own waste, Rhodera’s owners have researched and switched to suppliers that deliver (by bicycle) bread, eggs and pickled vegetables in reusable containers, and others that have ditched plastic wrap and committed to packaging foods in compostable materials. In the kitchen, they have introduced tools including a shredder that turns wine boxes into compostable material. As a result, they are able to save money and share a positive story with their eco-conscious clientele at a time when food waste is costing restaurants $2 billion in potential profits, according to the USDA. If you’d like to take a bite out of the waste your restaurant generates each year, there are many potential actions you can take, including and beyond packaging and composting. Consider these steps from Toast as a starting point.
For many restaurant operators around the country, 2019 has been the year of the rising wage. As the restaurant consultancy Aaron Allen & Associates reports, 21 states announced increases for 2019, and several states that already had high minimum wage rates saw major rises. California and Massachusetts saw increases above 9 percent and Maine experienced a 10 percent climb. Further increases are coming in 2020. Can your menu prices alone accommodate these sorts of increases in your labor spending? It’s not likely. To help your restaurant thrive amid labor challenges, Aaron Allen suggests operators assemble a plan that involves strategies for menu development, marketing, labor optimization, brand relevance and rejuvenation, technology adoption and even robotics. For instance, crafting a well-developed menu can lift check totals, increase party size and help you identify opportunities for limited-time offers, upsells and new profit lines. Conducting an audit of your brand and what sets it apart, as well as of your past, current and future marketing activity, can help you fine tune your strategy and avoid overspending. Similarly, if you audit how tasks are completed in your restaurant and what you’re spending on the labor required to complete each one, you might identify ways to adjust your service model or uncover tasks that can be eliminated or handled by technology. Speaking of tech, what processes can you make more efficient and guest-friendly through the use of technology? Could a tech-based solution help you minimize ongoing labor challenges? You may not need to take action in every area but knowing where you stand in these aspects of your business can help you pinpoint weaknesses that can lead to financial challenges down the line – and help you identify and build upon your greatest strengths.
The investment bank UBS recently called online food delivery “a mega trend that looks to grow tenfold over the next decade.” As the demand for off-premise food continues to boom, many operators have treated it as a must-have – even if it means losing profits and the ability to market directly to customers. But increasingly, operators are embracing more of a hybrid delivery strategy, which may appeal to those who don’t want to miss out on the business opportunities that delivery can provide but do want to maintain control over key aspects of it. As Restaurant Dive reports, there are several ways to create a hybrid delivery strategy that meshes with your key sales priorities – and a growing number of providers are accommodating them. Concerned about quality control or ensuring you meet delivery time targets? Having third-party providers process orders and keeping drivers in-house may be your best route. Not sure of your best path to delivery – or want to build a temporary bridge that holds you until you’re ready to provide in-house delivery down the line? The Greek chain Taziki’s is testing both delivery with its own drivers and third-party delivery through Waitr (which offered a path to integrating into its system and allowed the restaurant to continue marketing to its customers directly). Corner Bakery, in yet another variation, relies on its own fleet for larger catering orders but third parties for the delivery of individual orders. Receiving orders directly via your website or app (while retaining your customers’ information) and then farming them out to third parties for delivery may also be an option in your area. Olo is one such provider. Above all, research your customer base and available providers to best understand what your customers value versus what you and third parties can offer – and what you do best.