Why third party digital delivery isn't on everyone's menu in the restaurant business

Profile picture for user slauchlan By Stuart Lauchlan February 11, 2019
Summary:
What works for McDonald's and Dunkin' Donuts doesn't for Olive Garden and Jimmy John's.
jimmyjohns
A Jimmy John's special

The rise of digitally-enabled delivery options in the Quick Service Restaurant (QSR) sector - that’s fast food by another name - is a topic that weve returned to over the past year or so, as major brands like McDonald’s roll out their own offerings alongside the rise of delivery aggregators, such as Deliveroo, Uber Eats and Door Dash.

In fact there’s been so much talk around the importance of delivery as a knock-on effect of digital transformation and investment that it’s tempting to believe that it’s a concept that is essentially de rigeur in the QSR space. With the US third party delivery market alone already worth a cool $13 billion, there’s clearly money to be made.

But not everyone is convinced. Pizza giant Domino’s has been delivering its own food for the past 60 years and sees no reason to let third parties in on the revenue stream. Others have dabbled with third party delivery options and found the experience alien to their business models, most notably the Olive Garden restaurant chain. Back in 2017, the firm experimented with Amazon, but has since pulled back. While still offering a takeaway service, the chain believes that the Olive Garden experience is one that centers around the restaurant itself.

What’s not to like about third party digital delivery aggregators? Well, there’s the commission charges for a start, which can be as high as 30%, which requires the QSR to contemplate the balance between convenience and customer experience. There’s also the question of handing your brand over to a courier on a bike and hoping that he or she won’t screw up as it’s you that will be on the receiving end of the customer complaints when the burger and fries arrives cold.

Sandwiched

The latest rebel against the third party delivery industry is US sandwich chain Jimmy John’s which has just launched a new marketing and ad campaign in which it explicitly calls out providers of third party delivery apps and pledges never to use them as they are notoriously unreliable. CEO James North says:

We want to control the experience from the fresh prep to the hand off to the customer. It's great to get your favorite local restaurant delivered to your door, but at what cost? We want our customers to end up with a perfect sandwich, so we'll continue to hold ourselves accountable to our own high standards. We currently do it better than anyone else and we're going to continue to improve on that…We are not going to hand our product to a driver we have never met or trained, or give up control of any stage of the delivery process.

The firm employs 45,000 delivery drivers of its own and has been shipping out sandwich orders for 36 years. Crucially each Jimmy John’s store will only deliver to addresses within five minutes reach so that orders arrive in as good a state as possible. It promises delivery of a ‘freaky fresh” sandwich within 20 minutes for a $2 fee.

To back up its new campaign, the chain commissioned Boston Consulting to poll public opinion on third party apps. The results, inevitably, support Jimmy John’s prejudice against such services, finding that:

  • 35% of users say they have experienced a problem with their deliveries.
  • 65% hold the restaurant itself at least partially responsible for any errors.
  • 92% of customers want their food within 15-30 minutes of placing an order, well short of the average 49 minute service offered by the larger providers.

Not that Jimmy John’s expedient findings are going to turn the tide, of course. Dunkin’ - the group behind Dunkin’ Donuts and Baskin’ Robbins - just signed with Grubhub for a delivery pilot program, building on an existing deal with DoorDash. Chief Marketing Officer Tony Weisman explains:

We do Door Dash across both brands, and have had success with both, but it was our exploration of all the players out there that we thought Grubhub brought a really sophisticated technology platform, which allows us for the POS [Point of Sale] integration, which allows for the easiest and most frictionless experience to the consumer.

We were really impressed with the rigor that they brought to understanding the customer experience and helping us really optimize so that the customer experience is flawless. And [there is] the sense of partnership that they’ve brought to this I think that they’re very committed to this, They’re very committed to working with us to market it aggressively…we are very excited that it feels like there’s real synergy here between us and Grubhub, a real similar view of how to optimize the customer experience and make it not just really easy, intuitive, and frictionless to the consumer, but very easy on our store operation, so that there’s no impact on customers who happen to be coming in or driving through the store.

And digital champions like McDonald’s remain committed to the third party model, celebrating the second anniversary of a tie-up with Uber Eats that now offers delivery out of 19,000 stores worldwide, over half of the global footprint. CEO Steve Easterbrook says:

Over the past two years, delivery has become a $3 billion business for both McDonald's company and franchise restaurants globally…We’re confident this delivery offers additional growth potential for our business. Even with the momentum we already have established, we know we have an opportunity to let more customers know the McDonald's will bring meals to their homes, offices and college dorm rooms.

But not everyone in Ronald McDonald’s world is happy about this. Last year, McDonald’s franchisees formed the National Owners Association to create a louder voice around the firm’s operational moves. It recently conducted a Delivery Economics Survey of 800 franchise owners in which 758 respondents said they weren’t happy with the current economics of the model and demanded McDonald’s should go back and get a better commission rate deal with Uber Eats.

That said, almost all franchisees polled admitted that they do want to be able to offer delivery services out of their restaurants, which leads to Easterbrook’s confidence that this isn’t likely to turn into a difficult rebellion:

Wouldn’t life be great if everyone was happy? Am I fundamentally concerned…it will derail from the shared ambition we have ? No, I’m not at all. And I think just the fact that the dialogue continues means that we’re going to get to a good place.

And if he can deliver on that, then that’ll be another dollop of secret sauce in the firm’s ongoing digital transformation.

My take

Jimmy John’s got a nice little PR boost out of its principled stand against the third party digital aggregators, but the main takeaway here is that there’s no putting the genie back in the bottle. The likes of Deliveroo and Uber Eats have changed the nature of the food delivery business, for better or worse - and I suspect most users would tap for the former. What’s worth remembering is that having pizza delivered has been the norm for decades. And even the digital platform aspect of the current disruptive model isn’t that new as we can see when we look at Grubhub, which is on the menu for tomorrow.