As a restaurant lawyer, consultant and owner of over 10 hospitality venues, I can’t help but notice the storm clouds on the horizon in the form of rising labor and lease costs, delivery-only restaurants and the pairing of streaming services with the surging demand for delivery.
Pairing Streaming with Delivery
Just recently I was shocked that instead of going out on a double date for dinner and a movie, I was informed that we were going to order delivery and watch Netflix instead (as no one wanted to dress up and deal with crowds). I have watched over the past few years, as theaters have been fighting for their lives against content streaming entities, but I had never until now understood the damage that streaming services coupled with food deliveries can and will do to the brick-and-mortar restaurant. Just a few years ago the idea that one would stay home and order in any food other than pizza was preposterous and to stay home and watch theater-quality programming was not even an option.
My Netflix and delivery double date made me think about a panel I had been on two weeks earlier. Upon being asked about the challenges facing the restaurant industry, I said that deliveries and delivery services were potentially very damaging to our restaurant revenue streams. In explanation, I stated that all revenues generating customers are not equal and that the delivery customer is an inferior customer for a number of reasons.
Comparing the experience of the restaurant versus delivery customer
First, delivery customers are not a “captive audience.” While inside your restaurant, the customer is exposed to all of the sensory stimuli that are present, and they are — in essence — captive at your establishment. The consumer can smell the delicious fare being whisked around, see the wonderful plating of the food and take in your restaurant’s music and ambiance. In short, they experience and can enjoy the energy of the venue. As an operator, we understand that those sensory stimuli, when properly combined, can lead to increased brand loyalty and sales. Have you ever heard of the statement that a person’s eyes were bigger than their stomach? (That person dined in-house.)
With a delivery customer, there is none of that. There is no curated in-house experience, there is no chance for additional sales, and there is no real way for us as operators to create any type of memorable experience. In addition, the delivery customer may not leave as generous of a tip as they would if they were dining in the restaurant, which translates to less revenue for our hard-working staff, which means fewer smiles! And besides, while certain foods travel better, it’s hard to beat the flavor of food fresh out of a restaurant’s kitchen coming directly to your table.
Keeping the customer at your table – but being prepared
So what can we do as operators to address these concerns? First, continue to offer services and experiences that cannot be replicated at home. Samplings of fare, cocktails and beers are always ways to increase in-house customer satisfaction. Who doesn’t like to be at a dinner and have the chef send out something plated just for you as a valued guest? Surprise customers with a free dessert for a special occasion — while the cost to you is minimal, the gesture will definitely be appreciated and remembered.
With that being said, delivery has crashed the party and its presence is only going to grow, so make sure that your packaging is suited well for what might be an hour travel time. I order from my restaurants at least once a week to see how the delivery product holds up and to think of ways to improve the delivery quality. Some simple tricks are to separate cold and hot items and to provide a manner for certain items to breathe (mostly applicable to fried side items) so they remain crispy instead of soggy and limp.
Rethinking Location, Location, Location
Even the most sound advice of “location, location, location” may need to be reconsidered for aspiring brick-and-mortar restaurateurs as delivery and to-go services continue to pick up steam. For example, I lease a location for my burger concept on the corner of Santa Monica Boulevard and Ocean Avenue — what would be considered a great location. I pay $8 per square foot (a number that keeps going up), and my cost to build out the 2,000 square feet is $600,000. My average payroll is $40,000 a month. Conversely, ACME Burger can open on Santa Monica Boulevard and 26th Street as a commercial kitchen with a handful of waiting seats and a pickup window at a cost that will not exceed $200,000. They will be able to secure their lease at $4 per square foot, and their payroll will be closer to $25,000 a month, as they have almost no front of house staff. Add in other operations savings and this venue will be able to sell a nearly identical burger at 60% of our cost and still realize the same margins — without parking issues for delivery companies.
If you find yourself in this predicament, try approaching your landlord and asking for a rent reduction or at the least request that your rent does not increase for a set period of time. I have found that landlords now more than ever are willing to work with their tenants rather than implement strict enforcement of a lease that might have made sense in the past but is not financially feasible for the future.
If you’re an aspiring restaurateur, it makes sense to see where savings can be had, be that investing in a slightly less-than-prime location, a smaller venue, a lighter staff or an area with more readily available parking for easier pickup and delivery.
With increased minimum wage, rising lease costs and delivery-only establishments eating into the profit of brick-and-mortar restaurants, 2018 will certainly be a tumultuous year for traditional restaurateurs. Innovating and focusing on the customer will be key to overcoming these challenges.