Pizza shows how to make money in takeout

In the five years that I have been involved in food delivery, I have heard various forms of “takeaway not possible” time and time again. Industry veterans say that “restaurants can only profit on a marginal basis” (that is, assuming their fixed costs are already covered by their dine-in business). Restaurants with 40% or more of their business through takeout claim there’s no way to get the business going, even on a marginal basis: Expenses can flood the entire income statement. Restaurants are now raising menu prices on third-party platforms by 15-30%, which is 15-30% higher than dine-in and first-party offerings. At the same time, consumers are paying so much that “delivery companies aren’t even making money,” the restaurant exclaimed.

My response to this has always been, “Pizza has been delivering for years, and the last time I checked, Domino’s was a very profitable business.” It still is, Papa Johns and many other takeout-oriented pizza companies is also like this. Consumers have proven they want to offer delivery in other categories than pizza, and smart restaurateurs will innovate ways to meet this need to suit everyone involved – consumers, restaurants, restaurant workers, drivers, and more. A sensible person would look at the model developed by Pizza and consider how it could be applied to other categories.

The evolution of the pizza industry heralded the development of other types of cuisine. Fifty years ago, most pizzerias were dine-in. Domino’s is disrupting the category by designing its business around delivery. Since then, Domino’s has continued to invest in better delivery pizzas and spawned many similar delivery-focused pizza brands. Even Pizza Hut has capitulated, shifting its asset base to “delcos” (delivery/delivery) instead of traditional “Red Roofs” (dine-in).

Of course, consistently delivering quality food is the foundation of any business model. No amount of business model tweaks or technology will solve the bad food problem. Assuming your restaurant has great food and can consistently execute it, making that food more accessible will grow your business. Five main aspects make the delivered pizza model more sustainable, efficient and effective than the current incremental mindset in other categories.

1: A purpose-built, delivery-focused kitchen

While it may seem obvious now, Domino’s has fundamentally changed the overall philosophy of the restaurant. A typical domino is off the main road, has no dining seating, and is about 1,000 square feet in size. In many ways, Domino’s was the original “ghost kitchen.” This small restaurant kitchen, designed for ordering, baking and take-out pizza, makes more economic sense than Main on Main’s large, heavily decorated dine-in concept, since most sales are home delivery.

Other restaurant categories will increasingly be divided into dine-in and out-of-store archetypes. Dining-centric locations will do what they can: create a great experience for guests who choose to dine out. Offsite-centric locations will increasingly do what they do best: innovate better delivery experiences.

2: Restaurant scales up to serve narrow delivery radius

Both the construction and operating costs of a takeaway pizza place are lower than those of its peers. This business model is of the right size, with an average unit volume (AUV) lower than the average unit volume (AUV) required for a dine-in restaurant to be successful. This is because drive times around delivery-focused restaurants need to be fast enough to fully utilize drivers (more deliveries per hour) and reduce the time between cooking and consumers (order-to-delivery time). Former Wingstop CEO, Charlie Morrison (now at Salad and Go)Provide digital restaurant” The drive from the restaurant to the consumer is no more than 14 minutes. Chris Baggott, CEO of the multi-concept ghost kitchen ClusterTruck, thinks that number should be lower: 6 minutes. Pizza tends to be somewhere in between, at 10.

Whether the correct number for your type of cuisine is 5 minutes or 15 minutes, it’s definitely not 20 minutes. A smaller delivery radius means the business needs to survive on lower AUVs (like pizza), or it needs to get more frequency from fewer consumers (as ClusterTruck does). Either way, the business has to target consumers who are only a short drive from the restaurant.

3: The consumer journey and technology are as important as the food itself

There is no doubt that consistently well-executed cuisine is a bet in the restaurant world. Increasingly, a “frictionless” consumer journey powered by technology is the difference between a good concept and a great one. Domino’s understood this early on, adopting technology long before the third-party subscription marketplace became a household name. They continue to innovate and often advertise aspects of their technology as a feature, as other brands do with limited-time offers.

During COVID, this “frictionless” expectation has become the norm outside of pizza. Restaurants of all kinds are scrambling to enable first-party ordering, and tech companies are there to support them. Companies like Olo and Toast go public. Lunchbox and ChowNow are raising money at high valuations to sign up restaurants as quickly as possible. Now that the existential crisis of COVID is largely over for the industry, restaurants have an opportunity to further innovate their consumer journeys until ordering a bowl is as easy as ordering a pizza.

4: First-party ordering priority

Domino’s is known to stay away from the third-party ordering marketplace, choosing instead to focus on creating a great first-party ordering experience. This focus has led Domino’s to invest heavily in a technology platform that includes the trio of great first-party ordering: integrated product ordering, payments, and loyalty. Domino’s takes this integrated approach a step further with a holistic system that links consumer demand to backend capacity and driver availability. It’s this integration that enables magical features like the pizza tracker.

That’s not to say all pizzas are (or should) avoid third parties. Papa Johns selectively added third-party sales and third-party logistics to increase revenue. But the core of their business remains first-party.

This is not to say that successful first-party businesses require capital-intensive in-house technology builds. Over the past 10 years, a number of SaaS (software as a service) companies have emerged to help restaurants without IT departments create a great first-party ordering experience.

However, the current restaurant delivery ecosystem for non-pizza categories makes first-party delivery difficult. While integration among tech players is beginning, software remains fragmented, requiring restaurants to figure out how to stitch together various point solutions to create systems that digital giants can use. Overcoming this complexity is critical to convincing consumers that your restaurant can provide them with an experience as good as the third-party marketplace expects. Integrated solutions like Empower Delivery and app marketplace platforms like Toast make it easier for every restaurant, including independent restaurants, to deliver a great technology experience like Domino’s.

5: Dedicated driver

Finally, whether it’s 1099 or W2, takeout pizza places utilize dedicated drivers associated with specific restaurant locations. This driver pool increases availability, reduces delivery time, and supports batch delivery. It also prevents the broken hospitality chain inherent in restaurants from handing over food to drivers, who are hired, managed, and thus accountable to… no one.

In the current workforce environment, dealing with a dedicated pool of drivers feels hard. It seems a lot easier to just use drivers on DoorDash, UberEats, or Lyft and let these big, well-funded companies find enough drivers. But imagine if the waste and profits paid to third-party systems were reinvested in restaurants, consumers and drivers. After all, maybe it won’t be that hard.

These five aspects of delivery pizza are starting to come together in other food categories. As takeout-only kitchens integrate these experiences with pizza, a new era of takeout will emerge: an era in which purpose-built takeout restaurants have a direct relationship with consumers. In this model, consumers, restaurants, restaurant workers, and drivers all win with lower prices, higher profits, and better compensation.

Meredith Sunderland is the CEO of Empower Delivery, a software company that enables purpose-built, delivery-focused restaurants to own their off-site destiny through local first-party ordering, resource-aware meal production, and delivery fleet orchestration. Meredith is the co-author of the best-selling book Delivering a Digital Restaurant: A Roadmap to Your Food Future and its accompanying playbook, Delivering a Digital Restaurant: The Road to Digital Maturity, which will be released on Amazon this winter. Previously, Meredith was the founding COO of Kitchen United and the head of development for Taco Bell, a Yum!! Branded restaurant chain.

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