Financial and Operational Implications of Moving to Restaurant Delivery/Takeout Only During COVID-19 Outbreak

With the sudden elimination of dine-in options, many restaurants are either shifting to a takeout/delivery only model or implementing a delivery option for the first time. Deciding whether to add delivery, and how, is a particularly difficult decision for restaurants during these times.

Restaurant owners and operators are asking: what financial and operational factors should you consider when moving to a delivery/takeout model?

Should you add delivery to your restaurant during COVID-19?

You want to take care of your team and keep your customers happy, but you also need to make sure you can return to post-COVID19 times with momentum on your side. Are you going to get enough business to keep your doors open? Consider factors such as your brand loyalty and your footprint in your local neighborhood. If there is a chance that you can reach people who wouldn’t otherwise be patronizing your business, delivery is something to explore.

Well-executed delivery may actually help you gain loyal, long-term customers, who remember how you treated them during a challenging time. While supportive gestures like gift cards are thoughtful, customers spending actual money on your product can get money in your staff’s pockets today and have different implications for the long-term health of your business tomorrow.

One additional note to keep in mind: you may not have every single piece of the delivery puzzle perfectly figured out before starting, and although that’s not ideal, it’s not a reason to wait. With today’s constantly changing circumstances, the dining public still supporting restaurants is generally more understanding. Of course, you will need to be on top of every single moving part of delivery for the first few weeks, and your learning process may result in some trial and error. However, talking to customers, drivers, peers, competitors, and neighbors will help you find out what’s working, what is not, and where to make the changes as you go along.

Quickly add a no-cost digital ordering solution

One of our R365’s POS partners, Toast, has built a tool to help restaurants that do not offer take out or delivery to quickly add digital ordering to keep revenue coming in. Toast Now is a digital ordering solution to help non-Toast restaurants weather the uncertainty of COVID-19 while keeping their doors open and their guests fed. With Toast Now, restaurants can quickly spin up their own online ordering site, offer contactless delivery, be listed in the Toast TakeOut mobile ordering app to be found by guests, and offer e-gift cards. No hardware or POS purchase is required.  The first three months are free and there are no upfront costs or commission fees. Standard payment processing rates apply.

Using existing staff to do delivery “in-house”

While using your staff for delivery may seem like the obvious choice, there are many regulatory, overhead, labor cost, and menu factors to consider. If you haven’t been doing delivery before this point, even if you are using your own team, there are barriers to entry including:

  • Securing equipment (like hot bags, to-go packaging)
  • Expanding “off-premise” insurance coverage
  • Obeying local regulations from your local food handlers’ association
  • Completing staff training

You will need to line up some new policies and systems before starting your own in-house delivery service. Start with the following:

Revisit your insurance policy

To implement in-house delivery, you will most likely need to add to your existing policy, which is one of the trickiest parts of the delivery equation. Your first step will be to call your insurance provider and inquire about on-premise versus off-premise coverage. Depending on your specific situation, expanding your insurance can add up very quickly. Here are some factors your insurer will consider:

  • Your delivery drivers
  • Your state (or multi-state)
  • Company vs. personal vehicles
  • Vehicle insurance
  • Delivery range (your delivery radius in your locale)
  • Alcohol delivery and local regulations [see below]

Follow alcohol delivery regulations

Many local and state governments are now allowing restaurants to provide services like alcohol delivery, which is fairly unprecedented in the industry. This can help improve your profitability, but the most important consideration for alcohol delivery is how your business is going to handle ID checks for alcohol purchases. Your insurance company and local area may have special considerations and regulations.

This aspect of delivery in particular is changing rapidly, almost by the day, so it is critical to stay up to date with your local regulations. Make sure you’re not putting employees in harm’s way, either legally or with improper insurance. To start, focus on making sure you are covered for what you need, today, and update as needed.

Streamline transaction processing

Finally, consider how you are processing transactions. With most consumers using cards, a mobile app that can process transactions when your staff delivers is ideal. Without payment processing capabilities, you will need to process transactions over the phone, which can be a costly security risk, or through cash, which is now a health risk [more on this in the accounting section below].

Alternative: receive orders “in-house,” outsource delivery to third-party

If you have the capacity and staff to take your own orders on the phone or your website, but you don’t want to set up a delivery system, there are middle-ground services to consider, such as DoorDash Drive. Delivery-only services provide delivery without any order management, but instead of charging the standard 20-30% commission, they usually use a flat per-delivery charge.

Using third-party delivery apps

To quickly onboard delivery services, many restaurants are turning to third-party delivery apps. However, if your restaurant signs up with a delivery company, you want to do your best to “future-proof” your decision. Start by weighing these questions when choosing which third-party delivery apps to use.

What’s popular in your region?

Which apps are popular with consumers in each region of the country varies widely. A quick (if generalized) way to check for your area is to look at a few local restaurants who you know do delivery and see how many ratings they have for each third-party app. Whichever app has the most ratings can give you a general idea of the most popular app in your region.

What are the commission rates and delivery fees?

Next, you will want to consider the commission rates and delivery fees for each app to see what would be the most profitable for your restaurant. Your accounting team should be part of this decision to help you decide what factors make sense for your business model. For example, if you have a higher than average check average, you may be better off with a lower commission percentage and a flat delivery fee.

When do you receive deposits?

You will also want to note when you receive your deposit from these companies. All third-party apps have a lag of delivering your payments. You will need to keep these timelines, anywhere from a few days to two weeks, in mind to make sure it fits with your cash flow needs.

How quickly can you be onboarded?

You will want to discuss the timeline expectations for onboarding with different apps. This can be broken down into three basic steps:

  1. Receiving your tablet—this is the biggest consideration that you do not have control over when onboarding. In the current climate, many third-party apps are trying to get their equipment out as fast as possible. The exact timeline depends on your region, but it may be as short as a couple days or a week.
  2. Adding menu items to app—you will need to ensure what you are currently serving is what is on any app you are using. A thorough, accurate menu check is worth the time investment because errors will result in a painful, manual contact process to cancel orders with customers.
  3. Setting up deposit account—this will require working closely with your accounting team to understand how you are going to track your costs. Many restaurant owners find that tracking the cost of delivery is more difficult than it seems, because of the large number of different components.

Relying on takeout only

Of course, if you do not feel your restaurant is able to do delivery at this time, and your break-even calculation is still indicating you should stay open, you can implement a takeout only model. If you do takeout, make sure to promote to your customers on all your available website and social media channels. Also consider enabling curbside pick-up, allowing customers to stay in their cars to minimize their social contact and put them at ease.

Controlling costs in a takeout/delivery model

To control your costs, keep these factors in mind when designing your delivery menu and system:

Strategically limit menu items

Instead of cutting menu sections based on knee-jerk reactions, step back and consider what menu items make the most sense for your profit margins and restaurant inventory. Limit the menu to your most profitable menu items while also taking into account which of these menu items can hold up well during delivery travel. In addition, plan a menu that allows you to replicate ingredients and use them across multiple recipes, keeping a streamlined inventory and avoiding food waste.

Inquire about sourcing

In these times, one of the most important things you can do during your menu planning is reach out to your vendors to get a pulse on what is available and where they foresee potential shortages. Certain specialty items in particular may have sourcing issues or become more expensive. By understanding what you can get in stock, or what may be susceptible to price inflation, you can better design your menu for market fluctuations.

Limit labor

When planning your menu, also keep in mind the labor, prep time, and prep lists necessary to execute it. If you know how many people on your line is most profitable (or if you are operating at a loss, how many is most effective), you can design your menu with that in mind.

Consider adjusting menu pricing

Was your menu costed out at dine-in pricing? Delivery, whether it’s in-house or through a third-party app, includes new costs, such as packaging, insurance, and drivers. You may need to consider adjusting all men pricing, putting out a temporary price list, or adding a delivery fee. Making this decision requires knowing what margin you were making before, what margin you are making now, and what you can afford to lose for how long.

Accommodate upfront delivery costs

To implement delivery, you will need to make investments in takeout and delivery supplies. This may include costs from payment processing equipment to packaging.

Recognize hidden costs

Finally, you will need to keep in mind the hidden costs of delivery. For third-party delivery apps, be sure to ask your rep from the beginning about hidden costs, such as what they are charging for payment transactions, delivery, and other details like advertising and website locations.

If you are implementing in-house delivery, the biggest hidden cost can be how you are processing payments during the sudden shift to carryout and delivery. If you are taking credit cards over the phone and manually punching them into your POS, you may be paying a much higher rate on each transaction to your payment processor. Hand-keying cards versus swiping can lead to varied fees, not to mention security issues or being susceptible to costly chargebacks.

For many restaurant owners, payment processing is in itself a major reason to consider using a third-party app for delivery. If you are set on doing delivery in-house for the long term, make sure to talk to your payment processor ahead of time to ensure you’re not losing significant amounts of money by handling payments the wrong way.

Common accounting issues when pivoting to a third-party delivery model

When switching to a delivery model, there are two common accounting issues to proactively discuss with your accounting team.

1. Miskeys and reconciliation issues

If you suddenly scale up third-party delivery, your management may be looking at a tablet while punching in numbers into a POS, and it is common that there will be small mistakes. Staff may accidentally use old menu prices or mix up apps and misattribute sales. For the accounting side, these small mistakes can add up to major issues. Many third-party apps have less-than-intuitive deposit “invoicing” and documentation, so when accounting tries to reconcile sales, there can be large discrepancies.

If you are doing a lot of delivery business, and investing for the long-term, you may want to consider using a third-party aggregator, which takes orders from the third-party delivery apps and pushes them through to your POS system. The setup process for an aggregator can be complex, but it can prevent a common accounting sticking point, help you maintain accurate records, and streamline operations within your restaurant.

2. Timing of receiving cash versus making the sale

Your deposits from third-party apps are packaged together and then deposited in a lump sum to your business, lagging behind actual sales anywhere from a few days to two weeks. This can be challenging for your accounting staff when trying to match the cash the restaurant should have versus the timing of the actual payments hitting the bank. Your accounting staff may need to make adjustments in processes or systems as you progress with delivery.

Marketing your delivery and takeout model

Whatever takeout and delivery model you move to, you will want to actively market your business to your customers. With tips for restaurant delivery and takeout, you can prioritize effective, focused marketing strategies, such as:

  • Be active on social: your customers are looking at their phones, so post often and engage your audience.
  • Use video on social: many social media platforms favor video, so including Facebook Live, Instagram stories, and other video content in your marketing plan can help grow your audience.
  • Tag your location on social: algorithms rely heavily on location data, so by tagging your location, you can better reach the local customers you need for delivery.
  • Keep your website up to date: customers know times are changing rapidly, so they are eager to keep up with the latest news. Because they will likely check your social and website before ordering from you, ensure all your platforms are completely up to date.
  • Get creative: restaurants are experimenting with promotions (BOGOs, 10% off, etc.) and value added deals (frozen take-home pizzas, bottled sauces) to attract customers eager for deals

If you’d like more information on moving your business to a delivery model, watch the roundtable discussion featuring  industry experts from Restaurant365, FTR Hospitality and All Systems Hospitality, Inc, or visit R365’s COVID-19 Resources Center to stay up to date on helpful resources for your restaurant.

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