Denver-area restaurateurs who complained about third-party delivery fees and then pushed to have them limited during the coronavirus pandemic, are now adopting a new tactic and launching in-house delivery services to take back some of that business.
The efforts are not widespread yet, and many of the recently launched service come from locally owned restaurant companies like Big Red F Group and Bonanno Concepts that have a larger resource base and the ability to combine multiple concepts to increase orders. But individual restaurants also are beginning to try out such enterprises on a more limited basis, and many in the sector believe the strategy will become more common over the next year.
Delivery orders increased for several years before the pandemic limited dine-in capacity, but most restaurateurs let national delivery platforms handle that business or refused to offer food to go, said Katie Lazor, executive director of the EatDenver independent restaurant group. That’s when times were good, tables were full and many business owners considered the money they were losing from the 25% to 30% fees imposed by companies such as DoorDash (NYSE: DASH) to be a marketing expense designed to get their name out to a bigger crowd.
But when delivery became the only way that some people would get their food earlier this year, restaurants viewed the dominant third-party platforms — which also include Grubhub (NYSE: GRUB), Uber Eats and Postmates — as a necessity to bringing in revenue. However, they not only were having to pay back-breaking fees — Colorado Restaurant Association government-affairs director Nick Hoover said anything above 20% leads to a monetary loss on an order — but allowing unaffiliated drivers essentially to take the customer experience out of their hands.
Frank Bonanno, whose restaurants range from the high-end Luca and Mizuna to the more casual Lou’s Food Bar, said he started discussing how to launch a delivery service in March but tabled that when restaurants reopened in May, seeing that as the more immediate focus need. However, he quickly turned back to the idea after the second dining-room shutdown last month, seeing it less as a huge revenue booster than as a way to keep his servers employed.
Bonanno, like most other restaurateurs who have launched an in-house platform, also contracts with a national vendor and sees more orders placed through it on an average weekend still. But even if the numbers are small — Osteria Marco did eight Bonanno Concepts deliveries the weekend of Dec 12-13, while Vesper Lounge had six and Mizuna two — all of that revenue is staying in house, and staffers are knocking on doors and thanking customers.
“It’s hard to get people to buy into these ideas that are outside the box. If you would have told Mizuna they would be doing to-go food in January, I would have laughed,” he said. “But we’re thrilled with it. It’s the way of the future for us. And it’s the way of the future for everybody.”
Restaurants must overcome several hurdles to launch a delivery service.
Adding workers to an insurance policy that allows them to drive their cars for company purposes is the most expensive of them. Finding or hiring workers to do the deliveries normally would be another. And then trying to scrape business away from four multi-billion-dollar tech giants that essentially established the sector and have loyal followings is a third.
Dave Query, founder of the Big Red F Group that owns concepts like The Post Brewing Co. and Jax Oyster House & Fish Bar, said he handled the staffing issue when launching his WeDeliver service in October by moving servers who were losing hours into becoming drivers. And he marketed the new offering on the websites of his restaurants, where many people already were going to order food for pickup or to check out menus.
The company also tried to grow its offerings beyond its restaurants by launching four delivery-only concepts — The Tender Project, The Lasagna Project, The Cheesesteak Project and Local Gringo — that serve and deliver out of its Denver and Boulder kitchens. It too continues to maintain a relationship with DoorDash that company training director Jeff Rettig causes a “security blanket” for all the business it does, but it’s slowly growing its own platform too.
“If we can do it in-house and keep that delivery fee in our pocket, that’s great,” Query said, noting that the fried-chicken-focused Post Brewing particularly is attracting more WeDeliver orders. “We’re kind of doing the best of both worlds and grabbing that customer as we can.”
Creating an in-house delivery service also allows local restaurants to offer something that major third-party platforms can’t — the ability to deliver alcohol along with an order, which companies that use gig-worker drivers can’t do, Lazor noted. A recent policy document released by the National Restaurant Association in partnership with the major delivery platforms stated that restaurants should be able to deliver alcohol customers through the services, but Colorado and other states haven’t allowed that so far.
While Bonanno and Query say they’re in the delivery business for good, others, such as Cart-Driver owner Andy Niemeyer say they’re not sure if they’ll keep up the offering once they can fill their dining rooms again. A pizza restaurant that also offers upscale options like charcuterie and chicken liver mousse from its two Denver locations, it launched delivery service within a two-mile radius in November, relying on a third-party service to go further out.
Despite serving the food that people have most associated with delivery for decades, Niemeyer said he resisted delivery previously because he felt the best experience that he could provide for his guests was serving their food to them in his business. But his point-of-sales system operator made it easy to accept delivery orders and he felt it necessary to his business without dine-in guests — a service that he may not see as vital when the pandemic ends.
“As the weather gets colder, more and more folks are hesitant to get off their couch and get in their car and drive somewhere,” he explained. “I don’t know that we’ve made a final decision at this point on making it permanent … It’s a little hard to predict how things are going to look coming out on the other end of this.”
Many industry analysts believe that, once attuned to ordering in and eating at home, customers will continue to do so at a higher level than they did pre-pandemic for years to come. A local multi-restaurant delivery effort, NoCo Nosh, launched in the Boulder and Fort Collins area with help from city governments there, but none has appeared prominently in the Denver area yet.
Lazor noted that some restaurants remain happy as well with the major third-party delivery platforms, and the loyalty they receive from customers ensures they likely will be the largest local players for a long time. But between the need to save on fees and the requirement to reposition their businesses for long-term sustainability, restaurants are now taking to the idea of supplementing their diminished dine-in income, even if grabbing more of that market is going to be an uphill climb.
“They’re competing with the brand power and technology of a $39 billion-dollar company,” she said, referring to the value of DoorDash established by its recent initial public offering price. “But we’ll see how it plays out. I’m rooting for them.”