There are some important megatrends impacting the restaurant industry like never before including delivery, customer engagement, and personalization. Recently, Bloomberg Intelligence brought together two industry leaders; Atul Sood from Kitchen United and Zach Goldstein from Thanx, to discuss how restaurants can successfully utilize off-premise dining and marketing personalization to take share.
In this post, we’ll recap some of the highlights of this discussion and share a link to the full conversation.
Restaurants must own their customer data and experience
Let’s start by delving into customer engagement and the role data plays. It’s a fact that companies that have world-class mobile apps are succeeding. One of the reasons for their success is they control their own data. Because they capture and have access to their customer purchase and behavioral data (from their app) they are at a massive advantage over competitors that don’t. Why? The answer is simple. By using their customer data, companies like Starbucks are able to deliver more personalized customer experiences that are superior to their competition. These experiences help their customers build an emotional connection with the brand. They know their customers better; from their name to their favorite drink, to the baked treat that strikes their fancy.
It’s also a fact that brands that control their own customer data have superior customer loyalty. We all know that it’s more affordable to keep existing customers than acquire new customers, in fact, it’s 7 times more expensive to acquire a new customer than retain an existing one, and customer engagement and loyalty programs create more loyal, repeat customers
Delivery is the new drive-thru
Now, let’s shift gears and delve into the impact that delivery is having on restaurants.
According to Sood, delivery is the new drive-thru and the biggest shift in the industry in the last 40 years. Delivery is changing the game. It’s all about convenience. People want to stay home and Netflix and chill. Aggregators like GrubHub and Caviar have controlled this experience. And restaurants have been at the mercy of these aggregators because delivery is viewed as a necessary evil. Here’s why- restaurants are faced with declining foot traffic and they can’t keep raising prices to offset fewer orders. By offering delivery, they can get incremental sales because if they didn’t, they could lose that sale to a competitor that offers delivery. However, delivery cannibalizes margins. According to Forbes, “Uber Eats charges a restaurant 30% of their listed prices for the privilege of delivering their food. For example, Bob’s Deli charges $10 for a burger. Uber Eats would take $3 dollars as a fee for delivering their food. Also, Uber Eats does not permit restaurants to increase their prices to “cover” Uber’s cost. Thus, Uber is telling restaurants that they must eat the cost and lose money or they won’t deliver for you.” The big white elephant in the room is that the average profit margin for a restaurant is under 30%.
Another issue with delivery is that restaurants loose control of the customer experience and data. The average person expects their food within fifteen minutes of their order. That’s nearly impossible for the average restaurant to fulfill without some impact on quality and consumers will still blame the restaurant for a poor delivery experience even if it’s through a third-party. And, the restaurant doesn’t get any of the purchase and behavioral data from the customer because it goes to the delivery service.
Some restaurants are taking it seriously and opening concepts tailored to delivery. For example, Souvla, a popular four location Greek food chain in San Francisco just opened a new location in the Marina district of the city with a takeout window. According to an article in EaterSF, “more than half of Souvla’s daily customers won’t be eating inside the restaurant. To-go orders and pick-up and delivery orders placed online represent about 60 percent of Souvla’s business, founder and CEO Charles Bililies estimates.” The article further goes on to say, “The Marina Souvla is built to maximize to-go and delivery efficiency without jostling customers in the cozy, 400-square-foot dining room. That’s less than a third of the restaurant’s footprint: The rest is given over to
Souvla is definitely catering to their younger, millennial customer base and knows that the younger generation wants to eat and work at places where they have a strong emotional connection. Old school loyalty is being replaced by customer loyalty experiences.
Another example is Salted which is made up of six restaurant subbrands that are all virtual – meaning they only offer delivery and take out. Salted states that “we own and operate restaurant brands that are designed for the digital age, in partnership with every major delivery platform on the market today. Our brands are focused on deep customer/brand relationships, healthy approaches to traditionally unhealthy cuisines, and creative digital marketing campaigns.“
With the proliferation of delivery and these new dark kitchen concepts, how is a typical restaurant to compete?
According to Goldstein, the way to combat the delivery crisis is to have an owned relationship with your customers. You have a choice. You can materially change your costing (this is harder) OR drive the higher revenue portion of your business. Most marketing teams are spending time in the wrong place. They need to drive ROI and incremental revenue they can prove. When you build an owned audience you can measure it. Data is a valuable currency. Third-party ordering companies need to start to share this data with their merchants so the merchants can build this relationship with their customers vs. having the data held hostage by the delivery companies.
So that begs the question. What are some restaurant marketing tactics that work? Goldstein shared that restaurants should explore Targeted look-a-like modeling. Simply put this is looking at top 1-2 % of your customers and find more that look like them. Market to people that mirror the qualities of your VIPs. This is a much more efficient approach than the old spray and prey mass communication approach. In fact, it has returns of 6-10x. And, of course, use a customer engagement platform that can help you acquire, engage, and retain your best customers.
Goldstein also recommends a multi-channel approach. Don’t rely on just one method of communication with your customers. You need to be where they are whether that be email, SMS, or push notification. Or perhaps even a dating app? Goldstein shared an example of a restaurant that used Tinder to introduce a new burger. They set up a tinder profile for the burger and then matched people to it. Obviously, Tinder shut that down quickly but that’s innovative. You have to think outside the delivery box. Let your most loyal and VIP customers be your brand advocates. Let them promote your business on social media, wear your swag and refer you to their friends and family. Again, it comes back to customer experiences.
Restaurants are facing an ever-changing landscape in a fiercely competitive environment with new trends emerging all the time. To compete, restaurants must own their customer experience and data and provide memorable experiences that build the emotional connections consumers crave. Click here to listen to the full conversation.