Making Restaurant Delivery & Takeout Profitable & Sustainable (Ep 184)
Delivery and takeout for restaurants are no longer optional (if it ever really were). Getting it right can be a challenge, though. In this episode, Jamie talks with Scott Landers, Co-founder and Sustainability Engineer at Figure 8 Logistics. They discuss optimizing menus, menu engineering, sustainability, and minimizing waste, maximizing check size, and making delivery profitable. Be sure to check out the episode!
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Making Restaurant Delivery & Takeout Profitable & Sustainable With Scott Landers
In this upcoming episode, I dig in with Scott Landers of Figure 8 Logistics, all about what's going on with restaurant delivery today. Stay tuned.
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We've got a great episode for you with Scott Landers, who's the co-founder and Sustainability Engineer at Figure 8. Welcome, Scott. Tell me about Figure 8, and what you have going on.
Jaime, it's great to be here. Figure 8 is on a mission to accelerate a more sustainable food system through logistics. We understand that food is heavy and food access is paramount. It comes down to the logistics of how you get it where it's needed when it's needed. During COVID we learned that if guests can't come to the restaurant, the restaurant has to go to the guests. We focus on the importance of logistics and creating a variety of channels, both online and offline, that restaurants can use to provide for their guests wherever they are.
Is it the case that you guys pretty much launched around the time of COVID? Take me back to that timeline.
Launching Figure 8 Logistics Pre-COVID
We launched about a year before, at the very beginning of 2019, after I had left my job working at a restaurant where I ran all their delivery and catering operations internally. I started Figure 8 in February 2019. We'd been up and running for about a year, and then COVID accelerated a lot of what we were doing.
Good timing to already be up because delivery came to the forefront to the extreme, especially in the big cities. I know you were in multiple big cities during that time. A lot of learnings during that, what was it like in that very beginning, that hectic few months where people were trying to figure this out? What'd you feel?
In the earliest days, it was this big whiplash. Some restaurants went from almost 100% dine-in to 100% dine-out, right, or off. That switch alone, a lot of restaurants just decided to close temporarily, or some of that turned into permanent closures, but several restaurants said, “We're going to stay open, even if it's a more limited capacity.”
How do we build this new capacity, building these new channels? In the early days, we were helping restaurants with what I like to call zero to one, which means you didn't have a system for online ordering or assist delivery. We have to get you a system in place and we would look at how we do that with fairly constrained resources.
You don't necessarily want to change your whole point of sale and all your operating systems to be able to bring these channels on. However, you also want to do it in a way that you still have some control over it, a higher degree of profitability and not just taking the easy option of the first piece of technology that walks through the door.
We would come in and help understand how you build these channels in a way that works for your business. Not just plugging in a third party and copying and pasting your menu, but understanding how I might need to change my menu to better suit an online ordering experience or menu items of travel. How might I need to invest in different photography or different packaging to enable an experience that is what I would call brand-positive? In those early days, it was a lot of how do we get this set up and make sure that we're able to continue to stay around for another day.
You just hit on a bunch of things that I'm going to follow up on. I'll try to do them in parts, but there was a lot there to go back to. One of them is why it didn't exist before question. I remember when it happened, restaurants were humming at that point. Everything was easy. I hate using that word easily, but people were doing very well. That button happened and everything slowed down. Everyone was asking, “Why didn't we have this set up before?”
Everyone scrambled to get it ready. Folks have learned a lot in the process and I've said this repeatedly on podcasts, webinars, and so forth. Hopefully, we continue to take those learnings that shifted revenue from 80% delivery in some cases. As folks come back in, hopefully, that shift stays there, and that ability to deliver and make more profits continues as part of the DNA of restaurants.
Why wasn't delivery infrastructure in place before the pandemic? The scramble to adapt taught us valuable lessons on building profitable and sustainable delivery systems.
Why wasn't that there before? Why were we not ready? Anyway, I digress, but I want to come to the profitability part of delivery, which is a big part of it. I want to get to the menu optimization part of online stuff and delivery photography was a good point. Hadn't written that down. I made a note of that, but let's go back to your title for a second. You call yourself a Sustainable Engineer. I know you have a background in tech as well. What does it mean? How does it relate to what you guys do there now?
At Figure 8, we're on a mission to accelerate a more sustainable food system. That requires looking at, well, what are the components of the system? We define these as humans, hardware, and software, in that order. At the end of the day, the food system wouldn't exist if we didn't all have to eat three times a day or two times a day.
The reason we wake up in the morning, whether it's as a restaurant, as a broad-line distributor, as a farmer, or as a grocery store, is to help make sure that there's food on the plates and that we can ensure a healthy and fed society. When you recognize that it's first and foremost about humans, you always start from that perspective, whether it's the end consumer, the business owner, or the person on the line. How do you design a system that works first and foremost for people?
The second thing is hardware. What are the tools that people need to enable this? Do I need an oven? Do I need a phone? Do I need a box truck? It's a piece of packaging. What are the tools that we're going to need to equip those people with? Third, what is the software used to lock all that up? Once you know how your system works, software can help you automate and expand the sustainability of that system. We look at those elements and we understand what is sustainable for people. What is sustainable for hardware and making sure we're minimizing waste?
What is sustainable in terms of technology so that it's not changing every six months and I don't feel I'm working for the tech, but that it's working for me. At the end of the day, what all that wraps up to is sustainable finances. You have to make sure that at the end of the day, not just if it doesn't make dollars, it doesn't make sense, but how can you ensure that you're going to maintain your profitability, that you're going to continue to be able to drive revenue and attract guests no matter where they are.
Whether that's online or in person, ordering for a group, or ordering for a single individual. This is where building a delivery system helps that restaurant ensure their financial sustainability, which builds a flywheel effect and allows them to create better jobs for people, invest more in sustainable hardware, and ensure that they're using the right technology to get the job done.
Achieving Zero Waste In Food Delivery
I appreciate that. I want to go to a quote on your website that points to this next question where it says, “There's a world where zero waste is possible and we are designed to get there.” Referring to you guys designed to get there. A lot of folks anyway, when I take a thumbs up, I get a big bag, I get four cardboard containers and whatnot, and then we eat, we devour it, and then we throw that stuff in the corner and we try to recycle it all. I don't know where it's going and I know from researching your site, you guys want to streamline that better. Talk about that.
Achieving zero waste in food delivery is possible by streamlining materials and investing in sustainability at every level.
We used to use this old idea of bringing back the milkman in a sense, where the milkman used to deliver milk every day. Lots of bottles would be filled with milk and you just put the old bottle out and you get the new one. You're never actually wasting that hardware, you're just using it as a means to deliver food, which is the goal that we're working with.
There are several layers to this. They’re working to ensure that you're just investing in more sustainable materials, more plant-based materials, and less fossil-based materials. There's a big education component when it comes to the people, whether it's the end guests making the decision or your staff on the line in terms of just recognizing the value of the hardware.
Not only does it cost money to dispose of it, but it also costs money for you to buy it, stock it, and restock it. How can you build systems that work on reusability? Then third, again, looking at the financial implications of it. We've got used to giving away cutlery because it seems the hospitable thing to do, but you recognize that it's costing you money and the guest likely already has cutlery.
It's not necessarily providing a good experience for them. Things as simple as creating an opt-in for cutlery and then making sure your team is trained on that so you don't include the extra fork and napkins unless they're needed. There's a bunch of little things that go into helping make this more sustainable and thinking through, again, what is that whole system that allows a zero waste and more sustainable world?
I do see some of those pieces. Talk about the geography of where you guys operate the most in some big cities. Are you more suited for big cities, independence, or rural? What is an ideal target customer for you folks?
We got our start here in New York City. I'd say, not only working in a city but in a city that particularly has had food delivery for a long time allows us a bit of insight as to how this world is going to play out. I'd say most of our customers and clients are in larger cities across the country. We have worked in LA, Chicago, Houston, Tampa, and New York.
We've worked in cities all across the country, but that tends to be where there's more consumer demand for online ordering or awareness of how these systems work. I mentioned I grew up on a farm in rural Texas. Food delivery has not made it out there yet. Just the idea that you can order through a phone as opposed to having to call the restaurant is still a bit of a mind shift.
What we found most successful is restaurant groups that operate in cities that have multiple locations so they can appreciate the scale of the impact. There's typically a difference between restaurants that are less than 10 units and more than 10 units. Less than ten units, you're still building your systems. You're still sometimes going from that zero to one or trying to figure out what your model is, focusing on opening up new physical locations.
Once you've achieved that 25 to 50 unit range, you're able to step back and look at where I invest in your system to start to get the most out of what you already have. I built the infrastructure, but maybe my menu isn't engineered in a way that's getting the most out of every order. Maybe I haven't taken the time to look at starting to trim down my use of paper goods in the delivery experience. That's where we find the biggest impact, with restaurants that are operating primarily in urban or suburban areas and that have 10 to 50 locations.
Optimizing menus and reducing paper goods use can significantly enhance the efficiency and sustainability of food delivery systems.
Menu Engineering For Online Ordering
Perfect. I want to go right back to menu engineering which you just touched on. It's a big deal for restaurants profit-wise as things are getting harder, labor costs, et cetera, to have a menu that is very profitable for you. When delivery started, I think a lot of restaurants, I don't have something handy, but if this was my menu, they took their menu, and boom, they slapped it online and everything was the same.
I would argue and I'm sure you guys do that that's not the exact good way to do delivery. What are some tips, tools, strategies, and things you've seen people do successfully in bringing their menu to an online version, maybe it's stripping stuff out, maybe it's adding stuff, maybe it's changing prices, maybe it's having dynamic prices. What are you seeing?
There are a few angles. You said it right, which is the difference between a menu that might be the size of a piece of paper versus something that's the size of my phone, it's much smaller. Understanding those experiences for ordering is different. If I have a big paper menu, I can look at the whole thing at once and very quickly sort through the categories of what I'm trying to find.
If I'm on my phone and you haven't made any changes to that menu, it's going to feel like I'm scrolling forever. At a certain point you just get bored and you either say, well, I'll just take whatever's on top or I'll go somewhere that will give me a simpler menu. When it comes to online ordering, streamlining, and consolidation are your friends. Try to get it to where there are no more than 20 to 30 items.
That doesn't mean 20 to 30 items, it means 20 to 30 items as presented on the menu. You could have an item that says sandwich, and then underneath that, the modifiers are Reuben, chicken club, veggie, and it lists ten different sandwiches under there. Rather than listing all ten of your sandwiches on the open, you have one item, that sandwich or one category, and then allow them to continue to find their journey. Modifiers are your friend when it comes to online ordering.
The next thing is, again, I mentioned, typically those items that are right up front are the most popular, the greatest hits, that's where people want to spend their time. They're not going to be scrolling down, they'll trust the same way that your server would say, “We have a great soul on the menu tonight.” They'll say, “Great, I'll take the soul.” You want to make sure that you're building that hospitality into that first category.
These are the ones that should be either your most brand-accretive items or that have your highest product margins. Those are two ways to simplify your menu to ensure that you're placing the items that you want to sell right up front and the guests can find it very easily. Then the next thing to work on are all these other aspects of a digital menu.
To make your online menu profitable, focus on items with high-profit margins and build in hospitality by recommending popular dishes.
Having complete descriptions, having allergen information, and having beautiful photographs that feel somewhat unique to your brand, but mostly that show exactly what the food's going to look like. From there, once you've optimized the experience and that profit margin, you want to look at now how to maximize your check size. How do I get that upsell in every order?
Whether that's selling meals or family packages or date nights, ensuring that it's not just an entree, but that the entree has an easy option to add on a drink, add on a side, add on a dessert, or that you have a prefix menu for a flat cost. These are all tricks that you can use to maximize your dollars per click while getting your guests through in an expedient process.
I do appreciate that. I was writing stuff down all while you were talking, and you hit them while you were talking about the upsell process and the ability. The phone is great at it. Amazon's great at it. The AI tech is great at it. You bought this, you also might like this. We recommend that. We hop on servers all the time in our sessions, and they do typically a poor job in-store about recommending upsells, whether it's training, whether it's just they're busy, I don't know, but they do a very poor job. They're order takers.
My buddy Roger and I, we're order takers. They just do their job. They don't sell the extra stuff, but your phone or your mobile device can work harder for you and make those check sizes increase. We talk about having a captive audience. They've already decided to order with you. Let's get more money from them. Not in a greedy way, but gives them a good experience and maximizes that opportunity.
Those are all good things. I think online delivery folks have learned a lot about the modifiers, how to add stuff, and how to get an accurate order. Have you seen any data or any insights on the accuracy of orders placed and people being happy versus sometimes it just comes out wrong in the past or any learnings around that?
Order accuracy is always one of the top things guests look for in the meal experience. It's the timeliness of the delivery, it's the temperature and quality of the food, and then it's the accuracy of what you ordered. If you got those things right, you're already ahead of the game. Again, the way you design your menu can help get ahead of your order accuracy. By having a more consolidated menu, there are fewer opportunities to make a mistake.
By having built-in explicit modifiers that say, “Remove the cheese or add the tomato.” As opposed to a blank open notes instruction, or special instructions, you're building more predictability into what those modifiers are. You're not going to leave a blank, and someone puts in some ridiculous request like hold the sauce when it's built into the dish. You want to make sure you're not setting false expectations for the guests and ones that are going to slow down or potentially create an issue on the line.
The Economics Of Delivery
Two more topics and we'll head towards a wrap, but I want to go back to the profitability of delivery for a second. I read a quote somewhere on your site that addressed it, but profitable economics of food delivery can be elusive and you guys are, it says, “Our experts are here to make them clear.” It is the number one thing people see.
It's easy to plug in a third-party delivery. It's easy to say we do delivery. It's hard to make money doing it because there are a lot of structural costs to it. Restaurants know they need to do it, but they don't want to lose money doing it. There have got to be ways to do it right. You guys are one of the folks at the forefront of doing this. How do you think about the economic piece of it and bring costs out? I'll just let you talk about it from there.
I think one of the differences, maybe from three years ago to now, is due to a variety of reasons. The willingness to take the price, right, and the willingness to charge what it costs you to deliver this experience, while still making a margin. We've seen restaurants that have had to raise their prices several times over the last two or three years, mostly due to the supply chain.
The cost of things going up, the cost of meat and vegetables going up. At a certain point, you can't keep having your cost go up without your prices going up unless you're either worse just had great margins before or you're squeezing somewhere else. I think that probably the first idea you have to get in your head is that you need to charge what it's worth. I think guests now are recognizing it because they've felt costs increase.
They see the cost of providing quality jobs and quality food as higher. There's a bit more of an expectation that food's going to cost more. Within that, there are a few things you can do. We've talked a lot about delivery, but what we're building are online ordering systems. That same menu that we talked about optimizing for delivery also works for your pickup.
We've seen a big shift in demand towards pickup and towards takeout, where guests are doing the delivery themselves. They're coming to your restaurant. In that case, you don't have to worry about the delivery fee and this extra cost of how to get that last mile because the guests take care of it themselves.
When it comes to delivery, knowing that many of your guests prefer pickup and the ones that don't are choosing not to pick it up themselves, you need to make sure your delivery fee is appropriate to what it costs you. If it costs you five bucks to deliver it, you should be charging the guests at least $5. There's no need to make money on the last mile, but there's no need to lose money. You make your money on the food sale. Make your money there and then just pass on the costs of the last-mile logistics.
Charge what delivery costs. Guests understand and are willing to pay for quality and convenience. Ensure your delivery fee covers your costs.
The same idea goes for third parties. If you are on these marketplaces, particularly if they're a large portion of a meaningful portion of your business, you need to make sure that they're contributing to the bottom line. If you're running, say, a 20% commission on this third-party marketplace, you should probably think about running your prices 22% to 25% higher than you do dine-in to make up for that commission. Many of these platforms allow you to do that.
If you are going to be there, it's not a matter of how much I have to suffer and how little can I get by with making it so it is still profitable. It's recognized that it's a premium service to order from a third party. It's a premium service to get delivery and guests should be aware of that and ask to pay for it because if not, you can always come to the restaurant yourself and pick it up. You can always come in and dine with us. I think as a restaurateur, you have to be willing to pass that cost down.
You made a lot of good points there, Scott. Five years ago, everybody would balk at a delivery cost, both from the consumer side and the restaurant side. We can't add a delivery charge and we've all become accustomed to it now. It is a premium service. If I don't want to leave my house and I want that delivered, we all have had the mindset now, aside from Amazon delivering everything free instantaneously.
The Rise Of Ghost Kitchens
I don't know how they do that, but we understand that food incurs costs and so forth. It is a mindset. I appreciate you spelling that out as a premium service. Last topic, New York's probably seen it a lot more than some other big cities, the idea of ghost kitchens. Anything there that you guys work with directly or anything you're seeing trend-wise?
We've been fortunate to work with several Ghost Kitchens over the past three years and have some familiarity with Ghost Kitchens and also the virtual brand space, which is a little bit of a parallel idea. Simply the idea is that these are dark kitchens that don't have a storefront that is primarily used for online orders or off-premises business.
There are several ways that they can be set up everywhere, from one big shared kitchen to these facilities that have 15 or 20 individual kitchens within them and then maybe a central dispatch area. I think what we've seen is there was a lot of hype around this new format. You have fine dining, casual dining, fast casual, and quick service. Ghost Kitchens are just another form factor in which you can deliver food.
There were a lot of people who rushed into the space thinking that it was a lower-cost way to start their business. The real issue is you still have to have a marketing plan. The beautiful thing about having a brick-and-mortar is that that's your advertising. If everybody's walking by, they're seeing it. I think it's a false idea to think you can just open up in a Ghost Kitchen and if you build it, they'll come.
Especially if you're an independent business, you've got to be able to lean into digital marketing or know that you otherwise have the demand that you're just choosing to fulfill that demand somewhere else. I think Ghost Kitchens have become very successful with a lot of your larger QSR brands that can just use it as a cheaper form of market infill.
You're also seeing smart brands start to think of their restaurants as Ghost Kitchens and building complementary brands that can run out of their kitchens. There are several ways to use this. They're a great new tool, I feel. You have to be smart about it and look at why am I using a Ghost Kitchen. How am I going to ensure that I'm sustainably driving sales through that facility?
It's been a trend that has been quite interesting to see over the last few years. As we wrap up, send them to anything you want, social, to the website, where should they go?
They can always go to our website at Figure8.delivery, or just give us a call or a text anytime at our hotline at (212) 888-7700.
I'm going to hit that address for folks one more time. Folks, that was Scott Landers of Figure 8. You can find them at Figure8.delivery. A little bit different, not a.com. For more great restaurant marketing service, people, and tech news, you can stay tuned to us here at RunningRestaurants.com. We'll see you next time. Thanks, Scott.
Thanks, Jaime.
Important Links
- Scott Landers - LinkedIn
- Figure8.delivery