One of the biggest shifts occuring in the restaurant industry is the massive transition from dine-in to takeout and delivery. This dramatic displacement has implications for restaurants, retailers, suppliers and manufacturers.
As we've discussed in our Daily Briefing webinars, due to social distancing and restaurant and bar closures, consumers are shifting their restaurant consumption from in-store restaurant dining to drive-through, takeout, and delivery. This has profound implications. How do you thrive in this environment? How do you operationalize? How do you sell beverages via takeout and delivery given how difficult this has been in the past?
There is not a better person in the entire industry to discuss and understand the implications than Noah Glass. Noah is the founder and CEO of Olo, a mobile and online food ordering platform that serves as the interface between restaurants and the on-demand world, and allows over a hundred million consumers to order food on-demand from restaurants such as Applebee's, Chili's, Denny's, Five Guys Burgers and Fries, Jamba Juice, and many others. Noah is visionary who has twice been named one of the top 50 most influential people in the food industry by NRN.
Thank you for joining us, Noah. I have a few questions and I'm curious to hear your thoughts. The first one is, with so many restaurant dollars shifting to off-premise, what are some of the best practices restaurants should be adopting that you've seen over the last few years as you've helped usher in this change?
I think it's really important, in any conversation about off-premise, to ensure we're all talking about the same thing. This is not simply about delivery. Delivery historically gets a lot of focus but is still the minority of all off-premise occasions. Pickup at the restaurant for takeout remains the largest share of all of the off-premise that we're seeing, so I'm going to talk today about both delivery and the accelerated trends that we're seeing there, but also what we're seeing as pickup strategies evolve during this moment in time.
We've been witnessing exponential growth in digital ordering between takeout and delivery for as long as I can remember in the past 15 years of running Olo. And what we've experienced is that off-premise sales are now essential for those restaurants that are still open for business. Now, it's really all shifted towards off-premise, so this is a critically important thing to do and optimize.
It's important to emphasize to consumers that you offer direct and digital sales channels where they can order through your brand from your site and your app. Differentiating your brand's own direct digital sales channels, versus indirect sales channels through marketplaces, is more important than ever for maintaining a direct relationship with consumers. In terms of best practices, I think there are a couple of things to emphasize there.
One is around order modes and how the consumer can place an order directly with the brand. Online is obviously a big one. Being able to order it through a mobile device, through the website, and also by phone. There are a lot of customers who want to order from restaurants but still haven't made the transition to ordering online yet. So enabling them to order by phone is important. As part of our product suite, we have a product called Switchboard which enables call centers to take orders and plug them into the digital ordering platform, arriving at the restaurant directly integrated to the POS, just like an online order would. We're seeing a big surge in interest.
Another important category is service models. Delivery is a big one. We've seen a huge rush from Olo customers to get enabled with our Dispatch product. Dispatch is a delivery-as-a-service API that enables brands to add onto their own direct digital channel by enabling delivery. So, instead of the brand having to launch its own delivery fleet, it's enabling a brand to tap into third-party delivery service providers who could pick up the order at the restaurant, deliver it to the guest, and do it so that the guest is paying for the convenience of that delivery and the restaurant brand is still making a full profit on the transaction. We've also seen brands opting implement a self-delivery software wherein they can turn some of their front-of-house workers into delivery drivers, utilizing software that basically is the equivalent of the Uber driver app that we've all seen. This enables the brand to handle the routing of picking up the order at the restaurant and taking it to the guests.
Back to the theme of takeout as a big part of off-premise. We're seeing a lot of innovation when it comes to hand-off modes with an eye towards the safety of the guests and the safety of the team member. Curbside pickup has been very popular. For those brands that have a drive-through, another very hot topic has been enabling digital order pickup through the drive through. Operationally, how can restaurants enable their frontline workers to hand off those orders, typically with gloves, to the guests through the window and minimize physical interaction? You can do that when you've asked the guests to prepay online, which is typically the way that digital orders work. That way, the interaction is just handing off the order at the drive-through or curbside, which eliminates the need to handle cash or credit cards or have the guests come inside to pick up from the counter.
Those are some of the ways in which brands are now thinking about off-premise and enhancing their digital ordering programs. Another way (which I'd be remiss not mentioning) is enabling third-party delivery marketplaces. Those are the indirect sales channels - companies like DoorDash, Postmates, Uber Eats and others. Syndicating your menu out to those platforms enables those third-party consumers to send their orders directly into the POS at the restaurant for a delivery courier to pick up and deliver to the guest. That's something that we enable at Olo through our Rails platform.
There's been a ton of interest in these solutions over the last three weeks because they enable the business to perform on all facets of off-premise. One of the most exciting things about third-party delivery is Google food ordering. It enables brands to post their menu onto Google for Google search, Google maps, Google voice assistant, and it enables consumers (who are, again, maybe ordering for their first time) to easily find you through Google, place the order, and have the economics of that order be equivalent to a direct digital order.
Thank you, that's incredibly helpful. It sounds like there's a variety of different options for restaurants to consider regarding off-premise broadly, and specifically with delivery.
You just mentioned that you're seeing an increase in the volume of phone orders - people just dialing in with an analog phone number, not necessarily using an app. And over the last few years, many of us have thought of delivery as a premium convenience feature because it was expensive but highly convenient. But in an era of social distancing, it's no longer just a premium convenience - there are health considerations. We've seen in our surveys that consumers are increasingly mindful of the interactions they have, so they really appreciate delivery.
Given all of that, and the fact that a significant portion of traditional QSR customers don't use a credit card or a debit card, are there levers to reach this population and transition them to delivery during COVID-19 and beyond?
Delivery done without a credit card or debit card is difficult, because third-party delivery usually requires that couriers aren't doing the transaction when they hand off the order - rather, the transaction has been done ahead of time. Again, it's interesting to think about enabling the pickup experience for that to be a safe transaction.
Sometimes, in the pickup experience, we see brands enabling a consumer to order ahead without necessitating that they pay ahead. Those pickup transactions at the store have gone down almost by half over the past few weeks. Guests seem to believe it's safer to not have to handle cash or a credit card when they get there, but to have paid ahead.
However, a lot of brands are now accounting for this situation, and opening up the ability for consumers to send in an online order, even if they need to pay with cash or credit when they arrive to collect the order.
Got it. So, there's a safety element around accepting cash, but given that there are consumers that still need it, there are ways of handling that transaction in-store, even if the order was placed digitally.
We have several beverage brands on the call. Are you seeing more drink orders via delivery since social distancing was implemented? What can beverage brands do to increase sales via delivery and takeout, given how important that is from a restaurant sell-through perspective?
In general, off-premise tends to have a lower beverage incidence than on-premise, but what we've seen over the past three weeks has been really interesting. For the first two weeks of this pandemic, we saw the beverage incidence drop even further than before. During that time, a lot of brands began making investments around packaging of drinks and other liquids like soups, and other tamper-proof packaging in general.
There have also been a lot of recent news stories around local and state legislation for the sale of off-premise alcohol. Since then, we've seen a big spike in consumers ordering from the brands that are jumping on this. And again, some restaurants are opting to do that through pickup rather than through delivery.
There also legal considerations around age verification. We just published a help center article on the Olo website to help brands understand what to consider around alcohol sales.
In the past week, we've seen that beverage sales have rebounded to the normal off-premise incidence (which is albeit lower than typical on-premise incidence). Brands are making a concerted effort to remind guests, through things like suggestive selling, that they do have beverages that are convenient for delivery or pickup, that won't spill because they have new packaging.
For a long time, I think this has been amiss with beverages in off-premise. It's a category that requires a lot of rethinking when it comes to typical fountain beverages - those containers do not work very well in a delivery environment. Bottle programs are essential for off-premise, and we've seen a lot of focus on that recently.
I'm hopeful that, with these improvements made over the last few weeks, we'll see beverage incidence increase beyond the historical status quo for beverage attach rate in off-premise food sales.
It's exciting that some of the efforts being made around increasing beverage sell-through will likely impact beverage sales after social distancing comes to an end - hopefully that'll end up being a positive.
Another question from our last Daily Briefing was about delivery fees. As people may be using delivery more often now, are there certain thresholds for what they're willing to pay in fees, and does this change by party size, eating location or type of restaurant?
This is a typical question around delivery, especially with a program like Dispatch where you're separating out the cost of the food from the cost of the delivery service.
I believe that delivery is a need-state where the consumer is choosing delivery because, for whatever reason, it's more convenient and they're putting a premium on that convenience - versus the cost savings of going to the restaurant and being their own delivery driver.
Now, obviously you have other considerations around safety, and consumers want to make sure that they're not exposing themselves and that they're practicing social distancing. So, I think there is a price elasticity when guests choose delivery because they're in a need-state of wanting not only convenience but safety. Many brands and marketplaces are offering free delivery as a means of meeting the consumer where they are in that need-state, and doing so in a cost-effective way.
We do find that there is something of a magic threshold at about 20% of the food cost. The magic number isn't a flat fee of, say, $5 delivery or $10 delivery. It's relative to the cost of the order, which begs the question, how does that change with large orders? If somebody is placing a $40 order and the delivery fee is $8, that feels reasonable. If I'm placing a $10 order and the delivery fee is $8, that feels unreasonable because it's 80% of my ticket size. Anything under 20% feels like it's a shipping and handling or tip equivalent. Consumers are comfortable paying that in exchange for the convenience.
That makes a lot of sense. What are other best practices are you seeing around growing average check size for carry out?
Things we've seen work particularly well are group ordering and suggestive selling. Group ordering involves starting an order and inviting others to build on that order, each person adding what they want from the menu, and then placing that group order together. Suggestive selling is when there's an interrupting screen saying, "Before you place the order, would you like to add a side item? Would you like to add a beverage? Would you like to add a dessert?" And this occurs for each person if they're going through the group ordering experience.
The average ticket for delivery orders tends to be higher than the average pickup order. As a result of the off-premise mix shifting more toward delivery, we're seeing an increase in average ticket overall. Part of the reason for that is, again, the mental math consumers are thinking about: "If I'm paying for delivery, I want it to be a larger order for more people in the household."
That's extremely helpful. We really appreciate you joining us today, Noah, thank you. We hope you're staying safe and healthy.
Thanks so much.
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