Re-Thinking Delivery Charges

Pizza Shop Talk The Think Tank
1

Once in a while I start thinking about delivery charges. I know, it’s a controversial topic and everyone has strong feelings about it.

Everyone may not be in the same situation as we are - but here is what I see as “fact” for me:

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[*]Many customers are surprised that we have a delivery charge. And that is not the real problem - the real problem is the perception that no one else has a delivery charge. “Oh, you charge for delivery?” “Wow, I didn’t know that , no one else charges for delivery”. In fact, all of our competitors charge for delivery. But that doesn’t change the fact that the customer doesn’t realize this. Even if we have the opportunity to tell them, I’m not sure they believe it.

[*]Most people believe that pizza delivery should in fact be free. If we are in the pizza delivery business, why would it cost more to have a pizza delivered?

[*]Many customers don’t totally understand why the total price of their order is what it is - but don’t say anything about it. They pay up, but are confused, pissed, etc. and probably never order again. Is short, they feel somehow they got ripped off. We charge $2.75 for delivery. Our tax rate is 10%. Here is how the conversation goes - “How much is a large cheese pizza”? “$9.99”. “Ok, I’ll have a large cheese pizza”. “Ok, with tax and delivery the total is $14.01” - then you have the uncomfortable pause followed with either a reluctant “ok” - or a “what? I thought you said it was $9.99”, or “how is a $9.99 pizza $14?”. Either way, it’s a lose-lose conversation. Add $2 for a tip and now that “$9.99 pizza” jumped 60% to $16.

[*]The $2.75 delivery charge does NOT actually cover the entire cost of delivery. Last time I figured it, including everything, the delivery probably cost me between $3.75 and $4.00.

[*]There is the argument “why should the pickup customers pay for delivery?”. Is that really a valid argument? Would anyone other than someone in the pizza business even make that argument? If I raised my price of that cheese pizza to $10.99, and gave free delivery would my pickup customers complain that they are paying for everyone else’s delivery? I doubt it.

[*]Most of my competitors charge $2 for delivery. If I lowered my delivery charge to match, I don’t think I accomplish anything other than losing .75. All of the above would still apply, because remember the perception is that pizza delivery is free, and that no one else is charging for delivery. [/list]

So I am seriously rethinking delivery charges. When I look at the numbers I’d surely miss that extra money every week. On the other hand, I think there is a good chance that I’d make up that money and more by slightly raising prices. After years of trying to explain to customers the delivery charge, I’m starting to believe that customers will never understand it. I have customers who have had 30 deliveries who suddenly ask “Oh, when did you start charging for delivery? I’ve never paid for delivery!”.

It seems that most of our negative interaction with customers had something (directly or indirectly) to do with delivery charges.

2

my suggestion would be to not recite “…including tax and delivery”…you are setting yourself for alot more complaints that way

also I think it would be better to have a delivery charge based on location (say $1.50 for nearby and up to $3 for farther)

free delivery makes no sense to me unless it is priced in and there is minimal takeout/dinein

3

I’m in the ‘free delivery’ camp on this one (sorry). FREE is one of the best words around and something we all use in our marketing so why not use as one of the biggest USP’s fro your shop (if you can) - sure if you have a huge delivery area then maybe not. And yes its built into my prices and we do offer some discounts for collection.

Maybe your problem, when asked “How much is a large cheese pizza”?, is that you are not telling them about the tax and delivery - $9.99 or $9.99 plus tax and delivery. That way you’ve dealt with it. I think not mentioning the tax and delivery just pushes the problem to the door step. It always amazes me in the US that the tax is added on afterwards would be much better to have an inclusive price like so many other countries do.

4

Thanks to our new minimum wage rules taht come into effect July 1st we are looking to increase our minimum delivery fee from $5.50 to $7. We will still be cheaper than the franchises / nationals who are charging $9 but it is a neccessity as we will now be paying 25% loadings on Saturdays, 50% on Sundays and 150% on Public Holidays. Our wage bill is set to rise 20 - 25% overnight for no extra return from the workers.
Gee, talk about a government cruelling it for small business because they are in bed with the unions. At least the national leader (Prime Minister) got kicked out by his party today and the new leader (a female with strong union background) will lead the party to defeat at the next federal election in the next 9 months. Then hopefully the liberal party now in oposition will be returned to power and re-instate a sensible wage system.

Dave

5

I’m with famous here… a good POS can set delivery charges per area. My delivery charges range from 1.50 to 2.50.

Also, when a customer complains, i explain its a service that we provide for an added fee. 99% of the time, we can have your food at the door in 30 minutes. We have a very good reputation for providing a good service.

6

First, let me just say that that was a very well put together post, and a great topic for discussion. It is definitely a dilemma I will have to think long and hard about before I open my place.

I get this on the phone once every couple of months and it is mind boggling seeing how we have been charging for delivery for at least 4 years now.

7

I charge for delivery, 2.50-5.50 depending on zone. I don’t see this changing. I provide the vehicles so I take care of maintaining them and therefore the fee goes in the till. The charge helps defray the cost of the vehicles and upkeep as well as the driver pay which they get at least minimum wage.

8

We do about 70% delivery/30% take out - no dine in.

I’m surprised you don’t think saying “including tax and delivery” is a good idea. It seems to be a time saver at least - because when someone says “I want to $9.99 pizza” and you say “okay, your total is $14.01” - the next thing out of their mouth is “why is it $14.01?”. Or - it might be “okay” - and they don’t understand why it is $14.01, and are too shy to ask - but they pay anyway and are mad about it.

This is the real problem I have come to realize - the unknown and the perception that no one else has a delivery charge. I would bet money that if you took a survey, at least 75% of the people would tell you that Domino’s and Pizza Hut deliver for free. Maybe even more than 75%. And a huge percentage of people would tell you they have never paid a delivery charge even though they have - and they just didn’t know it. Having a graduated delivery charge based on distance doesn’t solve this problem.

It’s all about confusion and perception. Let me give an example of something that happened to me last week. We have a crazy special for a local swim club - $5.99 for a one topping large. I had a lady come in the store and she said that her kids were overcharged the day before and she wanted a refund. I found her order in the POS and the order was a large pep ($5.99), a 2-liter ($2.49) delivery ($2.75) and tax ($1.12), for a total of $12.35. Exactly what we charged her kid. I went over each item with her, and of course she didn’t like the $2.75 for delivery. Now - and this is typical IMO, she was so blinded by the delivery charge that she couldn’t see the 2-liter or the tax - she kept on repeating “SO, A $5.99 pizza really costs $12.35?” “I BET THERE ISN’T ANYTHING ON THE SIGN ABOUT A $5.99 PIZZA COSTING $12.35”. “I’LL MAKE SURE NO ONE ELSE MAKES THAT MISTAKE”. Again and again she said she couldn’t believe that we were charging her $12.35 for the $5.99 pizza. And she left without satisfaction. Nothing could be said to tell her otherwise.

That might be an extreme example, and she is certainly wrong - but it doesn’t matter. It’s a great example of how many customers think. She was just one that decided to say something - I believe there are many many more that just don’t say anything - and don’t come back.

9

What about the people that don’t complain? The ones that are just mad and take their business somewhere else that “doesn’t” (even though they really do) charge a delivery fee?

How do you handle it on the phone when you give the total? Do you tell them their total include a delivery charge - or do you just give them the total and then explain it if they ask?

If you don’t tell them their total includes a delivery charge, why not? (not questioning you here - just trying to get the reasoning). I suspect many people don’t know about the delivery charge because it’s easy for $2/$3 to get added to a $25 bill without raising any red flags.

10

Was just looking at the Dominos website and seen this at the bottom:
"Any Delivery Charge is not a tip paid to your driver. Please reward your driver for awesomeness. Our drivers carry less than $20. "

So yeah, i like “awesomeness”

11

A delivery charge is a charge related to the service of delivery. The charge is per delivery, not per pizza as the delivery service COST does not vary much with the size of the order. (yes, if the order is huge multiple trips to the door etc take more time) Carrying three pies to the car and from the car to the door takes the same amount of gas, tires, oil changes, tires and driver wages as carrying one pie does.

If we raised prices so that an order for a 14" cheese pizza included the delivery charge we would be uncompetitive on that smaller order and overcharging the customers on larger orders. All in all a delivery charge makes sense which is why the large majority of delivery operations use them.

To respond to the initial post; you are nuts to drop the charge. There is no way to get those $$s back in the current price environment with a price increase. If you feel that you have a couple of dollars per order to use to increase business (that is really what we are talking about here) then consider keeping the delivery charge but spending it on marketing rather than not charging it. Just handing it back is not an investment; the only thing for sure about that idea is that you are out those dollars. On the other hand, if you invest those dollars to reach new customers and reinforce your product message, you stand a good chance of getting a multiple of that expenditure back in the form of increased sales!

12

Thanks for the reply. You’ve addressed the issues with the $$, but what of the issues with the customers I talked about in my initial post?

My main concern here is customer perception.

You mention that a delivery charge makes sense, that is why most places use them. However, they haven’t always. No too long ago, most places had free delivery. What changed at that point to cause it to “make sense” - and why did it not makes sense before?

13

Not picking on you, but I like your wording of this one. “raised prices so that an order for a 14” cheese pizza included the delivery charge…".

Well, technically I wouldn’t be raising prices to include the delivery charge. I’d just be raising the price so I could function as a delivery business.

This may be a bad example, but let me ask you this. We are a pizza delivery company. We do allow pickup, but our main function is pizza delivery. The USPS is a letter delivery company. They allow pickup.

If I mail a letter to your PO Box, is the postage cheaper? Or did the cost of that stamp include delivery to your door - even though that service was never provided?

14

Your postal example is beside the point… if you mail a letter to me it still goes from where-ever you are located to my my little town in the mountains of Colorado. Getting a discount for going to the post office is like asking whether there should be a discount on pizza delivery if the customer meets you at the bottom of the driveway instead of at the door… you still had to drive across town!

Never mind the picky appoach to wording. If most shops raise prices enough to offset delivery expenses on a single smallish pie, they will find they are priced out of the market for the small order and are charging more than they need to on the large orders. A delivery charge puts that expense where it should be… tied to the order and the service rather than to the product.

Again, the real question in this discussion is whether eliminating a delivery charge will increase sales and whether that is the best way to use that $2 to do so. I would argue that a sales increase from dropping the charge is unlikely but you will be giving up the cash for sure. I think a better way to use that money to build sales is to keep the delivery charge and spend it on marketing.

15

I don’t “have a dog in this fight”, since I don’t deliver, but you just have to accept that you will get “difficult” customers no matter what you do. You can’t let the dumb****es dictate how you run your business.

16

“What changed?”

Flour
Gasoline
Wages
Meat prices
Unemployment and work comp rates
Rents

The bottom line is that prices had to go up but nobody wanted to raise the price of pizza. It has been some time, though, that delivery charges have been the norm. In most markets, going on 10 years.

Some customers are just idiots. You can’t say that to them, but it is true never-the-less. On offers where we advertise a price, we include the language that “price does not include delivery charge or sales tax” along with the “may not be combined with other offers”. Does it come up? Sure. Most customers, when they ask about delivery and we answer that the charge is $2 do not have a problem with it. The ones that really want to save money come pick up the order and save the tip as well as the delivery charge.

17

Why do I feel like someone created a new profile . . . Good post, just hate to see it deteriorate with someone detracting from the main point . . .

I think its like anything else in life we have been accustomed to paying more for because of higher taxes, regulations, fees and other such factors. Gas used to be full service, water and air were free at gas stations, extra rice at Chinese places used to be free, extra dressings were free, soft drinks were not self-service . . . And since its getting worse, not better.

I get what you are saying about customer’s perceptions but “everyone” does charge for delivery. There will always be people like that no matter what the subject/item is. They make the same comments when you tell them what their total is “with tax”. I think that maybe these people in question are more upset at “your total” compared to “Little Caesar’s total”. And if that’s the case who do you want to please? I think you would turn off more people with overall higher prices than these other people we are speaking of.

Do you think you will gain more customers by having free delivery and higher prices or lower prices and charge for delivery?

Another way to look at it is If your prices are too high for some people they will not call at all because they know up front you cost more. On the other hand, overall lower prices may at least get those same people in the door to try you.

Personally, I think lower overall prices (or more reasonable prices) will attract more people than a delivery charge will ever turn away.

One more note: I think that people who would choose another pizza shop for the sole purpose of free delivery are not your customers anyway. They are just customers of the next best deal. They are price shoppers only.

18

As I have often said in my posts on this subject that there will always be the problem while the industry is divided on supplying deliverry service for a fee or for free.
Here in Australia delivery is charged for, probably because we cannot pay the rates you can… We are governed to pay a minimum wage regardless if tips are received. We don’t live in a tipping society.
One way or another delivery carges are indicated in the pricing. Domino’s have a price for pick up and another price for delivery, $3 per pizza. People think they are only getting charged $3 but if they order 10 pizzas then the delivery fee is theoreticlly $30. They get away with it for some reason. Eagle Boys and Pizza Hut have a flat $9 rate. Our menu states a $25 min order for delivery PLUS delivery fee. This varies from $5.50 to $8 depending on delivery zone. Some other store just have a flat fee of $5, $6 or whatever.
Our market is conditioned to paying a delivery fee.
I think for you guys in the US util someone big, or a collective group takes the initiative and decides to openly state delivery is for a fee the problem will remain. While there is a grey area then the debate will continue and customers will stay confused, bemused or angry.
As often quoted there is no such thing as a free lunch. The cost of delivery has to be factored in somewhere.
Without upsetting anyone, I still cannot get my head around the notion or belief that because you offer delivery that you are supplying a service that should not be paid for. FedEx, DHL or any other delivery companies charge for delivery and they offer delivery service. You pay for staff to delivery, re-imburse them mileage / delivey fee but don’t charge for it?
We will talk ths subject through again same time, same place 5 years on. :slight_smile:

Dave

19

Some chose a $10 pizza market and others chose a premium price.
Some accept to pay for delivery, some don’t.
Some are happy to keep working for tips and some don’t

Dave

20

Yes, that is exactly what I’m getting at. Given that list, the delivery charge isn’t really about providing the service of delivery - it’s about raising the price of an order without raising the price of pizza.