Delivery fees really is a big bone of contention for some even these years after it has become common in the pizza marketplace. It is something that we chew on every now and again at our shop. My short response is below . . . followed by topics of consideration and discussion between my wife and me or with other operators:
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THE MARKET, FOR VARIOUS REASONS, HAS ONGOING DOWNWARD PRESSURE ON PIZZA PRICING
WE CANNOT AFFORD TO SUCCUMB AS AN INDUSTRY TO BOTH MENU PRICING PRESSURES AND DELIVERY
FEES AT THE SAME TIME WHEN FUEL IS ABOUT TO CLIMB AGAIN AND FOOD PRICES ARE NOT DROPPING
It may be a purely acedemic argument if the market you operate in will not allow for price increases to cover actual cost of providing delivery services. People aren’t taking price increases to cover food cost increases, and somehow they are supposed to add in increases in labor, fuel, insurance, etc.? Not seeing the real world effectiveness of the plan. Here are the things we often talk about in my workd when talking about delivery fees:
1. Type of business: If you area DELCO, then the consideration is far different than a restaurant that is or trying to be a more dining room centered location. Pick-up is the center ground that accounts for the rest of the customer percentage. If your concept is delivery centerd, then it can make some logic to buildit into the pricing as a cost of doing business or a sort of extended cost of producing goods. Build some exta into the pricing to cover the
HUGE costs of providing delivery service. It just makes a seasonable flow of costs through to the customers who are generating the cost need.
If you have a large enough base of dine-in and carryout customers, then the picture clouds a little. You gotta make it all make sense with you blend of service types and percentage of customers using each. If customers are not overrunning your delivery service, then game on.
2. Princing as volume control: When you are providing pick-up and delivery for the exact same cost, then there is an enticement to customers to use delivery service more often. Convenience at no added cost. If that is already build into your pricing structure strategically, then you could be fine. If not, then you may be leaving money on the table. Variable pricing allows an owner/manager to have controls over various distances or any delivery at all. Higher fees will tend to reduce the numbers of delivery service requests for a given area. If you don’t want to tell customers “NO”, then you can assess a larger fee to tend to discourage all but the serious customers from asking for delivery. Marketing tools can focus on the “no fee” pickup, or the casual, relaxing and no-fee dining room. Either way, you just pick which way you want to drive your growth . . . reduce or eliminate fees to grow delivery service (as long as you are recovering those costs somewhere else) . . . increase fees steeply to sharply reduce delivery service . . . . and then all the ground in between.
3. Recover fees where they are incurred: It will make more bookkeeping sense and be easier to explain to customers when charges are placed where costs are incurred. It costs me a box to send a pizza out the door, so adding that costs to the pricing structure makes most sense for customers requiring boxing. It costs me less to provide our dining area and facilites than it would to provide 75% or my customers delivery service. My cost of goods to provide a pizza to the dining room is h#ll and gone less than a delivery pie (wages, packaging, insulated bags, waste/replacement from complaints, check/CC fraud incidences, cartop signs, insurance, worker’s comp kicker for driver, etc.). Even when you consider a marginally higher utility cost to condition that space, it just doesn’t compare. So, customers might be confised/freustrated at paying the same price for delivery as for dining in.
4. Market Position and branding: Let’s face it; if you live in a place where customers will pay you $3 delivery fee without complaint, then you should likely charge at least that much. We are ultimately operating a money-making venture that is about generating profits. If I could add $1.50 additional revenue to every delivery order and not cause waves in the marketplace, I would certainly have to consider it seriously. A ‘gourmet’ pizzeria and/or restaurant in Atlanta would be more able to have people willingly pay $5US for delivery than a small indy DELCO in rural Missouri. Those 2 markets are just different, and people will perceive the businesses differently. If there is a cache to the food, then higher delivery fees will be accepted. Same is true when you have clean cars, uniformed and courteous delivery personnel, and over-the-top service levels. (not to mention consistently hot food delivered in good condistion)
You also gotta pay some attention to who else is delivering and charging fees. It is insane to price yourself out of contention, just as it is insane to leave money on the table by charging no fees when all the rest are.
I offer that customers will only quibble about a $2 fee when the food is not spectacular.[b/] Collect the fee and spend time making sure you have the best food and service available at your price range. Have occasional “free delivery” specials if you are losing sleep over the fee; have no fee on orders over $50 if you must, have delivery loyalty cards where they get punches for every $30 in deliveries or whatever.
5. Value added model:[b/] Another viewpoint and model to work from is that of building into the pricing structure all the costs of the most expensive service modality (i.e. delivery). that becomes your baseline . . . . and then you have some flexibility for value added for the other service types. Delivery customers get free delivery as a result: no fee. You as the operator get flexibility for marketing and specials that have better value to customers who dine in or pick up in our example. A signature appetizer could be given to every table in the dining room or have dining room only menu items; pick-up customers could get complimentary beverages while waiting for their order; whatever you find that gives the customer that feeling that they are getting more for their money.
We quibbed about adding a fee until we finally did in 2005. Everyone understood our costs, saw pizza deliver fees all over the places, and were accepting. Lost maybe 3 customers over it. Since my dine-in customers have my highest ticket average, and offer me greatest segment for growth, I am aiming at building that segment and encouraging more customers to come to the dining room more often. I will not punish the delivery customers since they are a valued segment to keep the business going . . . I will probably not make any fee reductions or great big special offers for delivery either.