For the restaurateurs who can afford the upfront development costs, investing in a proprietary delivery system offers way better profit margins — and, often, a better customer experience — than third-party delivery services.
— Erika Adams
The food delivery experience needs improvement, and Dig Inn knows it.
The 26-unit fast casual chain, based in New York City, has offered delivery since its inception through various third-party services, including Seamless and its parent company, Grubhub. In that time, delivery has grown to account for up to 30 percent of order revenue in some locations, but the customer experience in the channel left a lot to be desired.
Delivery completion times fluctuated wildly. The meals weren’t always accurately delivered, and even if all the items were in the bag, there was a good chance that the food would arrive mangled and at the wrong temperature. Quality control was tough to maintain, as evidenced by Dig Inn’s declining Yelp scores on delivery meals.
“We’ve internally elevated our food to the point where it’s a really compelling offering. With delivery, it’s like you’re looking at a different company,” said Scott Landers, Dig Inn’s director of off-site operations. “It’s not representative of where we are today let alone where we want to be in the next couple of years.”
Added on to those issues, the slim profit margins on delivery dishes can be harsh. Independent restaurants generally pay between 20 to 30 percent commission on delivery orders, Landers said, which is a significant cut into what’s already a low margin business. Dig Inn declined to disclose its own profit margins on delivery orders through the third-party services that it uses.
Dig Inn positions itself as an affordable, healthy, vegetable-centric restaurant, and chefs run operations in each of the locations. The success of the concept hinges on the superior taste and texture of those vegetables, so when the delivery experience was consistently falling short, Dig Inn CEO Adam Eskin decided it’d be worth the investment to figure out a different solution.
“It’s a tough pill to swallow when you are putting out a food offering that you really don’t stand behind,” said Eskin. “So we asked ourselves, if we were to start from scratch and we want to deliver something we’re proud of, what would that look like?”
A New Delivery Model
After nearly two years of research and development, the company’s answer is Room Service, Dig Inn’s proprietary delivery service.
Room Service — named after the desire to make delivery an enjoyable experience — features a delivery-only menu with a rotating selection of six to eight dishes, prepared in an entirely separate kitchen built out in unused basements in Dig Inn’s restaurants.
“There is an incremental amount of capital that you need to spend to build a second kitchen but there is an incredible amount of leverage in place,” said Eskin. “We already are paying the lease for the location, already have the team in place. The opportunity is meaningful and would more than pay back the investments.”
In the separate kitchens, delivery food is prepped, cooked, and packaged to travel. Hot food is kept sealed off from cold food, and certain items, like fish, are left to finish cooking to temperature in the delivery bag instead of letting the food wilt during travel time.
The delivery-only menu ranges in price from $15 to $20, plus tax and tip, as compared to a menu of $10 to $14 dishes in the restaurant.
The price discrepancy was calculated with average delivery costs in mind. Landers said that customers typically pay about five dollars more for their meal through any third-party service. With that in mind, Landers expects that Dig Inn’s customers won’t have a problem paying more for dishes off the delivery-only menu.
“The simple fact is that it costs extra money to bring it to you,” Landers said. “It’s very transparent. We’re not charging more to make extra money, we’re charging more to cover the extra costs.”
Last Mile Logistics
Dig Inn had previously maintained an in-house staff of delivery drivers who transported the food out to the customers. For Room Service, however, the company is outsourcing that labor to Relay, a New York City-based courier service.
With the in-house team, there was “little to no technology” informing their routes, Landers explained. The restaurants would group together the delivery orders as well as possible, and try to assign the deliveries in the most efficient way. But it wasn’t a perfect system, and the delivery department was constantly over or under-staffed depending on the influx of delivery orders on a given day.
Contracting Relay frees up Dig Inn to not have to figure out those logistics. The company is only charged for the on-demand couriers who come to pick up Dig Inn orders, and Relay’s roster of thousands of couriers ensure that the food won’t be kept waiting for long.
As delivery logistics evolve, there’s an increasingly set expectation that delivery orders should be able to be completed within 30 minutes. With the third-party services, Landers said that sometimes delivery orders would take up to 90 to 105 minutes. Through Room Service, Landers is confident that Dig Inn will be able to consistently hit the 30-minute mark for delivery order completion.
Landers noted that, over time, Dig Inn will work on building a more integrated partnership with the courier service.
Testing It Out
Room Service is available starting January 31 at one location: 691 Broadway, in downtown Manhattan. The delivery-only menu will be available only on Tuesday through Thursday for a limited dinner service starting at 6pm.
Testing the program during dinner offers more breathing room to take time with the orders (about 65 percent of Dig Inn’s business is lunch service), and Eskin views the dinner delivery market as “an area in which there is the largest opportunity” to improve upon what’s available.
As for when the new delivery program will roll out system-wide, “your guess is as good as mine,” Eskin said. “We want to be really patient with this. We’re really proud of this. The worst thing that we could do is expand too quickly. Once we’ve given someone a bad experience, that’s really hard to take back.”
Eskin declined to provide exact figures on how much Dig Inn has spent developing its in-house delivery solution.