The Deliveroo Dilemma | Ann Elliott | elliotts agency
While chatting in Paris with Paul and Tory Chantler from FrogPubs (I came here with HGEM’s Sally Whelan to look at the eating out scene, I must admit the food hall at Galerie Lafayette has been the highlight so far), one topic of conversation was Deliveroo. We talked about its potential stranglehold on our sector, particularly as operators seek to boost sales and profit in the challenging year ahead; and our conversation covered a number of areas:
While Deliveroo might appear to be willing to drop to 20% commission (or perhaps even lower) at the start of an arrangement, there seem to be instances of it asking for increases in this percentage once the arrangement is up and running. This undoubtedly leaves the operator in something of a dilemma. Can the deal still make money if the commission moves from 20% to 26%? What if, when Deliveroo is more firmly embedded in the business, it comes back and demands an even higher commission? And if the deal does end up at 30% how does an operator make money on lower percentage menu items? It might still be ok for pizza brands where margins can reach 85% but it causes problems on more protein-based dishes where margins might be closer to 65%.
One operator I know, working in one of its kitchens with his team, asked the Deliveroo driver (who didn’t recognise him as the managing director of the business) if he liked the brand. The driver said: “No – I much prefer Domino’s.” As you can imagine, this did not go down well. The operator had spent years developing the brand with his team – all singing off the same branded hymn sheet and yet one of the people responsible for delivering the brand face-to-face to customers, did not. To the operator, his brand was at risk and he did not want it in the hands of someone he didn’t know or trust. The relationship with his customers had to come before his relationship with Deliveroo. Taking a sales and profit risk, he stopped working with Deliveroo.
Very few products (and certainly not chips) are robust enough to withstand a journey on a bike, being carried into the house and then the wait in a takeaway box while the customer opens the beers, sorts out the television and gets everyone together. Nor will that product look or taste as good as it does in a restaurant. Some operators I speak to just don’t want their brand quality put at risk. It’s been too hard fought for.
Paul Chantler was negotiating with Deliveroo when it arbitrarily wanted to increase his commission from 22% to 26%, when it emailed him out of the blue one evening saying it was turning off its service. Imagine the situation at site level when suddenly the Deliveroo screens went dead before Paul had a chance to talk to the managers and his teams. This is not good at any level. What happens too when Deliveroo decides it wants to sell someone else’s product rather than yours, even though the customer might have ordered yours, because the margins are higher? What happens if it wants to produce and sell its own product? Who knows? Other brands I know just do not want power transferred from them to Deliveroo because too much control is out of their hands and they are then at Deliveroo’s mercy whatever it decides to do.
It’s an interesting dilemma for operators – control and quality versus sales and profit. Some jump one way but others are increasingly thinking the risk is most definitely not worth it.