Restaurant operators may benefit from new pricing strategies
Customers are open to delivery charges as long as they are fair, according to new research. As many restaurant concepts have turned to pickup and delivery, their use of third-party delivery services has been on the rise and commission fees need to be recovered. In this new normal, customers see delivery charges as helping restaurants offset costs as part of evolving attitudes. Moreover, as they become more versed on these restaurant economics, they lean toward restaurant self-delivery, finds the study.
Insights into delivery pricing
A survey of 329 US residents, which was highlighted in insights provided by Sheryl E. Kimes and Chaoqun Chen at sherrikimes.com and in an in-depth research study, Consumer Perspectives of Restaurant Delivery Fees, offers new perspectives on current consumer attitudes and highlights different ways to present delivery charges. In some cases, restaurants can present menu pricing that already includes the higher cost of delivery as “regular price,” but list pickup-order pricing as a discounted price.
“One way that restaurants can recover some of the delivery-related costs is by charging higher prices for menu items on their delivery menu than on their takeout menu,” noted the researchers in their paper. “We found that respondents found this practice to be fair, reasonable, and acceptable, particularly if the prices on the takeout menu were framed as a discount from the delivery menu prices.”
Although third-party delivery providers can charge higher prices, either to recover their own costs or to help restaurant operators recoup delivery-related charges, a menu pricing strategy that is predominantly based on the cost of delivery (including restaurant self-delivery) could boost operators’ bottom lines.
Consumer perspectives of restaurant delivery fees
“One particularly interesting finding was related to whether delivery was conducted by the restaurant or by a delivery provider,” said Kimes, who is professor emerita, Cornell University School of Hotel Administration, and visiting professor, National University of Singapore School of Business. “As part of the survey, we reminded half of the respondents that it costs restaurants money to use delivery firms. Those respondents were more likely to favor delivery by the restaurant itself, given the understanding that restaurants need to cover their costs.”
In light of current consumer sentiment, restaurant operators may be inclined to consider self-delivery and pooled resources with other operators to launch or expand restaurant-operated delivery. With consumers behind them, restaurant operators and advocacy groups may have an opportunity to push for flat-fee commissions from third-party delivery as the norm.
Chen, who teaches at Cox School of Business, Southern Methodist University, and is an empirical modeler, observed that survey respondents considered flat-fee delivery fees and distance-based fees to be fair. Foodservice consultancy Technomic also found in its own survey this year that 76 percent of restaurant operators prefer flat-fee commissions from third-party providers. More transparency from third-party delivery providers and lower commissions would most likely lead to increased consumer adoption and use frequency.
Photo credit: Jonathan Cooper
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