How Restaurants Can One-Up The Aggregators

It was easy for restaurants to get lured into a false sense of security as they watched during the early days of the great digital shift in retail. “Restaurants aren’t Amazon-able,” Olo CEO Noah Glass told Karen Webster, according to the prevailing opinion. Food, particularly prepared food, was too perishable to be “shipped,” and restaurants too hyperlocal to fall prey to the digital disruption that they witnessed in the retail sector.

Until they did.

Restaurants underestimated two things, he noted. The first was consumers, and how much their habits and preferences were going to change in the digital era. Brands had spent the last decade or two investing in and perfecting their dining rooms to make them more inviting, or maximizing their drive-through experiences to make takeaway more efficient.

Glass said that consumers today are not as interested as they once were in “eating in” or “driving through.” Instead, they want to disaggregate order from pickup — curbside or via a shelf experience inside the restaurant, or even get it delivered to wherever they feel like eating the food.

Restaurants’ second, and perhaps biggest, oversight was their failure to see how innovators would reimagine the Amazon experience for the restaurant sector, Glass observed. Most totally missed the rise of third-party marketplaces, and the impact they would have on the relationships with restaurant customers, even potentially cutting them out of the deal entirely someday.

“It’s time for restaurants to get up to speed very quickly on building a credible, competitive and ultimately better offering to draw consumers back into working directly through them,” Glass told Webster, “or risk permanently losing those relationships.”

The Bad-To-Worst Case Scenarios

It’s no secret that third-party aggregators — the Grubhubs and Uber Eats of the world — are an expensive proposition for most restaurants. They deliver volume, and a lot of it, but at a cost. At a 20 percent to 30 percent commission on each order, aggregators eat into the already-thinning margins of those restaurants. It’s not entirely clear if the customers they deliver to turn into profitable relationships down the road.

In part, that’s because of the bigger risk to restaurants that they pose: disintermediating them. The consumer becomes loyal to and dependent on the marketplace itself, and the restaurant that provides the food plays second fiddle to the “Amazon” of food ordering.

“Looking around the corners a little bit, it seems inevitable to me that, with all of [the aggregators’] data on what consumers like and want, they have built the perfect path to opening their own ghost kitchens and private-label brands to serve up to consumers who order through their platform[s],” Glass said.

That sounds dire, Glass noted, but it doesn’t have to be. It doesn’t even mean that restaurants need to pull the plug on their relationships with those marketplaces immediately, in a move to protect their turf. The marketplaces have a value, especially when it comes to discovery — since they bring with them a cohort of customers, often a large cohort, and it is absolutely to an establishment’s benefit to put itself in front of new cohorts of consumers.

From that exposure point, however, the challenge incumbent upon restaurants is finding ways to bring a consumer into their orbit and form a one-to-one relationship that is separate from the marketplace itself, and that can evolve into a profitable relationship with the consumer.

“They need to find a way to differentiate the in-house experience from the indirect one,” Glass explained. “The airlines and hotels have done that when it comes to separating themselves out from the travel platforms — and it is a lot more complicated than just giving stuff away.”

Discounts and promotional offers are a place to start, he said, but in Olo’s 13 years on the market working with restaurants to build digital brands, what really works is offering consumers extra value in those direct chains. That might mean order-ahead or delivery. It might mean offering a full menu within one’s app or website, but only a limited selection on the aggregator’s website. It might also be something as simple as making it easy for customers to order within the app, but not making it possible to customize on any other touchpoint.

What they all come down to is offering a series of incentives for the customer to connect directly to the brand.

“Take the direction relationship out, and it ends in a race to the bottom [for] the marketplaces on who can give up the most,” he said.

The Emerging Future

Webster wondered if, going forward, there is a middle ground between restaurants and third-party marketplaces as they exist today. Could there be a platform to aggregate restaurant brands and possibly connect Delivery-as-a-Service, but in a way that still sends consumers directly to the restaurants’ digital portals?

Glass replied that not only does he believe this will happen, but he believes 2019 is the year the market will start to see it happen. Google, he noted, is the best-positioned platform to deliver it — no pun intended.

“I think Google can be the missing piece, because that is where consumers often go to start their restaurant search,” Glass said. “If they can build an experience to take them through ordering with the restaurant brands, there is a lot of potential for a Google-powered quasi marketplace.”

Glass said that Olo’s Dispatch platform was created, in large part, to help restaurants take back control of offering delivery services to customers — without having to pay the fees (or running into the disintermediation risks) they would face using a third-party aggregator. Dispatch allows restaurants to let customers choose delivery as part of their online orders. On the back end, Olo connects the order with a delivery service provider, which is then dispatched to pick up the food as though it were any other online order placed for pickup. The customer pays the delivery charge, thus eliminating the commission fee to the restaurant.

It’s even an offer that could have a future outside of restaurants. There are many hyperlocal retail businesses that could benefit from having on-demand delivery baked into their offerings. Glass said that Olo has just hired a new GM for Dispatch, who is starting to explore its full potential as a business unit.

However, restaurants are where Olo got its start — and where its focus remains, Glass noted, because there is still much to do to help them better make the transition into a digital world.