September 13, 2012 |

Cost of Delivery

By Dave Ostrander

History tends to repeat itself. Ten years ago, I wrote an article regarding my personal experiences dealing with soaring delivery costs and associated expenses. Big Dave’s Pizza had a sales mix that approximately half dine-in and half delivery. This ratio, now more than ever, is critical.

In the past decade, associated delivery expenses and wages have almost doubled. Those of you who are delivery intensive have seen frightening decreases in bottom line profits. I’ve even spoken to operators who haven’t seen any significant profit since last fall.

Ten years ago I was challenged by my accountant to figure out how much money it cost to provide home and business delivery. At that time everyone was doing it for free. With my accountant’s help, we did the work and found that, on average, my out-of-pocket costs were $2.52 per delivery.

We came to that amount by capturing the last 10,000 deliveries from my POS system. Then we calculated how much direct payroll we paid our drivers and added in the soft costs (employer matching social security, worker’s comp, unemployment, meals, etc.).

I did the same math this weekend with current assumptions: hourly wage at $7. I added another dollar for Social Security, Medicare and Unemployment. Non-Owned auto insurance and meals are subject to regions and generosity, so I factored them in at another .50 cents an hour. On top of this we need to also look at how much we pay our drivers per delivery or mile and then subtract any delivery fees we charge the customer. My rough math has calculated that, on average, it costs between $8.50 and $10 an hour for delivery staffing. During peak times I aimed for my drivers to deliver orders at the rate of 3 times an hour. During slow times it was much less. If we assume that two deliveries an hour is average, then my generic math indicates that it costs between $4-5 to deliver an order.

Who is footing the tab for delivery? You are, unless you’re charging a $4-5 delivery fee. You are also spreading the costs to your dine-in and carryout customers — and your drivers are more than ever extremely dependent on tips to keep gas in their tanks. Since this high of a fee is going to be perceived as gouging and unreasonable by our customers, who are currently cash strapped, we have a problem. 

I believe that pizza delivery, as we know it now, is fading fast. The costs have become so high that we need to rethink and offer other options to our customers so our sales don’t bottom out and we recapture profitability. Here are some options:

  • Reward customers who order carryout and dine-in.
  • Consider a drive-through window, if possible.
  • Create a Grab and Go concept to be available during peak drive times.
  • Revisit promoting the proven take-and-bake concept.
  • Outsource delivery to a legitimate third party meal delivery company. 
  • Raise your delivery fee to cover all of your costs.
  • Eliminate delivery altogether like some chains.

It’s time to redo the math and see if you are making money.