Many people contacting DataWedge for additional information are simply looking for places to begin; looking for some hint as to what needs to be done, and how to start the process of opening their own RDS. This document is intended to assist you by filling in some of the gaps and providing you with some basic structure and starting points for your business.

A Quick Overview of the Restaurant Delivery Service (RDS) Model.

So what is the traditional RDS model?  In short, a traditional RDS will contract with local restaurants to deliver prepared meals to customers. The RDS will typically prepare and distribute a menu guide containing the contracted restaurants, and will then take the customer’s meal order over the phone. The RDS will then fax the order to the restaurant, and have a driver pick up the prepared meal and deliver it to the customer. The driver will then collect payment for the meal from the customer, and return it to the RDS at the end of his/her shift. The RDS then pays the restaurant for the ordered meals at the end of the agreed upon payment schedule, (typically every 2 weeks).

In order to successfully make this model work, an RDS owner must stay on top of the following areas:

1. Operations
   1. Dispatching
   2. Driver Check-out
   3. Order Taking
2. Marketing
   1. Production and Distribution of Menu
   2. Additional Advertising
   3. Guides
3. Sales
   1. Selling services/Contracting with Restaurants
   2. Up-selling meal items/house items to the customers
4. Financial/Accounting
   1. Balancing tight RDS budget
   2. Short-term cash flow management

Choose a company name

While this seems like a fairly obvious suggestion, it is one of the most important in the entrepreneurial process.  Perhaps you have been considering the notion of opening an RDS for a while. Choosing a name for your business is an important first step because it represents a fundamental shift in thinking.  Once you have chosen a name for the business, your idea has suddenly taken form.  Your idea is now an entity, a THING that can be solidly talked about in conversation.  Even without filing a single document with the state or writing down a single note on a piece of paper, by coming up with a name you will feel a little bit different about the enterprise you are about to tackle.

One of our customers struck upon a good idea a while back that has proven extremely successful.  In a nutshell, his concept was that the RDS owner gets one “brain cell’s” worth of storage information with the customer. That single brain cell’s worth of storage might be your company name, your business phone number, your web domain, etc.

Here is the kicker: try to make all three the same thing.

Example: You decide on a company name of “Gourmet Express”.  You get a phone number for your company of 555-FOOD (3663). You also get lucky and are able to get “gourmetexpress.com” for your web domain. 

The problem here is that this requires “three brain cells” worth of storage information on the part of the customer to find you. The customer may remember your phone number, but fail to remember your company name… or worse, the customer may remember “Gourmet Express” as your company name, but fail to remember your phone number. If you monitor your phone calls coming in, you will probably hear a lot of customers calling to ask what your web site is. 

Solution: Work backwards from the phone number, picking out a good one from the local phone company. 555-FOOD, 555-FEED, something along those lines.  From there visit a web domain registration company such as www.godaddy.com and see if 555FOOD.com is available. If it is, grab it. (It should cost you less than $10.00 to get it for a year). From there, your business name is a snap: 555FOOD.COM (yes the .COM in the name is important).

Now your phone number, your business name, and your web site are all the same name, and all of your information is successfully stored in the single brain cell leased out by your customer.

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Look at your Geography, Cuisines, Demographics

Now that you have a name for company, you must take a harder look at what your local geography, demographics, and cuisine offerings are going to look like.  Although in the beginning you may be tempted to try to service all customers in all places with all types of cuisine, it’s not really that easy. Hot food must be kept hot, cold food cold… and that puts a bit of a damper on your variety and range. 

Although your methods may vary, here is one suggestion to finding your limits. Take out a map of your local proposed area. Find “restaurant row” (the location having the highest concentration of restaurants in your proposed delivery area). From restaurant row draw a circle around that point with a radius representing approximately 10 minutes worth of driving time. 

The big circle on your map now represents your delivery area. From here you can begin to rough-in the actual ranges you want to work with… for example, maybe a highway exists towards the north allowing you to stretch the area a little further, while towards the south are difficult to navigate side-roads, forcing you to tighten up your distances.

Now that you have a very rough idea of your delivery range, take another look at what’s inside that circle. What type of customers are in there? Do you have mainly residential customers? Do you have businesses? What about the types of restaurants?  Do you have mainly chain restaurants, or “Mom & Pop” restaurants?

Another primary idea to keep in mind are balance of cuisines to offer. It it much more important to have a balance of cuisine, than a high number of restaurants to choose from. (It will do you no good to contract with all 10 Italian restaurants in your area; this is why DMS Lite limits you to 12 restaurants. The number 12 is intended to represents a good balance of cuisines). 

By physically sketching a loose circle around your primary area, and studying all of the stuff contained in that circle, you can get a much better sense for the potential of your delivery area.

Sole Prop vs. S Corp. vs. LLC

So, you have decided upon a company name, and have figured out that you have a viable delivery area. Your next step is to actually go through the process of legally filing for your business.

It is best to discuss the pros and cons with an attorney or accountant. The only advice we can offer at this point centers around the point of personal liability. Many startup RDS’s (in our humble opinion) make the mistake of starting up their operation under a Sole-Proprietorship. In this model, an individual can essentially collect monies under a DBA (Doing Business As) with the state, then simply file for and pay their taxes by attaching a schedule C to their 1040 form at the end of the year.

While this offers the easiest way of getting your business, it also represents the highest degree of personal risk and liability should anything go wrong. It’s important to note that the RDS world is fraught with risk, and all it takes is a bad driver combined with a customer harboring a bad attitude to create a catastrophe.

The S-Corp or LLC (Limited Liability Company) are more complex to set up and maintain, but they do offer additional protection in the area of liability. In the world of the Sole-Proprietorship, a customer has the ability to attack (and possibly TAKE) your personal assets through the process of a law-suit. Suddenly any equity you may have built up in your home is at stake should one of your drivers accidentally knock a customer’s priceless garden gnome over when delivering a meal.

It is at this point that we will remind you that DataWedge is not and does not represent a legal opinion, and that it is in your best interests to seek additional council in this subject.

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Business Plans and Contracts

So you have all of your ducks in a row. You have your company name. You have your phone number and your domain name in your possession. You are legally established with the state. You have done your geography homework. 

It is at this time we highly recommend purchasing and downloading our sample document kit for a startup RDS. The price is $300.00 for a sample of the following:

1. Sample Restaurant Contract
2. Sample Business Plan
3. Sample Driver's Contract
4. Sample House Account (Corporate Charge Account) Application
5. Sample Fax Order Form

Our business model is closely tied to the long-term success of our customers. While we do charge for access to these sample documents, we also credit 50% of the purchase price towards the purchase or lease of our DMS software.

To purchase these files contact us at (208) 874-4185.

Sign Restaurants

Signing restaurants is probably one of the more difficult tasks for your business. Think back to your model: you have to convince the restaurant to part with around 30% of their food markup, and (if you are lucky) agree to a marketing fee in exchange for being in your distributed menu guide. (This marketing fee is typically used to offset your printing costs).

While we can’t make the sale pitch for you, we can give you a few pointers to help you with the difficult process.

1. “I can’t possibly afford to discount my food 30%”
   1. Restaurants will never tell you, but the $10.00 hamburger they sell to the public usually costs them around $3.00 in cost. That means it costs them $3.00 to cook it, have a waiter around to take the order, and bus the table after the dining customer is done eating it. 
   2. The Restaurant is still making money on this deal, since they are able to utilize excess kitchen capacity. They no longer have to worry about busing the table, washing the dishes, or keeping a waitress around to order the food. You (the RDS) take care of all of these items.
2. “You will be stealing my customers!”
   1. This is the most difficult one to deal with. The majority of restaurants don’t understand that there are actually THREE types of customers in reference to the food industry.
      1. “Let’s go out to eat”.  This is a dining customer.  This customer has made the decision to eat at a particular restaurant prior to leaving their house.
      2. “I’ll pick something up on the way back from work.”  This is a restaurant TO GO customer.  This customer has already made the decision to pick up a meal at a particular restaurant prior to leaving their office or home.
      3. “Let’s get something delivered”.  This is the RDS customer.  This is YOUR customer.  The customer has decided upon a cuisine (“I feel like Italian”) but has not yet decided on a restaurant.  If you have marketed yourself correctly, this customer will be calling you to see what’s available.
   2. The most important item to stress to the restaurants is that they are not losing 30% of their revenue in the process… they are in fact GAINING 70% of additional revenue they would not have had before.  Training restaurants in this idea is key:  you are not competing for the customers they already have; you are bringing them customers they wouldn’t have gotten in the first place.

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Download Software

You have now started to sign restaurants. You need someplace to put them, and some way to manage their menus. That’s where DataWedge really comes in.

Download and install DMS (Delivery Management System), our premiere RDS Management system. This software is our flagship product, and allows you to manage your customers, menus, restaurants, employees, drivers, house accounts, house items, all restaurant payables, and much much more.

Click here for more information on DMS, and to download a demo copy.

While this software may appear to be a DEMO copy, it is in fact the full installation. When DMS is installed without a registration key, it reverts to DEMO MODE. In this mode, you may enter all of your restaurant, menu, and employee information. The only limitation DEMO MODE has is a cap on taking no more than 50 orders. 

This allows RDS’s to download and configure their copy of DMS at no cost to them, and at their own pace. Once you are ready to open your doors, simply contact us and purchase a registration key. All of your data will be ready to go; the process takes only a few minutes.

House Items

By this time, you have signed some restaurants, and are going through the process of entering their menus in the DMS system.

At some point, you will come across the notion that you should be selling your own drinks. We will take the time here to congratulate you on your idea, then immediately inform you that this is very common in the RDS world, and while they do not represent the highest AMOUNT of profit, certainly among the most profitable items.

Example:

Your local restaurant sells drinks for $1.00 a can. From that $1.00 per can, you will get .30 (assuming a 30% discount agreement). However traveling to your local super-store you will most likely find that the same can of soda will only COST you .28 per can. By keeping a house menu stocked with common items, such as drinks, you can turn that .30 profit from the restaurant into a .70 profit just by selling your own drinks.

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Hiring:  IC’s versus Employees.

The debate rages on and on between RDS’s and state tax agencies, but suffice to say that most RDS’s, IF THEY COULD, would choose to utilize Independent Contractors as drivers instead of hiring employees.

The benefits are:

1. Independent Contractors offer an additional layer of protection to the RDS when it comes to liability. Any problem that occurs as the result of the driver (car wreck, knocking over the priceless garden gnome) exposes the Independent Contactor doing the delivery, not the RDS.
2. Insurance costs are the responsibility of the IC, not the RDS.
3. Employee motivation is much higher with an IC relationship. An IC knows s/he is paid per delivery… so it’s not in their best interests to be sitting around.  An employee, however, is paid the same hourly rate whether they do 1 delivery or 10; and their performance usually reflects it.

It is at this point that we will remind you that DataWedge is not and does not represent a legal opinion, and that it is in your best interests to seek additional council in this subject.

Develop Your Marketing Plan

At some point after signing your restaurants, entering your menus, and hiring your drivers, you will have to assemble a marketing plan. After all your customers are going to need some way to find your services and range of cuisines they can have delivered to their door.

This is traditionally done through the publishing of a menu guide. A menu guide will contain the menus for all of your offered restaurants and an easy-to-read map describing which restaurants they can get in their area.

The goal of this menu guide is to be JUST “permanent” enough to land a place right next to their phone book, while being just inexpensive enough to mass-produce and distribute as needed. Usually this is done by using a full-color high-pound menu guide, with a lower pound (4 color) insert. Typically an RDS will publish a menu guide twice a year.

What kind of return can you expect to gain from a mass mailing? Typically the response is low:  around 4%-6%. This means that if you obtain a mailing list of 5000 names for your delivery area and deliver a menu guide to each of them you can expect to generate somewhere between 200-300 orders. (Note that’s ORDERS; also see the RE-MARKETING section).

Payment methods and Credit Cards

At some point you need be begin thinking about the forms of payment your RDS will accept. Cash, check, credit cards, gift certificates, and house accounts (corporate charge accounts) are all forms of tender an RDS can use for payment. 

Many RDS’s do not accept checks as a form of payment, and the number is growing fewer and fewer every year. The exception to this rule is businesses, but for the most part checks result in the highest risk of fraud in the industry. Most persons that have a checking account also have a branded check card (stamped with Visa or MasterCard), so you are much less likely to alienate a customer from this policy than you were 4 or 5 years ago.

Credit cards will represent over 50% of your business. This is another area in which DataWedge is able to assist you.  With so many of our customers accepting credit cards individually, we were successfully able to partner with Elavon; aggregating together individual companies and negotiating for lower credit card rates. Elavon is able to achieve this by looking at each business separately, and tailoring a credit card rate to their average ticket and number of transactions. This does NOT mean that a “high-volume” customer gets a better rate than a “low-volume” customer; it simply means that one RDS generating 10 orders a day with an average ticket of $100 will get a different rate than a customer doing 100 orders a day with a $10 average ticket. 

While each rate is different for each customer, on average Elavon has been able to beat the typical “shot-gun” rate quote an RDS can get individually by roughly 40 basis points.

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Fill out the application for a credit card merchant number.

Other parts and pieces you will need

There are some other parts and pieces you need to assemble for successful RDS;  some are obvious, while others are only obvious after their mention.

1. Thermal Bags
   1. Your drivers need something to carry with them that will keep the hot food hot, and cold food cold. If your drivers are an IC, they may “rent” the equipment from you;  in either case, you still need to supply it
      1. TCB
      2. Bags By Ingrid
2. Phone System
   1. Your business needs some way of answering a call, taking a message, and putting a customer on hold. This can range anywhere from a single analog phone with an answering machine to a full-blown PBX system. Whatever it is, you need to consider it and make sure it matches your service commitment to your customers.
3. Software
   1. You need software to make it in this industry. CLICK HERE to download a copy of DMS (Delivery Management System)
4. Communication devices
   1. You need some way of communicating with your drivers out in the field. The most common method today is using cell phones for dispatching. Other companies have utilized CB Radios, while others utilize 900Mhz Motorola radios. Whatever the method, communications with your drivers is essential, and something to plan for.

Develop a Re-marketing plan

Many times an RDS will witness a fantastic startup in their opening month, putting some great numbers on the board.  However, over the coming weeks and months, see their numbers beginning to wane. In an effort to continue to drive business, they make the mistake of focusing all their energies on finding and marketing to new customers.

Many people when doing the “legwork” of seeing if an RDS is viable in their geographic area often hear comments such as “If there was a delivery service in my area, I would order there all the time!”. 

As exciting as those words are to hear, the truth is that having a customer ordering 3,4 or 5 times a week simply isn’t realistic; and sadly the novelty of having a new delivery service in the area wears off too soon. 

In addition to MARKETING your company and services, you also need to REMARKET your company and services. Many startup RDS’s find it difficult not in their first month of business, but rather their third or fourth month, simply because they have not taken the time to remind the customer of their business. This can be as easy as a quick post-card in the mail, in the form of a coupon or a “customer comment card”… something is better than nothing, and keeping your existing customers is always cheaper and easier than finding new ones.

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GET OPEN

One of the most important pieces of advice we can give may sound a little on the self-serving side, but it is a truthful statement. That advice is OPEN YOUR DOORS. Simply put, you will learn more in the first 2 days of being open than you will in 6 months of research and planning. Your first few days of business will be painful and unpleasant, filled with ordering errors, dispatch oversights, and general mayhem; but the best teacher in the RDS world is personal experience. There is no substitute.

Be ready for immediate competition

Competition from other entities will quickly start to appear, especially if you are the first RDS to open up in your area. The best you can do is prepare for it, and be looking for it from the most common places:

• Keep your ear to the ground with your restaurants. You had a great idea in starting up an RDS, but every single customer you delivery to now has that great idea exposed to them.  Listen to your restaurants. Typically someone wanting to break into your industry will start by talking to a restaurant you have a contract with, asking about their cost structure and such.  A typical move for someone that doesn’t know the industry is to try to undercut you on the discount; offering to do business with the restaurant at 25% instead of your 30%. Keep your ears open for these sorts of ploys.
• Keep your ear to the ground with your restaurants. It won’t take long for your restaurants to be tempted by the large orders you are turning in. Again, it’s a battle of the 70/30 split that we discussed earlier. For example, if you take a large catering order worth $300.00 and fax it to the restaurant, the manager will again latch on to the idea that they are LOSING $100.00, not making $200.00. If the customer information is on the fax that is sent over, the restaurant will be extremely tempted to contact the customer directly and offer them a discount on the food if they agree to go directly through them next time around. If a restaurant offers the customer a 10% discount by cutting you out of the deal, they gain back 20%, and you get 0. Effectively, all you have done is market the restaurant for free. Make sure you hide your customer information from the faxes that are sent over to the restaurant. (DMS has this ability).
• Be careful of former employees or drivers. Many of the new startups that open up in a market are a former driver or CSR of an existing company, and has decided that s/he can do a better job. The only advice in this regard is to focus on your level of customer service. Inevitably, you are training your competition… the most you can do is keep the bar raised high enough for no one else to jump over.

Have more questions? Give us a call (208) 874-4185. We would love to hear from you.

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