- M. Villarreal
How Delivery Services Impact your Restaurant's Bottom Line
Although the on-demand economy popularized by services like Uber, Netflix, and Amazon Prime has only just entered the food industry, its influence can already be felt in the wake of COVID-19. Eating was just another area of life where customers wanted convenience. Both need (stemming from shelter-in-place orders) and the fact that so many businesses are getting on the meal delivery bandwagon have contributed to the increased demand for food convenience in the post-COVID era. It's becoming increasingly common for restaurants to contract with outside companies to deliver food to their customers or to create their own online ordering system, so it is essential to know how delivery services impact your restaurant's bottom line.
There's no denying the popularity of takeout and delivery, but what does this mean for eateries generally? How many still choose takeout or delivery instead of cooking at home? Or do they prefer pickup at their doorstep? Is it still profitable to set up a delivery service and incur the associated costs?
Let’s start with the math
Take Zomato, for example; they deliver meals to customers in over 23 countries, including Canada, the United States, Qatar, and Australia. First quarter 2018 data indicates that restaurants pay Zomato a commission between 12 and 20% for each delivery they make using the service. UberEATs, its primary competitor, charges 35% more, plus a $500 terminal fee, to begin providing their services. This means that a restaurant will pay a commission of $2.50 to $3.00 for every $10 made on a single takeout order. To the untrained eye, this may not seem like a big deal, but if your restaurant's profit margins are thin (less than 50%), then paying 20–30% per order on top of all overhead expenses means you're essentially paying people to order from your restaurant. This is a significant way in which delivery services impact your restaurant's bottom line. The relocation experts from Fit 2 Move always recommend keeping an eye out for a good deal, and they can advise you on additional budget cuts. Even simple tricks such as route optimization can help you significantly cut down your delivery costs.
Is there a correlation between getting featured on their site and increased business for you?
In reality, some new customers will find your restaurant through food delivery apps. However, repeat business will be generated by the high quality of the food and the pleasant dining experience, not by the app itself. In that case, why fork over exorbitant fees to meal delivery services when you can do it yourself and keep all the money you make?
The problem is that delivery orders through firms like Zomato and Uber Eats are beginning to replace rather than supplement a restaurant's core operation. A significant percentage of eateries, around 20%, have already converted to "delivery-only" kitchens. That means they solely fulfill online orders and do not have a physical location in the city that you can visit and dine in - what they call a restaurant, yet there's nowhere to sit.
The New Trend - Ghost Restaurants
The restaurant business is already feeling the effects of food delivery. In fact, this trend has given rise to a brand new subset of eateries: ghost restaurants. The term "ghost restaurant" refers to establishments that don't have any physical locations but nonetheless provide food delivery services. These establishments aren't like regular restaurants because they don't offer dine-in or takeout services from physical locations.
Restaurants operate out of industrial kitchens, where they prepare and deliver customers' orders rather than create an atmosphere. Since many restaurants have closed in the past few months, "ghost restaurants" have found a way to fill the void. They offer customers their usual food in a safe place, saving them money in the following ways:
The rent is cheaper because they don't need as much room.
They require less commercial kitchen cleaning since they require less space.
Since they don't need a reception desk, they may cut costs there.
They don't have to spend as much money on fancy tableware, furnishings, or decorations, since they don't provide sit-down meal service.
According to experts, ghost kitchens provide restaurants with a more sustainable business model. That allows them to satisfy the increasing demand for takeout and delivery. And as a result of the epidemic, they achieved great success as expected. But you don't have to run a ghost restaurant to make money with food delivery.
When customers complain, restaurants lose business.
Getting restaurant food delivered to your home is complex, and many things could go wrong. Who pays for the mistakes? Think about the situation where the customer receives a cold product. If the delivery was late, for example, it doesn't matter if you have great and hard-working employees. If customers are unhappy, the restaurant will not be able to blame the delivery service, and this is how delivery services impact your restaurant's bottom line.
Those that patronize the establishment will place all the blame on it. That person will be singled out for criticism. By educating customers about the ins and outs of food delivery, we can hopefully create a more equitable system in which restaurants are not unfairly punished with negative feedback, compensation costs, and possibly a loss of reputation when they have done nothing wrong.
Exactly what are your alternatives?
After seeing how delivery services impact your restaurant's bottom line, it's time to see what your alternatives are. Apps that transport meals to your door are a novel way for customers to get their food. But they aren't the only thing on the horizon. Click-and-collect services are on the rise because they allow restaurants to meet their customers face-to-face, upsell and cross-sell, and build rapport with them, increasing the likelihood that their customers will return. ParkJockey, which owns both FoodStars and Vessel, are two other food startups that provide a novel option. They rent out high-end commercial kitchens that are used by established and fledgling eateries and food distributors. If there are more restaurants and they work together to say no to the current terms and conditions, restaurants may have more power to negotiate lower commission rates.
If you are needing your restaurant kitchen deep cleaned to set it back as close to new as possible, your commercial kitchen vent hood cleaned or outside patio areas power washed, contact Cornerstone Commercial Services today and see why almost 80% of our business comes from direct referral.
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