A recent article by NewYorker Magazine titled “How Delivery Apps May Put Your Favorite Restaurant Out of Business” shows the risks restaurants are facing now from third party Delivery App companies such as Uber Eats, DoorDash, Grubhub and others.
At the beginning of the food delivery wave starting in 2006 with Grubhub and others, online/digital orders were only a small fraction of restaurant’s revenue and it added incremental sales.
However, over the years online orders are becoming the major source of revenue while in-stores sales are declining. Therefore, online sales are not actually incremental sales over time but are replacement sales as customer preference is shifting towards buying online.
In 2018, 15% of total retail sales were made online in the US and it is growing 14% year over year according to the recent Mary Meeker’s Internet Trend Report. This means by 2030, about 50% of the total retail sales are going to be from online purchases, which is about 3X of what it is today.
The problem for restaurants with third party Delivery Apps is they take a large cut of the sale, about 25%-35%, reducing profit margins for restaurants for online sales. Most of the restaurants are small businesses and don’t have much leverage to negotiate these fees.
Let’s do some math. If 30% is generally understood food cost, with 30-35% cut to delivery Apps, restaurants are left with 35-40% of the sale to cover store rent, employee salaries, utilities and admin expenses and a razor thin profit at the end if at all.
So, in 5-10 years when more than 50% of the sales are online, how can restaurants survive relying on these third party delivery apps?
Although it is not possible to fight the tectonic shift towards online orders, but it is possible to take control of restaurant's own destiny in the digital age by starting their own online ordering system.
Over the last 4 years, many online ordering softwares have been coming to the market to help restaurants take online orders and stay profitable in the digital age.
Many restaurants only take online orders for “pick up only”. However, with few delivery drivers, restaurants can offer deliveries too. After all the big part of online orders are due to connivence of staying home and get items delivered.
It is possible for any restaurants to do it, again think how pizzerias have done it profitably over the years with their own drivers. In fact, finding delivery drivers are perhaps easier than ever now. Just ask your favorite DoorDash, Uber Eats, or Grubhub driver for help.
There are free delivery software like Shipday Delivery, which helps restaurants to provide an easy to use delivery management tool.
Recently, Shipday has partnered with one of the top and most affordable online ordering systems, Gloria Food, to offer a free unlimited use “end to end” ordering and delivery system for restaurants.
There are other options too. Here is a list of top online ordering platforms published in another article last year, and there are many more.
In this age of very affordable small business softwares, we hope more and more restaurants will implement their own online ordering and delivery system. It will not only improve the bottom line but also will increase customer satisfaction and retention.
Today, most of the restaurants who sale online through these third party delivery apps do not know who their online customers are - let alone sending email promotions or discount coupons to boost online sales
In a recent article by NPR, studies found 1 in 4 delivery drivers admit eating customer’s food when they work for these third party delivery companies. That’s really bad!
By having in-house delivery and online ordering, restaurants can ensure delivery quality and the best customer experience possible increasing customer loyalty.
Restaurants need to understand online orders are not incremental business, but it is part of their actual business in the e-commerce era. By out-sourcing the online part of their business, they will be owning less and less of their own business.