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How Delivery Apps May Put Your Favorite Restaurant Out of Business (newyorker.com)
In a piece this month, The New Yorker argues that online food discovery and delivery platforms are bad for restaurants. From the report: In recent years, online platforms like Uber Eats, Seamless, and GrubHub (which merged with Seamless, in 2013) have turned delivery from a small segment of the restaurant industry, dominated by pizza, to a booming new source of sales for food establishments of all stripes. When the average consumer logs in to the Caviar app to order a Mulberry & Vine salad for the office or a grain bowl on the way home from work, she might reasonably assume that her order is benefitting the restaurant's bottom line. But Gauthier, like many other restaurant owners I've spoken to in recent months, paints a more complicated picture. "We know for a fact that as delivery increases, our profitability decreases," she said. For each order that Mulberry & Vine sends out, between twenty and forty per cent of the revenue goes to third-party platforms and couriers. (Gauthier initially had her own couriers on staff, but, as delivery volumes grew, coordinating them became unmanageable.) Calculating an order's exact profitability is tricky, Gauthier said, but she estimated that in the past three years Mulberry & Vine's over-all profit margin has shrunk by a third, and that the only obvious contributing factor is the shift toward delivery.
Note i am not making any kind of moral judgement here. If what most consumers want is 'prepared food delivered to your door' and you are in the food service industry you'd better figure out how to meet that demand or you will be left behind by someone who does. Alternatively maybe you can carve out a niche space for yourself for people who still want to 'go somewhere' but a niche means exactly that, a small market where only a few of the best can thrive.
That said I understand the trepidation the middle tear restaurateur probably feels right now. Its not just the costs of delivery. Its the other higher margin up sells like, that second beer or another cocktail your wait staff convinces the customer, he'd enjoy it and after all he is celebrating! Or the the $6 2oz cheese cake in a cup that is decadent but not two decadent and hey girl your deserve it!
You loose the opportunity to make a lot of those sales with deliver and take out. My assumption is most restaurant dishes are not loss leaders but at least at a lot of the places I tend to each there is clearly more margin on some of those ancillaries than on the main plate items. Given a competitive market place you might not have the pricing power to raise tab on main plates either. You are competing with the places that have decided not to follow the new trend in the mean time, at least for the traditional portion of the business. Ultimately you might be re-aligning in the right way but that can mean some short term pain. Lots of restaurants are more or less hand to mouth, they may not be able to weather the changes at all and those that can might not be able to afford a misstep.
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Or make the food for delivery in a cheaper place than a high-rent kitchen of the original restaurant. Find some non-retail place a few blocks away from the restaurant and set up the delivery kitchen there. Maybe even do some prep for the restaurant kitchen there too. Rent will be cheaper and will allow you to create more delivery meals. This would lower the per meal costs and increase the profitability.
Wouldn’t it be simpler to just stop offering takeout.
If your customers want takeout, and you don't offer it, then they go elsewhere and you go bankrupt.
One Chinese restaurant in my area went the opposite direction: They stopped offering sit down meals. Your options are takeout or delivery. They vacated their retail space, and expanded the kitchen in their house. Mom and dad cook, and the kids do the deliveries.
"Gauthier initially had her own couriers on staff, but, as delivery volumes grew, coordinating them became unmanageable"
Sounds like you overreached and grew so big you couldn't get the same profitability percentage anyway...
Try this... go back to your own couriers, and only accepting the same percentage of orders as you used to. Or hiring a fleet manager to sort out your in-house deliveries, saving you a huge percentage for a single wage.
But I guess you wouldn't do either of those as you know it has little to do with anything - business changes, either adapt or get shut out. And, to be honest, of all the business failures I've ever seen, you can see them for a long time lingering and building up on the balance sheet and being ignored.
If delivery costs too much... stop delivery. If the profitability is dropping, find another profit. If the food is good, to the point that you couldn't manage the deliveries, it should be easy.
Or, alternatively, take the profits you're getting and embrace the delivery culture. What's costing you most money? I would guess your premises. I've yet to see one but I see no problem with a food delivery business listed on those kinds of sites that has no physical restaurant presence you can visit. Literally operate as a food preparation and delivery company via those apps, with token presence wherever you need to prove catchment.
The Internet kills a lot of businesses, but almost always through providing a better service. You can't fight against that, only evolve and embrace it.
I could honestly and seriously live the rest of my live without having to visit a single shop, takeaway restaurant (maybe a proper sit-down restaurant for family meals etc.), supplier, provider, hell I could even book someone to cut to my house to cut my hair if I wanted. And the beauty is that such facilities provide me with MORE opportunity to get out and do other things much more classed as leisure (e.g. lounge in a nice restaurant) than before... it's optimisation of your life.
I have actually found it cheaper and much more convenient for me to pre-book a guy to drive to my workplace, change my car tyre with a model I choose online down to the exact specifications and brand, and bill me for that than it is to find a garage that's open after work hours, book it in, knock back all the upsell, take it there, wait while they do it, then drive home.
Time is money, now more than ever. And with food, especially, it's quicker and easier to take some buttons on the way home knowing by the time you get there your pre-paid food will arrive within minutes of you getting in (or even beat you there!). You can't compete against such things, but you could make an awful lot of money pre-empting and embracing them.
That’s a large part of the problem. There’s this popular restaurant review and reservation site that’s been around for a good while. At first they were quite useful and charged only a small fee to restaurant owners. Then they started to charge a percentage for each reservation, and as the site grew in popularity, that percentage increased, by quite a bit. As did the terms and conditions: prices on the site must be the lowest, no advertising on competing platforms, that sort of thing. Some restaurant owners took their place off the site... and saw the number of diners plummet. But recently they banded together, and the Restaurant Business Association (of which most restaurants are a member) launched their own reservation site without reviews (which were useless anyway), with many members pulling out of the commercial site.
I can see something similar happening with delivery services. Already, many delivery boys will ask you to order direct from their own site next time, instead of one of the popular (and increasingly expensive) 3rd party takeout services. Per the terms and conditions of those services they are not allowed to do this, but they do so anyway just to keep their margins up... while passing some of the savings on to the customer. For small restaurants, these delivery services are very convenient but they are pricing themselves out of the market... as restaurant owners discover that they do have other options.
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If profits are down, the walk-in traffic must be down - presumably because some are taking delivery now. This is to be expected. You get into the delivery business precisely because, if you don't, someone else will. Then you'd just be left with the declining restaurant revenue that I suspect is the real problem here.
The delivery business doesn't require the seating area, wait staff, parking lot, etc. All of that and the storefront can go away. If you want to understand your business expenses, you need to separate the books and don't put anything on the delivery business' costs that it doesn't need. That 20-40% revenue that goes to the delivery costs is its equivalent of the storefront and wait staff. It shouldn't have to shoulder both.
Eventually, I think the seating area disappears and all you have is a delivery business.
This comes full circle when someone creates restaurant seating areas with drink service but no kitchens and facilitates easy ordering from any nearby delivery kitchens. This will allow groups a place to meet and dine while allowing the individuals to order from anywhere they want. The product of the dining rooms will be space, atmosphere, wait staff for drinks and cleanup, etc. There won't be as many seats in this system because most will prefer to have their food delivered to work, home, whatever park they are sitting in, etc.
I do a similar thing when buying stuff online. Unless another website contributed significantly in helping me find or select the product I end up buying, I take steps to find and erase the referring affiliate info in the URL. When a website describing a product gives you a courtesy link to an online store, it's not just for your convenience. That link sets themselves as the affiliate who referred you to the store, and if you end up buying something the store pays the affiliate a percentage for the referral.
Unfortunately these things have grown like a secret underground black market. Search engines, malware, cash back sites, and even credit card purchasing programs fight to code their websites to erase other affiliates' referrals and replace it with their own. So if I already knew I was going to buy the product from a certain store, I take steps to erase any affiliate ID so the store can keep all the money I pay them. If a certain website substantially helped me select the product (like a review site), I will take steps to make sure they get the referral.
Funny how it doesn't apply in Canada, because the liquor laws are much tougher that few restaurants are licensed to serve. Basically, every licensed restaurant must have every server trained in alcohol handling (can't serve too much, and heaven help you if you serve a minor), and the courts have ruled that "hosts" are liable - if a drunk patron leaves and kills/injures someone, the restaurant or bar serving them is actually liable for damages as well.
So yes, there are licensed establishments, but most restaurants aren't licensed and thus can only serve non-alcoholic drinks (water, pop, etc).
And it turns out most restaurants don't bother screwing you over with drinks - sure maybe $1.50 for a pop is a bit pricey, but it's not so over the top (and the water's always free).
We don't have wildly expensive food prices either - in fact, apparently Vancouver is one of the cheapest places to eat out - just because there is so much competition.
The only places that really do overcharge are "fine dining" establishments, but those were already expensive from the get-go.
So delivery services are really an extension of the takeout model - and given some restaurants do nothing but takeout, they seem to do OK. The profits from drink sales really should be used to pay for services if you eat in - servers, dish washers, etc, but takeout doesn't incur any of that.
I see this hurting those specialty destination restaurants that make dining "an experience" by hoity-toity celebrity chefs and big names where you might drop $200 for a meal. The more run of the mill places serving the general public for lunch downtown and all that (i.e., lunch for $10-15 max), aren't going to suffer much, if at all - given takeout is a big part of their sales.