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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.
Reading this article will give you a good feel for how dependent restaurants are on beer/liquor sales to stay afloat.
Delivery of food with no high-margin drinks wrecks that model. In a world where you can order any combination of items alone, each item has to be priced reasonably.
"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.)
that the only obvious contributing factor is the shift toward delivery."
So they decided to pay 20-40% to have other people co-ordinate, and now they are complaining.
It seems obvious to me that if delivery isn't profitable, your business shouldn't be offering it.
"Enjoy our fantastic food in a friendly atmosphere tailored for your enjoyment."
A real restaurant is a different business than someone hauling food down the street in a cardboard box on a bicycle. Just like a movie theatre is a different business than a video rental shop.
If you're a zombie and you know it, bite your friend!
I think that most of a restaurant's profit comes from serving drinks. Home delivery really cuts into this high profit item.
Or charge a realistic markup for delivery. Call it a “Seamless surcharge” and set it to match the real cost. I would also like to see a takeout discount for not using up valuable dining space.
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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Everyone should really read this article to know the kind of bullshit that these apps are inserting into the restaurant business. You may love the convenience, but they're 0-value adding middlemen that are sucking the restaurant dry: http://tribecacitizen.com/2016...
Seamless, for example, not only takes a commission on every purchase (even if you would just call up the restaurant on an ongoing basis, and not being a new customer) -- the telephone numbers you sometimes see for a restaurant are actually Seamless's number, piped through their system to the restaurant. And they monitor transactions to make sure they're getting their cut.
Technology is great and all, but you should realize the ways that people use it to take advantage of those who aren't the masters of it.
I will order food to go on occasion; but I am just as happy picking it up myself as opposed to having some third party deliver it.
I find human interaction interesting and enjoyable, most of the time... but maybe I'm in the minority. Plus my experience with a lot of these dot-com-two-point-oh businesses has left a bad impression with me, given how poorly they treat their employees - so I'm not motivated to contribute to those businesses' survival.
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I think that the point is that "reasonable" prices will cause a lot of customers to balk.
If the alcohol sales essentially subsidize the food sales, then raising the prices for those food items may cause a lot of patrons to choose other places. I have a feeling that this is pretty likely to be a problem since already prices are rather high, and portions are already ridiculously large in order to justify the high prices. The actual raw ingredient costs are very low, it's facilities, utilities, labor, and probably marketing that take a lot of the revenue. Restaurants have to serve the oversized portions because that allows them to reach the price point where it's not a loss.
When I look at my local Mexican restaurant market, the quality difference between fairly low-end food and fairly high-end food is not really all that extreme. It's enough that I generally prefer the higher-end places (they do a better job of not overcooking things and having the final dish not be as greasy) but the biggest differences are in the facilities, lower-end places are often in former-fast-food locales and the dining rooms are pretty rough. The low end places don't serve alcohol. While their prices are lower than the high-end places, they're really all that much lower. I could see the high-end place having to raise prices fairly substantially if alcohol sales don't help support the restaurant.
Do not look into laser with remaining eye.
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.
The problem is that online makes a commodity out of everything. The delivery services are positioning themselves as middlemen and will make the restaurants essentially anonymous and interchangeable. With commoditization comes price pressure. Intuitively you'd think that the competition would create a meritocracy where restaurants can attract customers with quality, but like with everything else online, there are going to be a small number of "winners" who take the top spots, and a long tail of "losers", all alike. Nobody wants to order from the second best. That's why there's Google and some niche search engines. That's why there's Facebook and some niche social network sites. That's why there is Amazon and some niche postal services. Oops, too soon?
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.
Most of the overhead is in staffing and rent, so anything that lowers those substantially is a huge win.
What are you thinking?
Do you imagine that when a restaurant turns into a delivery service they don't need to rent a location near their customers, they can instead opt to locate their facilities in a low-rent section of town simply drive longer to deliver your food?
What staffing is eliminated? For every minimum wage worker that used to sweep the dining area, bus tables and clean the bathrooms a restaurant will likely need a team of "gig economy" drivers to hand-deliver your order.
Ken
Wouldn’t it be simpler to just stop offering takeout.
Restaurants should get out of any business that actually costs them money instead of making money.
If take-out orders are subsidized by dine-in customers, the restaurant is cutting it's own throat by offering take-out service.
If your customers don't want a sit-down meal and prefer take-out, then either find a way to offer take-out profitably, or close your doors. It is a cliché on TV to see restaurants that are mis-managed "circle the bowl" for years, eating up all the owners savings as they insist their clearly failing business model can work, they just need to take another cash advance from a credit card to make payroll...
Ken
Most restursnts don’t offer takeout.
Bullcrap. Nearly all restaurants offer takeout. They may not advertise or promote it, but if you call them and ask if they can box up an order to go, very few will decline the order. Chinese, burger, and pizza joints get most of their orders takeout. Even high end restaurants typically have 20% or more takeout.
Delivery is unquestionably an added-value service.
Prices should reflect that.
If delivery is affecting margins negatively, it is not priced correctly. At the very least, it should end up revenue-neutral.
I've fallen off your lawn, and I can't get up.
If delivery detracts from it, don't do it.
Many restaurants are notoriously poorly managed. That's why they go out of business so fast even though they appear to be popular. Those that have a better handle on their expenses and cash flow will spot the loses and act to cut them off quickly.
Also, know your business. If a part of what you are selling is atmosphere, then sending the food out doesn't fit your plan. Don't do it.
Have gnu, will travel.
that's what made Uber & Lyft work. Cabby work has been the domain of immigrants for decades because of how they're abused. They're usually in lease arrangements with the owner of the car and/or token that effectively pays them less than minimum wage. It was easy to look the other way at Uber/Lyft's worker abuse because it was significantly less than what most cab companies do to their drivers.
Missing from this conversation though was the crazy, out there notion of not letting _any_ company abuse workers. The working class lacks solidarity though. If we were smart we're realize that when one of us suffers we all do...
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declining wages are. Inflation for me is about 3% (that's real inflation, e.g. the % my expenses go up each year, it doesn't help me that the price of a $100k sports car only went up $1000 this year when food goes up 3%). Meanwhile my pay goes up 2% a year on average (and I'm one of the lucky ones).
I eat out less and less often because I can't afford to. Meanwhile the restaurants prices have gone up because they have fewer patrons who can afford it. So an OK Chinese buffet that used to be $10 + tip is now $25 + tip. The gyro place where I get a gyro + fries is now $15+ tip. I can't spend $20-$30 bucks on one meal.
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The McDonald's by me delivers through uber eats
The only thing necessary for evil to triumph is for it to be pitted against a slightly greater evil
If smaller independent restaurants can't stay afloat, then it will destroy all diversity in the restaurant industry. That's a big downside.
Laws are rules for the court, but merely a bottom bar to hit for life. Think beyond laws in your actions always.
And then we will all have to dine at The Taco Bell.
...si hoc legere nimium eruditionis habes...
"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.
If all your customers demand take-out, and you lose money on each take-out meal, you still go bankrupt.
The restaurants don't "lose money on each take-out meal".
Businesses have variable costs, such as the ingredients and labor going into each order. They also have fixed costs, such as rent. The takeout orders generate more income than the variable costs, so they add to the total profit. But the problem is that they don't contribute enough profit to pay the rent at the end of the month.
If your customers switch from eat-in to takeout, you may go bankrupt unless you can cut costs, but if you refuse those orders, you will go bankrupt even faster.
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.
Not a problem as long as you have your three seashells handy.
Please stand clear of the doors, por favor mantenganse alejado de las puertas
Accept the mainstream or abstain, thus ruining the enjoyment of "dining out" for millions of people who enjoy unique experiences.
Laws are rules for the court, but merely a bottom bar to hit for life. Think beyond laws in your actions always.
If all your customers demand take-out, and you lose money on each take-out meal, you still go bankrupt.
The restaurants don't "lose money on each take-out meal".
There's a difference between profits in terms of dollars and profits in terms of margins. Lower margins are not the same as losing money. That reminds me of a Morris Chang quote from a few years ago that addresses this sometimes misguided focus on margins: “You Americans measure profitability by a ratio. There’s a problem with that. No banks accept deposits denominated in ratios. The way we [TSMC] measure profitability is in ‘tons of money’. You use the return on assets ratio if cash is scarce. But if there is actually a lot of cash, then that is causing you to economize on something that is abundant.”
The McDonald's by me delivers through uber eats
And McDonald's, being a smart, well-run corporation, doesn't pay for the delivery - the customer does.
Ken
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.