The Numbers Don’t Add Up For Restaurants: Third-party Delivery Apps

How restaurants profit using third-party delivery apps like Uber Eats, DoorDash, and Grubhub is a mystery to some. The numbers simply don’t add up.

The restaurant industry’s razor thin margins coupled with insanely high commissions and service fees is a perfect storm for any restaurant, especially during these times of pandemic.

So how exactly do we go about it? Why do some restaurants make it with third-party delivery apps while others shuttered their doors for good? Let’s start with the cost of running a restaurant business.

The Average Cost of Running a Restaurant Business

Restaurants are among the lowest in terms of profit margin. Believe it or not, 90% of the total revenue is actually spent by restaurants on things like food and beverage, payroll, bills, and upkeep. That leaves them with a measly 10% or less.

Here’s a rundown of the average cost of running a restaurant business. To illustrate, we’ll use a typical small quick serve restaurant (QSR) with a staff of less than 10 and a monthly sales average of $30,000.

Food and beverage costs35%$10,500
Payroll costs30%$9,000
Other controllable expenses12%$3,600
Occupancy costs9%$2,700
Depreciation4%$1,200
TOTAL $27,000

In this example, the owner pays himself around $3,000 depending on actual sales. This is the profit after all expenses have been deducted from the gross revenue. Some of these expenses are either fixed or variable or semi-fixed. Rent, insurance, and loan payments are fixed expenses while repairs, marketing, and taxes are not. Salaries and utility bills, on the other hand, are considered semi-fixed expenses.

Getting that much needed cash flow during the pandemic is a matter of survival for millions of restaurants across the globe.

That means trying every possible way to bring more business through the door whether it’s curbside pickup, online orders, or using third-party delivery apps like Uber Eats, Doordash, or Grubhub.

Let’s see what happens if we try to put third-party delivery apps into the picture.

How Much Restaurants Pay for Food Delivery Apps

Food delivery app is a hot topic in the restaurant community. For some it’s a game-changer because it levels the playing field for everybody. Others, however, aren’t so happy, particularly with the 30% to 35% commissions plus other charges.

Here’s a rundown of what restaurants actually pay using these apps. This is based on an actual summary sent to a food truck owner in Chicago on March 2020.

46 Prepaid Order$1,042.63
Commission– $206.51
Delivery Commission– $94.99
Processing Fee– $38.52
Promotions– $231.00
7 Order Adjustment– $131.19
Commission$9.75
Delivery Commission$4.88
Processing Fee$1.49
Promotions$20.00
Pay me now fee0.00
46 Orders in March$376.54

People were shocked to know how much these food delivery apps are costing the business – way, way more than the advertised 30% commission fees!

The food truck owner is literally operating at a loss! No wonder many restaurant owners were crushed during the pandemic all the while using these food delivery apps.

Let’s say you want to include third-party delivery apps into your budget. There are two ways to go about it.

You’ll either have to take it as part of your payroll cost (30%), in which case you’ll reduce your workforce and work extra hard with just a few people or work alone as a one-man band.

The other option is to use it primarily as a customer acquisition tool or as an alternative for dine-in or take out to supplement your restaurant’s income (50/50 or 60/40, and so on).

Hence, you might include it in one of your controllable expenses (12%), i.e. advertising, albeit a very expensive one. Later in this article, we’ll introduce you to the third option which would allow you to take advantage of third-party delivery apps and regain control of your restaurant’s income.

Why Restaurants Struggle with Third-Party Delivery Apps

So why are some restaurants making more with third-party delivery apps while others are losing big time?

Aside from sky high fees and commissions, some food delivery apps make it impossible to compete with other restaurants or circumvent the app by encouraging customers to order directly from them at a cheaper price.

So for instance, in one particular lawsuit filed againsts some of these delivery apps, it showed they have a non-competing clause (“No Price Competition Clause” or “NPCC”) where restaurants agree to keep their check-in prices consistent with the menu items in the app.

In other words, instead of helping, these apps might actually hurt your loyal customer base who’ll have to put up with your marked up items even when they’re coming in to check in or pick up their order.

Here’s how much restaurants bump up the price while subscribed to the service.

Another reason is that, as an advertising platform, it can put a big hole in your marketing budget. It’s just too expensive, especially for a small restaurant who just got started.

Before the pandemic, you can get away not using any of these apps. But since the new reality came, it became more of a necessity – or rather a necessary evil. Restaurants are now caught between a rock and a hard place, so to speak.

Lastly, these apps seem to favor more popular restaurants or those with a big enough customer base and a sizeable income.

These allow them to bid higher and stay top of mind, and they have economies of scale to make up for the high cost of using the app. There’s a sweet spot where you start feeling the gains of using these app. Otherwise, it becomes a slow slide to the bottom.

A Smart Way to Use Third Party Delivery Apps

We’re not here to discourage you from using third-party delivery apps. In fact, you can keep using it if it helps with getting more business to your restaurant. We’re offering a better way to help you transition from using third-party delivery apps to doing your own food delivery.

You might not expect this to come from us but using third-party delivery apps is actually a great way to learn the ins and outs of food delivery. We’ve devoted an entire article about the 10 Delivery Apps Your Restaurant Must Try.

The third option we told you about is learning how to do your own food delivery while using third-party delivery apps. Now you might be tempted to jump right away into doing your own deliveries.

While it’s a good way to get rid of delivery apps and commission fees, you might actually find that it puts a lot of stress on your staff, especially if it’s your first time doing it.

Moreover, you’d have to spend a lot of money building your own online food ordering and delivery system, including those that didn’t work or required a lot of fixing.

To give you an idea, Panera Bread spent more than $100 million to develop its own online ordering system. It paid off eventually in 2016 and now they’re offering $5 to as low as $3 flat rate on all food deliveries.

Enough said, here’s a much better way of doing it.

The 7 Steps to Doing Your Own Food Delivery

We’ve prepared a short video that explains the whole process. Watch till the end and try to visualize how you’re going to apply this for your own restaurant.

Here’s the gist of how it’s done from start to finish.

Step 1: Get your own food delivery app.

Step 2: Develop your kitchen and front of house processes.

Step 3: What food delivery service options will you use?

Step 4: Who will do your delivery and how?

Step 5: Food packaging and delivery bags

Step 6: Have a delivery, curbside pickup, and takeout menu.

Step 7: Tips and Fees

Need Small Business Advice?

We want to reach out and talk with you through our FREE 45-minute business consultation where we can discuss some solutions to get you through the new reality.

We lay out every possible means to keep you in business, whether it’s through LinkedIn, Facebook, Twitter, email series, sales funnels, landing pages or business directories.

Download SBD Sales and Marketing Automation App for your mobile and keep tabs on your business anywhere, anytime.

5 Delivery Trends to Watch in 2020

There are 5 delivery trends to watch for this year, particularly in the food delivery industry which is estimated to be worth more than $200 billion by 2025. The global health crisis has created a major shift on how we do business and restaurants have taken big bold steps to stay relevant.

Here are 5 delivery trends that will change the way we look at food industry in the years to come.

Delivery Apps

Big brands control pretty much the entire food delivery market. DoorDash (46.5%) is up top followed by Uber Eats (25.7%), Grubhub (22.8%), and others (3.0%) according to Edison Trends. More restaurants will jump into the bandwagon in the foreseeable future, and it’s not hard to see why.

Food delivery and curbside pickup seem like the only way restaurants could ever hope of earning a decent income during this pandemic. It’s incredibly hard, if not impossible to profit with restaurant check-ins at only half the capacity. But while delivery apps do keep our restaurants on track, they also come at a hefty price (10-30% commission fees).

Customers also like the fact that they don’t have to wait long lines or risk catching the bug along the way. Depending on how well the restaurant and delivery service are, the experience should almost be the same as in the restaurant. But again, there’s a price to pay for all the convenience of using the app – and it’s not cheap.

Fortunately, many restaurants are starting to find more competitive ways without relying on third-party delivery apps. Some options include offering their own online orders for curbside pickups or even doing staff deliveries.

The problem with most restaurants is they don’t know where to start and they need to somehow make these different pieces to work together. (Think restaurant website, online menu, payment processor, mobile app, driver app, CRM, automation, POS, etc.) Done correctly, you can almost guarantee success in a little less than a month.

This also means fewer outlays and less markups so it’s a win-win for both you and your customers.

Doing Your Own Delivery

Restaurants already doing food deliveries got the upper hand during the onset of the pandemic. Those who didn’t were caught off-guard, but it became a wake-up call for everybody. Pretty soon, almost every restaurant is doing food delivery in one form or another like hiring delivery drivers, using third party delivery apps, or a combination of both.

However, nothing beats doing your own deliveries. The problem with third-party delivery apps is you have no control what happens after the food leaves your kitchen. You may have the best fries in town, but who knows if they will arrive a soggy mess or not.

Another reason why staff deliveries are becoming increasingly popular among restaurants is the cost. Staff deliveries are way cheaper compared to using third-party delivery apps. This, of course, doesn’t take into account marketing, cloud storage, and maintenance costs which are often bundled into the delivery app.

For most traditional restaurants, it’s just old-school telephone, paper and pen for taking orders, and a trusty old bike or scooter for deliveries. Rather slow compared to high tech delivery service with all the automation and guidance systems. Imagine if they had the systems in place and started taking online orders vs. just walk-up and phone orders. I could only think of sales doubling or tripling in less than a month.

Now we mentioned cost and why people are slowly moving away from third-party delivery apps. One thing we noticed is that some of these apps ask for the 30% even when the customer came to pick it up or you delivered the food yourself. It doesn’t make any sense.

We figured out a way to accomplish the same (and more) without you having to break the bank using DeliveryBizConnect should you decide to start doing your own deliveries.

Virtual Restaurants (Cloud Kitchens)

Another trend we’ll see in the food delivery industry is the rise of the so-called “virtual restaurant” or “cloud kitchen.” As you might have guessed, these restaurants don’t have a physical presence. You won’t find them on Google Maps, and if you do, they’d only do takeouts and curbside pickups. They exist mainly for online orders and deliveries.

There’s a couple of reasons why virtual restaurants are becoming more popular among restaurant startups. Cost is a big one. The upfront cost is significantly lesser compared to opening a physical storefront. The same goes for overhead costs.

Another reason is the low barrier to entry. Anyone who has a knack for a particular type of cuisine can start his own cloud kitchen. Set up your home kitchen, hire some extra set of hands, partner up with a delivery service, sign a few papers, and that’s it. You’re in business.

Cloud kitchens also have the option to expand, opening physical storefronts, after attracting a large market. So there’s plenty of options to go around with all the flexibility and nimbleness that virtual restaurants have. However, there are some caveats to be aware of.

Cloud kitchens rely heavily on third-party delivery apps – everything from customer acquisition, online orders, payments, and deliveries. Their whole business depends on it. In other words, any sudden change in the system, like fees, rankings, or algorithms can have a dramatic effect on their businesses.

The solution? Create your own system. Make the business truly yours by building your own personal brand whether it’s through virtual restaurant websites, mobile apps with your own personal branding, driver app for your own fleet of drivers, CRM, loyalty programs, automated newsletters and a host of other features.

Now, this might all sound like a lot, but we have created a system that lumps it all together in one complete package (DeliveryBizConnect), so you won’t have to go around and try to fit them all together yourself.

Delivery Optimized Menu

Customer behaviour has changed a lot since the pandemic. People eat out less often. They get their food online, and restaurants do their best to make it feel like a real restaurant experience. You don’t want them waiting too long to get their food and they should arrive hot and fresh.

Restaurants might have to cut back on certain menu items that don’t travel well or take too long to prepare and cook. Or, at least, they should be able to make some modifications to make them delivery-friendly. Some popular examples include casseroles, lasagna, burrito, deli sandwiches, marinated protein, chicken wings, burger, fries – somewhere along those lines.

Another option to optimize the menu for delivery is tweaking the food so it locks in all the goodness and stays crisp throughout the trip. For instance, make French fries a bit thicker than usual, or make your batter a lot crispier for your chicken wings so they arrive kitchen perfect when they get there.

Needless to say, you need to be as fast as possible using the quickest route for your food delivery. Popular apps like Uber Eats and Grubhub have this sorted out using a delivery optimized driver app. To date, Uber Eats holds the record for being fastest in terms of food delivery.

DeliveryBizConnect lets you do just that but with more features than you could imagine for the same price range.

Grocery Delivery

Another trend to watch out this year is the grocery delivery service. Think Amazon Fresh, Instacart, and FreshDirect. It’s a welcome option, especially for those who prefer traditional home-cooked meals over delivery-optimized food. It also allows for more freedom on your daily menu without having to leave home or spend hours waiting in the check-out line, increasing the risk of infection.

Grocery delivery experienced an uptick in places where people were mostly cooped up due to quarantine restrictions. But with the economy re-opening, people might revert to buying their groceries in-store.

As of now, it’s hard to tell whether we would come out of this completely, or it is something we’ll eventually get used to as part of our new reality. Good to know we can still get our groceries done, just in case, through these grocery delivery apps.

Need Small Business Advice?

We want to reach out and talk with you through our FREE 45-minute business consultation where we can discuss some solutions to get you through the pandemic.

We layout every possible means to keep you in business, whether it’s through LinkedIn, Facebook, Twitter, email series, sales funnels, landing pages or business directories.

Download SBD Sales and Marketing Automation App for your mobile and keep tabs on your business in the comfort of your homes.

How to use Blogs to Spread the word about your Restaurants Online Ordering for Take Out or Delivery

restaurant online marketing

Restaurant online marketing can be anything from blogs, social media, and email marketing that helps promote and get the word out about your restaurant business.

Blogs are great when used as a restaurant online marketing strategy to get organic traffic. If you already have one, perfect. It’s a great place to share your own expertise and establish yourself as an authority.

Having your own restaurant website is also one of the best ways you can do to promote your restaurant. You’ll be much easier to find and you can do lots of other things like online ordering for pick ups which can add 30% more sales.

DeliveryBizConnects has plenty of tools to get the word out from CRM which can increase sales by 25% to mobile apps which gives you 11% more sales. Start doing your own deliveries thru the Driver App and get 20% more sales.
Find out how you can rapidly grow your restaurant business using our restaurant online marketing tips and techniques at https://deliverybizconnect.com