Delivery marketplaces, like Uber Eats and Grubhub, have made life so much easier for people during the pandemic, when dining out has not exactly been an option for communities under quarantine, and cooking has become tedious for many.
However, as necessary as restaurant delivery marketplaces have become for consumers, it is not always in a restaurant’s best interest to rely on them.
Pre-COVID-19, restaurants mainly saw incremental revenue from their food deliveries—it might have been just 10 percent of their business. Paying a delivery company 30 percent of the total basket was not a big deal in that scenario. Now, amid the pandemic situation and seemingly overnight, deliveries now make up upwards of 70 percent of a restaurant’s revenue—the 30 percent delivery fee suddenly becomes a burden, eating into much-needed profits, no pun intended.
The Profitability Problem
The initial outbreak of the virus and the social distancing guidelines that followed took a significant toll on restaurants’ profitability. This reality, paired with high delivery fees, leaves an almost grim outlook for restaurants that are completely dependent on the marketplace to get their food delivered to their customers. Do restaurants with higher margins even make money after paying 30 percent commission fees? With this type of delivery model, restaurants can easily fall victim to merely existing to help power the likes of Uber Eats and Grubhub.
Reliance on marketplaces is also dangerous to a restaurant’s profitability beyond just delivery fees. Restaurants need to invest time and effort into managing their marketplace menus, promotions and customer experiences. For example, a restaurant might want to incentivize customers on game night with an attractive coupon—if it is not updated in the marketplace apps, it’s entirely possible that restaurant will lose out on potential customers to their competition that night. Or on the flip side, if a restaurant is out of pizza and a marketplace order comes in which they cannot fulfill, they have one disappointed customer, and a potential bad review.
Even more disconcerting is the lack of control restaurants have over algorithms in these apps, which can change at any time. What can a restaurant do when the algorithm has suddenly relegated them to the bottom of the listing for their food category? It will be more difficult for customers to discover them, and there is little they can do about it. Although, there is the possibility that they could pay for better placement—some delivery marketplaces will charge for that.
Another tricky factor in this dependent relationship is the possibility of a marketplace company closing or pivoting to a new business venture. It happens, and restaurants would feel immediate and dramatic impact from a change like that. In this scenario, with a delivery model dependent on different marketplaces, there is no plan B, there is only plan A, and if plan A does not work out then many restaurants will suffer from those consequences, without a delivery plan of action.
The other important reality to consider is that restaurant delivery is not reserved for just a COVID-19 world. Well after the virus threat is gone, whenever that may be, consumers will be accustomed to the convenience of delivery, and it is that convenience factor that will continue to make delivery a significant part of restaurant revenue in the future. Delivery percentage of total restaurant revenue may not be as high as it was during the pandemic, but it will still be significant.
Technology has made it possible for restaurants to either take delivery services fully in-house or orchestrate deliveries with delivery-as-a-service companies that do not take a percent of the basket, but rather a smaller, flat fee.
Taking deliveries in-house is an option that is better suited to larger businesses with significant delivery velocity. Restaurants can leverage delivery orchestration technology to power and help with the management of delivery and fulfillment of orders. Technology can really improve in-house delivery coordination and internal fleet management, predicting arrival times to ensure orders are prepared and ready to go by that time, tracking driver progress, synching operations, providing the capability for contactless deliveries and more. In-house delivery models are incredibly difficult to operate, so the aid of technology is important if restaurants choose to go this route.
For smaller restaurants, it is a better option to source deliveries out to third-party delivery-as-a-service companies, like Postmates. Technology becomes a vital component in this model as it helps improve operations and workflows, like the ones just mentioned, and enables intelligent dispatching to automatically find the fastest fleets and closest drivers to make deliveries on their behalf. Additionally, using smart dispatch, restaurants can meet peak delivery hours, manage multiple fleets and still achieve real-time visibility and live customer tracking. This ultimately leads to faster deliveries, smaller delivery windows and better customer experiences.
Delivery orchestration technology can be a major catalyst in helping restaurants stop spinning wheels with marketplace companies, losing profits left and right. Times have changed, and restaurant capacity will not be what it once was in many parts of the country for some time. Deliveries will continue to reign the day, and restaurants must be prepared for that and must try to diversify away from costly marketplaces.
Adriana Kosiba is Enterprise Sales Director, Restaurants at Bringg. She has much experience working on the sales side of the technology industry, having held previous sales roles at both Rakuten and LevelUp. Prior to that, Adriana was at Pandora Radio. She got her start working in radio and television sales in the Boston market.