How Food Delivery Apps are Killing Your Restaurant Business

Blog

Online & Mobile Ordering

November 12, 2018

We bet you thought otherwise and why not! With aggressive marketing and persuasive elevator pitch, food delivery businesses promise to take your restaurant business to next level. More reach, more customers and more revenue - isn’t this the picture that they showed you at the time of signing the deal with your restaurant?

It looked tempting at first go, but as and when things started rolling out, it didn’t take you long to understand how these food delivery companies are eating out of your profits. When you look at the numbers, what seems like a perfect solution to expand and reach a wider audience may actually be what’s killing your restaurant.

Many of the restaurant owners we spoke to knew that their percentage of deliveries was rising along with their overhead expenses, but they were unsure of how that was affecting their revenue

Now that it’s clear that partnering with food delivery platforms wasn’t a good call, let’s dive deeper and apply our mathematical skills to understand how these food delivery apps are making money at the cost of your restaurant’s sustainability.

Let’s do the Math!

Take Zomato for instance, a food delivery app with operations in over 23 countries including Canada, the US, Qatar, and Australia. In the first quarter of 2018, it was reported that the restaurants are paying commission ranging between 12-20% on every Zomato delivery. It's direct competitor, UberEATs starts the highest, usually at 35 percent plus a $500 terminal fee for the same service. This means that for every $10 that your restaurant makes per order, you end up paying anywhere between $2-$3.5 in commission.

This might not look bad at a first glance, but if your restaurant is running on slim profit margins (not more than 50%) then paying 20-30% per order on top of all the overhead expenses means that you're paying people to order from your restaurant because, at the end of the month, you're making food for seamless profits. 

But you get more orders by getting yourself listed on their website? Right?

The fact is that you do get a few new customers ordering from your restaurant using food delivery apps, but if they are coming back to order more and more, over a period of time, then it's not because of the app, but because they liked your food quality and they had a great experience. Then why pay food delivery services exorbitant commissions when you can do all of this by yourself without sharing your profit?

The problem is that as consumers use services like Zomato and Uber Eats, delivery orders are beginning to replace restaurants’ core business instead of complementing it. In fact, the trend is so unmissable that about 20% restaurants have already pivoted to delivery-only” kitchen, solely offering food to the City through online orders. That’s a “restaurant”, but without any seating.

Marketing is expensive too!

Indeed it is, but it can be controlled and optimized as per the requirement of your business. People who enjoy your food and services will always look for you, and if you have a strong online presence, you can capture and retain your customer's loyalty for a very long time.

The argument that food delivery companies invest a lot in promoting restaurants to new customers also has a flip side. Most food delivery companies will charge extra for making your brand visible on their homepage or to manipulate the ranking in search queries posted by customers. The ones who pay over and above the commision are the ones who get noticed by new customers. On top of that, you don't even get access to the customers' email address or any other information, whatsoever, that you may use for your own marketing in the future.

However, according to our reports, most successful restaurants spend between 3 to 6 percent of their sales on marketing and that’s far less than what food delivery companies are charging. If more sales and better revenues by tapping into the online market are on your agenda, there are less expensive options to start with. You don't really have to jump the bandwagon of online advertisements and sponsored content. All you need is a user-friendly website with a smart online ordering software that can take care of your online orders and payments. Once this is done, you can begin promoting your brand organically on social media sites like Instagram and Facebook, for free. Posting enticing images of your food, enticing videos and behind the scene stories often work as effective marketing strategies for restaurants.

 The average customer doesn’t use these platforms to discover new restaurants but instead orders repeatedly from the same half dozen.

It’s time to change how you do business

It’s always less painful to take the easy route, which is partnering with companies like Zomato and Ubereats for online ordering, in this case. At some point, you might also think that they are the only options out there. So far, their marketing teams have done a great job of making you think that they exist to help you grow your business exponentially. But that's not really the case. With a smart online ordering app well integrated to your website, coupled with effective and low-cost online marketing you can easily reach new customers and increase revenue. If you’re already a Restolabs client you know the deal.

Restolabs takes a fresh approach to online ordering. We build customized online ordering system that lets you take unlimited orders through your website and application for a flat monthly rate.

The benefits of online ordering software don’t stop there. You also get unrestricted access to all your customers’ email addresses that will help you build customer loyalty through digital marketing campaigns.
 

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