How do Delivery Apps Change the Restaurant Business Model?
In the past few years, delivery and takeout platforms have taken the world by storm. While this has provided restaurants the opportunity to service customers in areas not previously available, whether that is due to logistics or choice, underestimating the systems can be dangerous too. The right choice boils down to a number of factors, and we’re bringing to light those that have the potential to either grow your restaurant’s business exponentially, or cripple it.
The first factor that many restaurants will need to examine is their operations. Depending not only on the size of the kitchen, but that of the team, a restaurant may already be running at capacity, and not have the ability to fulfill delivery and takeout orders. If they are not at capacity, how many additional orders can the kitchen handle? This capacity also extends to the front of house, as a member of staff will be required to manage and maintain the platform’s application, and the orders when couriers arrive to collect the orders. A process must be created, or modified, for these orders to take priority placement in the kitchen’s workflow, potentially causing disarray in order to determine feasibility of the platform working there.
In addition to the operational changes required to fulfill the needs of a delivery and takeout platform, the piece of the puzzle that many restaurateurs see as the primary driver is the revenue generation opportunity. While there is revenue to be generated from these platforms, restaurants do need to be aware of the fee structures, and possibility of additional fees and penalties that may arise with certain situations. For many smaller restaurants and lounges, the percentage of sales that the platform provider takes in service fees is unsustainable (in some cases 30–40% of sales.) From the very beginning, many establishments will be losing money on every order, or simply breaking even; however, this struggle can be made even worse through the platform imposing unreasonable fines / penalties. These penalties can be assessed due to not having the order ready when the courier arrives, or mistakes made due to special instructions from the customer either not being included or not followed. If the person expediting the online ordering platform is not doing their job properly, the effect on the business could be devastating.
Payouts to the service provider are not the only financial risk; because you are launch a new service offering, your customer base will have to be made aware of this. While some may come across your restaurant on the listings provided on each platform, advertising dollars will need to be spent to get the word out across a variety of advertising methods. It’s a catch-22, as you’re spending money to potentially get little to no reward in some cases.
It’s not all sunshine and roses, or doom and gloom either for that matter. In order to make the most of your delivery platforms, we offer a few solutions to help mitigate the financial and operational impacts.
- In order to maximize both in-store and platform traffic, your restaurant’s inventory will need to be managed effectively, and we recommend using an inventory management software designed specifically for restaurants. Using this software to its fullest capabilities can help save 2–5% on your food costs, which will help cut into the percentage taken by the platform provider for delivery and takeout sales, while helping increase your margin on in-store sales as well.
- Our second recommendation is to negotiate your fee structure with your platform provider. If you can show them that your sales volume will create significant returns, even at a lower percentage fee, they may be willing to accept a lower rate.
- Our final solution is one that should be considered last, as it has the potential to anger your existing clientele. A price increase on your online menu will allow you to recoup some of the difference in margin between an online sale and an in-store sale. The price increase could be seen as a “convenience tax” and anger your customer base that have been frequenting your location.
So is using a delivery and takeout platform right for your establishment? Only you can make that decision, but we advise taking a close look at your operations and business model before doing so. A wrong decision could devastate your business, while the right one could take it to new heights.
If you need help with your inventory management, Optimum Control helps to streamline the process and give you the information required to make critical business decisions.