Don’t let online delivery apps take a bite out of your profits: Protecting your margins (and brand experience) in the age of Uber Eats

Author: Christie Nichols, Content and CX Strategist

 

Let’s face it: the restaurant industry is in a state of upheaval. Although the U.S. economy is currently going strong, restaurants nationwide continue to grapple with sluggish sales that haven’t quite kept pace with overall economic growth.

 

One of the main drivers, according to experts, is a general decline in foot traffic. Nasdaq reported this year that restaurant foot traffic declined 3.2% in 2017 and 3% and 3.1% in January and February in 2018, respectively. Unfortunately, this troubling trend threatens to compound over time; after all, a customer who finds your restaurant empty will be less likely to sit down and less likely to return.

 

Inflation is often blamed for sluggish restaurant industry growth, but shifting demographics (and consumer habits) could be a longer-term complication for restaurants looking to grow foot traffic and sales. It’s no secret by now that Millennials — already thought to have more purchasing power than Baby Boomers — are shaking things up for many industries, including restaurants.

 

Millennials’ taste for ‘to-go’ (and what it means for you)

While Millennials have actually been shown to eat out and order out at a pace that’s about 30% higher than their Baby Boomer and Gen X counterparts (according to a recent USDA report), their strong preference for convenience could (at least in part) explain why restaurant foot traffic is on the decline. After all, Mintel once reported that Millennials found making cereal at home too cumbersome because it left behind a dirty bowl! Besides, they’re digital natives who are accustomed to having the world at their fingertips (i.e., their mobile device.)

 

It’s estimated that around 78 million people in the U.S. use some sort of online delivery service, like Uber Eats or Grubhub. Around half of them are Millennials. The recent study we conducted with the Global Business Traveler’s Association (GBTA) corroborated this; we found that Millennials favored convenience and efficiency when traveling for business and were more likely than other generations to have a food delivery app installed on their phone. 45% of Millennials in the study said they used Uber Eats. (It should be noted that Gen Xers weren’t too far behind in their adoption of food ordering/delivery technology at 33%.) You can download our full study with GBTA here. 

 

Third-party restaurant delivery services, and the challenges they pose

The arrival and increasing success of these third-party delivery companies is a tough pill to swallow for many restaurants. There’s a growing expectation that your restaurant accommodates third party services and at-your-doorstep convenience.

 

It’s easy to see why third parties would be appealing to restaurants. The growing adoption of these apps among consumers means easy marketing (and what restaurant couldn’t use a little help with marketing?) For customers looking for convenience, third party delivery apps might be the first place they search.

 

Third parties also help to keep your employee headcount down; using third party drivers means you don’t have to hire dedicated people to get food to people’s doors. Considering today’s rising labor costs and high employee turnover (again, the products of a strong economy), it’s easy to see why many restaurants have turned to third party solutions.

 

But, many restaurants have found that the mutually-beneficial relationship promised by third party companies isn’t always so “mutual.”

 

The high cost of third-party food delivery services

For one thing, there’s the price tag. Fees are negotiable and vary for each deal struck between restaurant and third party; the cheapest food delivery apps charge restaurants around 10%, while tech giants like Uber Eats and Amazon command much higher fees of up to 30%.

Given the rising cost of ingredients and tight industry competition that drives consumer prices down, it’s easy to see how third parties put the squeeze on restaurants’ already razor-thin margins.

 

Should you trust a third party with your food delivery?

Then there’s the risk that restaurants incur by letting non-employees deliver their food. Writes Food and Wine: “[…] replacing staff with a third party could be appealing. But then again, who do you trust more handling your food: a full-time delivery guy or some dude who is trying to earn some cash to cover the monthly payment on his new Hyundai?”

 

Employees are more knowledgeable on how to handle and transport your food and more motivated to treat the customer courteously. A careless third party driver can arrive late, behave rudely, and drop off a ruined pizza, and the restaurant will still get the blame. The customer is left with a bad impression of your brand, even though you had no control of the experience after the food left the restaurant. The driver may only miss out on a small tip, while the restaurant could get stuck with a bad rating that turns off future customers (and miss out on word-of-mouth referrals.)

 

Considering that some businesses are even starting to use third party delivery services to place small catering orders, there’s even more on the line. If a customer has placed a large (and expensive) food order from your restaurant, with hungry colleagues to please, they’re expecting flawless food and service. You roll the dice by entrusting the experience to a non-invested third party.

 

Hiccups with third party POS systems

As a restaurateur, you know your business changes from day to day. You’re constantly having to adjust to many factors, from demand fluctuations to menu updates to staff being out sick. Third party POS systems aren’t always as flexible.

 

For example, let’s say you’ve recently changed your menu (or you’ve run out of a certain ingredient), and it’s taking a while for the changes to reflect within the third party apps. You’re in the awkward position of having to call up all of the guests who ordered said item, and having to explain the error (while trying to salvage the sale.) Naturally, they’re annoyed and their impression of your restaurant has been sullied.

 

There’s also the possibility that, due to technical snafus or system bugs, a customer could place an order outside of your operating hours or during a holiday. The third-party driver can also abruptly cancel a delivery if they feel it’s too out of their way, with no explanation given to the end customer. The guest, having likely waited half an hour or so, now has to make other dinner plans. Instead of the convenience they thought they were gaining by ordering from your restaurant, they’ve been inconvenienced.

 

Lack of transparency

When customers dine in-house, your wait staff can ensure that the customers are well cared-for, answering questions, checking in, and keeping them up-to-date on when food will arrive. Not so with third-party customers.

 

While customers on Uber Eats, for example, can see when a driver has picked up the food and where it is in transit, the customer receives no communication from the kitchen (besides confirmation that the order has been received.) As a result, the restaurant misses out on important touch points with the customer.

 

Adapting to a convenience-driven world

As long as consumers favor convenience and speed, third-party apps will be a reality that restaurants have to contend with. And, though there are obvious challenges, third party delivery could lend a competitive edge to restaurants who get it right. That’s why, although restaurants may struggle to keep up with the shift, some analysts see it as a positive opportunity for restaurants overall.

 

According to Bernstein analysts Sara Senatore and Alexia Howard (in a Business Insider article), “This prioritizing of convenience above all else is a positive for restaurants generally (given the ease of eating out vs preparing at home). And it is especially advantageous for those offering delivery and to-go.”

 

These platforms also typically offer quantifiable customer satisfaction feedback and analytics that you may not otherwise receive. For example, Uber Eats asks every app user to review their recent meals simply using “thumbs up” or thumbs down” buttons, with the opportunity to leave a comment explaining why they did or did not enjoy a particular dish.

 

“This gives restaurants a lot of guidance in terms of how they can change or adapt their menu for this world of delivery,” said Chetan Narain, senior product manager for UberEATS restaurants (in a piece for Skift Table.)  “We’ve seen a bunch of restaurants use this and to change not just what they’re doing for delivery, but change what they’re doing in-store as well.”

 

So, how can you actually capitalize on the growing delivery trend in a way that leaves customers with a positive impression of your restaurant and brand? Here are some vital tips.

 

Optimize your restaurant’s flow

The last thing you want to do is create disruption or chaos for your (more lucrative) walk-in patrons by adding third party delivery. That’s why it’s important to re-think the layout and flow of your space — both indoors and out.

 

Said Narain: “The reality is that a lot of restaurants were built for a world where the majority of traffic is walk-in traffic. Someone walking up to your counter or someone ordering food through a waiter is a very different experience for your workflow than a tablet displaying orders and a courier coming several minutes later to pick it up.”

 

Ensure smooth entrances (and exits)

Some restaurants have created designated pick-up areas for third party drivers and couriers and marked them with directional signs (e.g., “Postmates Pickup Here”) to keep them out of areas heavy with dine-in traffic.

 

Keeping your host station clear

You certainly don’t want to turn off in-store diners before they’re even seated. A chaotic host station can give a bad impression right when customers walk through your door. During high-demand times, hosts who are responsible for handing off third party orders may keep customers waiting too long. Instead, consider having someone from the wait staff (like a food runner or the to-go order manager) serve third party orders.

 

Designated parking for drivers

You should also consider your parking lot: have you made it easy for drivers to get in and out without taking up space that would otherwise be for dine-in guests? Designated (and clearly marked) parking spaces can help create a more frictionless experience for both delivery drivers and guests.

 

Consider owning the delivery experience

The demand for food delivery isn’t going anywhere. So, restaurants who can afford to develop and promote their own delivery service stand to profit more than if they partnered with a third party service.

 

Consumers understand that they can also save some dough by ordering directly from you, as third party services also charge the customer a hefty booking fee (usually around $5), and that’s before requesting a tip for the driver or courier. Some restaurants also raise their prices on third party apps to offset costs — a tactic consumers easily see through.

 

Many restaurants — particularly in the “fast casual” category — have successfully launched proprietary delivery programs. According to National Restaurant News, more than 80 percent of publicly-traded restaurant chains (not counting pizza chains) are at least testing their own delivery programs.

 

Re-evaluate ROI, if necessary

The industry is torn as to whether third party services help or hurt restaurants. With such high commission costs, the main benefit that apps like Uber Eats offer is increased visibility (and the chance to gain repeat business.) But repeat business only comes from happy customers, and with non-employees delivering the food, the experience is largely out of restaurants’ hands.

 

So, is food delivery the right business move for you? The answer is, it depends. The only way to know for certain is to carefully track your orders and profitability. The findings may reveal opportunities to scale back your delivery menu, reevaluate third party partners, or even ditch delivery altogether to focus on providing excellent in-house dining experiences.

 

Dinova: an entirely new way to attract customers

 

Instead of agonizing over whether or not to jump on the third-party delivery bandwagon, what if there were a completely different way to drive incremental growth for your restaurant?

 

Enter Dinova: a program designed to draw lucrative corporate customers to your restaurant, helping you grow your profits without the operational hassles or high costs seen with third party delivery services.

 

Business diners search Dinova’s app for great partner restaurants when they’re traveling on business, or looking for somewhere to entertain clients. They’re incentivized to choose a restaurant in Dinova’s network, because the employee and their company receive rewards for each in-network purchase.

 

Business diners (on company expense accounts) spend up to 100% more per check than typical consumers — often on higher-margin items, like appetizers, alcohol, and dessert. And, they’re coming to your restaurant during weekdays and nights, when you have empty seats to fill. (You can learn more about today’s business customer and their unique habits in this previous blog post.)

 

Unlike food delivery programs, there’s no extra point-of-sale technology required. Customers pay as usual, using their corporate card (no coupons or loyalty cards are needed, either.) And Dinova works behind the scenes to make the transaction work for you and the associated company.

 

And, because 70% of the business Dinova delivers is from business travelers outside of your restaurant’s local market, the revenue boost you’ll see is all incremental.

 

Ready to take the next step? Get in Touch Today!

 

 

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