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Restaurant owners may not like delivery services – but can they do without them?

By December 2, 2020December 4th, 2020No Comments

(This post originally appeared on The Guardian)

If you take a look at my smartphone, you’ll know that I like to order out. I have Grubhub, Caviar, Uber Eats and DoorDash right on my home screen. Because of Covid, I’ve rationalized my family’s increase in takeout orders as our little way of helping the local restaurants who have been suffering all year and are suffering even more now that my city is not allowing inside dining and limiting outdoor groups.

But am I really helping these small businesses? Apparently, not as much as I thought.

That’s because many restaurants detest those same delivery services that I so frequently use. Why? You would think that if you own a restaurant you’d be thrilled to have an outsourced service that would not only take care of your delivery operations but also leverage their marketing might to expand your businesses’ brand to customers that otherwise might not have known of your existence. That’s true. But there are also a lot of negatives.

Restaurant owners across the US have complained of lack of quality control once their food goes out the door. They don’t like that the delivery people – who they don’t know – are the face of their product when it gets into the customer’s hand. Some of the delivery services have been accused of listing restaurants on their apps without the owners’ permission, and oftentimes publish menu items and prices that are incorrect or out of date. All of those reasons are valid and well-known.

But in the end there is one bigger reason that restaurant owners aren’t fond of delivery services. It’s the cost. And thanks to the rise in deliveries fueled by the pandemic, those costs are, for some, becoming unsustainable.

“The simple truth is every delivery sale is a money-losing proposition for restaurants,” John Schall, the owner of two eateries, wrote in the Seattle Times. “With delivery sales at 70-80% of restaurant sales, the delivery companies are now taking 18-20% of restaurant revenues. When average restaurant profit margins are 8-10%, this makes restaurants no longer viable.”

Did you know that those delivery services that we love and use so much are actually killing those very small businesses that we’re trying to help? It’s no lie. The popular ones charge fees of up to 30% per order. Some of these fees were so high that cities such as Denver, Los Angeles and New York had to put a cap on what they were charging. Even with the increased revenues from these delivery services, the fees wind up killing a restaurant’s margins to the extent that it’s at best marginally profitable.

But here’s the thing: we as consumers want things easy. We’re not going to change our habits. We like those apps. So what options are there for the small restaurateur?

According to a recent CNN report, some restaurants are pushing harder to drive orders from their own websites and offering special deals for customers that use their in-house delivery people. But doing this is harder because marketing budgets are limited, websites need to be maintained and customers who have been using the mobile ordering apps are reluctant to change their routines. Apps like Delivery Co-Op, which helps local eateries band together to share delivery costs, are helpful but, according to one restaurant owner, limited because “The restaurant industry isn’t set up for co-opetition.”

The simple fact for a restaurant owner is that these delivery apps are here to stay. They are enormously popular and, thanks to the pandemic, have significantly grown. I believe that restaurant owners that resist these apps are hurting their brands by missing out on potential customers. Restaurant owners may argue whether those revenues aren’t worth anything if there’s no profit. But are these apps any different from a marketing service that other small businesses use? And like any marketing investment, isn’t it up to the business owner to figure out how to cover these costs, particularly if those services are sending new business their way?

The good news is that the delivery platforms are not as evil as some would portray them. They have some skin in the game. They are competing against other services. They want their listed restaurants to profit.

Maybe instead of fighting, the nation’s restaurant industry and their related associations need to proactively embrace the delivery service industry and both figure out ways to profitably work together. Small restaurateurs should be pushing their industry leaders to address this issue and work out a longer-term and more profitable relationship. I’m not sure there is another choice.

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