Interesting Pros And Cons Of Food Delivery For Restaurants

Another change has come in the form of digitization, with the technology embracing POS systems, reservations, food delivery systems, loyalty schemes, marketing, accountancy, the use of QR codes, own-brand apps, and so on. Meanwhile, the competition in these areas has become ever more brutal. The most recent development is of course the cost of living rises, partly affected by the war in Ukraine, and partly the supply chain issues linked to China. What is certain is that it has and will continue to impact the spending of the consumer and this in itself is bad news for the hospitality industry, which has for the most part tried to absorb costs to prevent driving away consumers.

Restaurants have had to adapt or go out of business, and adapting during the Covid 19 epidemic meant embracing takeaway (where the customer collects their food) and delivery services (where a driver delivers the food). This coincided with the already rising land grab made by food delivery companies (also referred to in this article as couriers), such as Just Eat, Uber Eats, Deliveroo, and so on. 

These couriers became knights in shining armor, allowing restaurants to join their platforms, market their menus to wide audiences and use their drivers for deliveries. They extracted a heavy price from the restaurants that were cornered at that moment. It allowed the delivery industry to grow dramatically, although there are still major issues of profitability and industry consolidation (takeovers and mergers) and this has led to a reduction in the number of the bigger players.

Impact of Covid 19

One hesitates to say even now that Covid 19 is definitely over since as events in China make clear, it could flare up again, with a virulent mutation driving us back to where we came from. Some restaurants have reverted back to offering only the dine-in experience, but many more, including many formerly fine-dining restaurants, continue to offer takeaway or delivery services, partly because of the degree of safety that diversification gives. 

Ghost restaurants

One interesting development has been the rise in the so-called ghost restaurant. A ghost restaurant (sometimes called “dark restaurant”) is one that prepares food solely for delivery, it is not designed for walk-in customers. This allows the restaurant to be based in unfashionable areas, or rather areas where overheads such as rent, rates, and staffing costs can be kept to a minimum. Other savings can be made in terms of furniture and decor, and the non-requirement of front-of-house staff, all things that restaurants have to provide.

Many restaurants are able to farm out or sub-contract the food preparation to ghost restaurants/kitchens. Also, the courier companies themselves have embraced the idea of having their own kitchens and thereby upping their profit margins.

Benefits of deliveries

What are the key factors that will determine whether a restaurant goes down the takeaway/delivery route, and what are their alternatives? There may have been an assumption that deliveries are wholly a good thing for a restaurant to be involved in. After all, if you hook yourself into a big platform you expose yourself to a lot of potential customers. As long as you are making some profit on the delivery then it is an extra string to your bow so long as you can maintain volume (to compensate for the lower profit margins). It also means that your restaurant is diversified so it is clear that if Covid returns (or perhaps Covid 19 was a sign of a more common threat) your position is better protected.

The takeaway and delivery markets have opened up a whole range of new customers to restaurants. Some people do not like going to restaurants, others in urban areas without a car are too far away to visit or to pick up food, and some are physically unable to collect food. All these people are customers dine-in restaurants would not normally get. Takeaways/delivery outlets can make savings on front-of-house staff since you are simply handing a delivery driver a meal allowing a more  streamlined service. However, there is a new level of integration to get used to which I have touched upon in the disadvantages below. 

You will also have to pay a set-up fee when you first sign up to the platform and this can be up to £300 or so. Then you will also have to pay ongoing fees for the third-party app that you use. Included in this charge is the facility for you to promote your listings, have featured offerings, and so on on the platform. You may have to budget up to £100 per month for this service.

Other aspects to be considered are the servicing at your end of the process, including dealing with the ordering, preparation, and packaging of the food and resolving any issues that subsequently arise. Will one member of staff be delegated to deal with the delivery side of the business? This may be the case if the volume is high. It does not look good if you get a complaint and the person answering the phone knows nothing about the delivery.

The delivery process itself should be considered. Delivery creates a “loss of control” issue, which is minimized if you have your own driver, who you can train to a standard you are happy with. Otherwise, whether you like it or not the driver will be representing your restaurant and the customer will usually not be able to distinguish between his failings and those of your restaurant. Will the food be warm and in good condition when the driver arrives? Could he find the address, was he affected by road works or traffic jams? Was he polite?

There is a darker side though, and this is signified by the existence of the ghost kitchens and “own kitchens” that food delivery companies are creating. It centers around the question of who the customer “belongs to”. If the customer has found the restaurant from which they are ordering through the food delivery company, then clearly the customer belongs to the courier.

But what if the customer already uses the restaurant, and now starts to order through a platform? From the restaurant's point of view, the customer has now potentially been lost to the platform, or crucially the platform has acquired the contact details of the customer, including their email address. The danger is that the couriers can and do market to those customers, either directing them to alternative restaurants with who they may have special terms or to their own ghost restaurants from which they will achieve higher margins.

Can restaurants fight back?

Not only can restaurants fight back, but they need to as a matter of urgency. Many restaurants view the re-injection of the 30% commission that was being paid to the couriers for food delivery back in their brand as an essential step. 

Many restaurants are trying to beat the couriers at their own game. They can do this by initially getting wide exposure to potential customers by leveraging the couriers' platform. When the order comes in and they package the food they can insert a flyer, offering the customer a discount if they order direct in the future. After all, a discount of say 10%, makes sense if you are saving 30% commission on the sale.      

Halfway House

At one end of the scale, there are restaurants that are dine-in only. At the other end of the scale there are delivery-only restaurants. What are the options in the middle? We have already mentioned the idea of having your own driver or drivers, but for many restaurants this is impractical. How many drivers will you need? Will you train them? You will also have to come to an arrangement on expenses for their vehicle and insurance. There may be a whole raft of headaches dealing with the additional staff requirements.

Fortunately, there is a halfway house that suits many restaurants. It involves the use of third-party apps. The app means gives the restaurant greater control in the ordering and delivery process. It also ties in with the fact that customers like to order directly from a restaurant's website or app. By streamlining the ordering process, there is less likely to go wrong, and of course, when things go wrong, it is always the restaurant that gets the blame.

One of the most important aspects of having your own app is that you retain all your customers' information such as names and email addresses. This means that you can market to them on an ongoing basis. So as you build your business you build your email list which becomes an increasingly valuable asset. This is information that you cannot acquire if you are using a delivery company. It is the delivery companies that get the information and they that market to the customers, not you.