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Why Restaurants are Giving up a Quarter of Their Profits

Why Restaurants are Giving up a Quarter of Their Profits

“This is insane. This is highway robbery.”
A restaurateur sits in her office and shows this month’s numbers to her husband: business partner in crime. He takes one glance at the spreadsheet on the screen, closes his eyes, and lets out a long sigh.
Business has been good, to the point they started working more hours to meet the increase in demand. But something isn’t adding up. Profit margins aren’t increasing in proportion to the increase in net profits.
What is going on here? Why are the margins so low?
Unfortunately, this situation is all too common for many in the restaurant business. They’ve become too reliant on what is known as the online food delivery service - and they don’t see a way out.

Too legit to quit?

Many of you have probably heard of and used Skip the Dishes, where others might be more familiar with Doordash, Foodora, Uber Eats, or Just Eat. These online services connect restaurants with food delivery couriers to customers who, say, want to eat sushi in the comfort of their living rooms.
It provides restaurants with a platform to be discovered easily by potential customers within a certain radius - and with a higher exposure rate, more customers are likely to order from your restaurant.
It’s also great because restaurateurs don’t need to worry about hiring a driver or buying and maintaining a company vehicle.
Similar to Amazon, eBay and Etsy (which we covered extensively in a previous article), the immediate exposure and overall convenience is great for businesses that can’t be bothered to do marketing and advertising on their own. It allows businesses to focus on what they want to do - which is making good products for their customers (or in this case, food), and making a living.

How bad can it be?

We spoke to several restaurant owners in the Vancouver area, and they have expressed a great deal of frustration, claiming these third-party delivery services are charging way too much for the “convenience factor”.
When it’s all said and done, we learned they get charged upwards of 25% commission on all orders placed through the service - which includes pickup orders.
That’s right. 25%. One quarter.
Highway robbery.
To be fair, it might be a reasonable tradeoff in the beginning. But the ends don’t justify the means because, well, 25% is a huge hit to any restaurant. Especially those that worked hard to gain the patronage of arguably the most coveted customer segment - the couch locked Netflix aficionados.
Since it’s a percentage-based fee structure, your losses will continue to stack up as you look to grow your business. That’s a terrible deal.

But wait, there’s more

And if losing a quarter of your income wasn’t terrible enough, relying on third-party online delivery services carries another burden: restrictions to finding out customer preferences.  
Like how Amazon prevents their marketplace sellers from accessing customer data such as email addresses and pre-purchase browsing history, these delivery services also block restaurants’ abilities to communicate with customers.
Certain customer data such as email lists can be purchased, but they do not come cheap.  Companies such as Amazon, Etsy and Skip the Dishes are well aware of this. They block access to customer data to benefit their own cause - it’s the reason they’re so big and profitable today.
With no access to contact information:

  1. Efforts to increase customer retention and to build a loyal following diminishes significantly. This alone is a major factor, since a 5% increase in customer retention increases profitability by 75%.

  2. Restaurants will lose profits due to uncontrollable factors. For example, if the delivery service courier treats a customer poorly, it will reflect poorly on you too. Not your fault? Doesn’t matter.  

  3. Businesses won’t be able to push promotions. Upselling, cross selling, discounts, coupons - these are important promotion methods needed to maintain a competitive edge in a saturated market.

On top of it all,these delivery services can change their rules at any time, without any notice. Their house, their rules; not yours. These kinds of restrictive and oppressive systems make business growth untenable.  

What are the alternatives?

If your profits are leaving you so quickly that it feels like mafia extortion, maybe it’s time to dial back on the outsourcing.
Of course, it would be unwise to immediately drop the third-party delivery service as it still gives your business valuable exposure and your customers the convenience they crave.   
In the 8 Benefits of Having Your Own Online Store, we bring up the importance of diversifying revenue streams and suggest businesses establish their very own direct sales channel if they haven’t done so already.
This means having your own functional, mobile-responsive website that accepts secure payments and has a marketing and booking system connected to it. Controlling these branches of the business will allow direct communication with customers and enable business growth.
If you have meat-eating and vegetarian customers, you can make both parties happy by sending them messages and promotions catering to their preferences. This is a distant dream for those without access to customer preferences.
It’s a game changer, because not only will that 25% extortion rate disappear, it also means you will be in complete control of your business from this point onward.

Take back your restaurant - but how?

Restaurateurs should never have to compromise their livelihoods for the sake of convenience. Food establishments such as yours exist to serve customers, not shareholders.
Most people we spoke to cited time constraints, budgeting and lack of technical knowledge as common barriers to establishing a direct online sales channel.
But highway robbery isn’t an option if you’re trying to grow your business.
Fortunately there is a way to open up a direct sales channel quickly, without the need for programming or web experience (or the need to hire a programmer or web developer), and without having to break the bank.
That way is through the DG1 platform.

How DG1 will benefit your food establishment:

  1. Keep your hard-earned profits.

    • Our pricing packages are flat rate fees instead of percentage-based extortion rates. Did we also mention no contracts?

  2. Everything you need to run your business online.

    • DG1 provides all users with a web CMS, ecommerce platform, marketing automation engine, booking system, and a mobile app - all under one login. As a cloud-based platform that can be used from any internet browser, it’s a powerful and cost-effective tool that will propel your business forward.

  3. Own your data.

    • Whether it is pushing promotions or using customer preferences to improve products and services, you can grow your business because you will own your data. If you decide we aren’t the best fit for your business, we’ll even help you export all your sales and marketing data. We are committed to small and medium business growth.  

  4. Fast initialization and Boarding assistance.

    • Initialization of your DG1 site takes as little as 15 minutes, and our Boarding Specialists will help you get set up and familiarized with the platform. Our team is there to answer any of your questions and concerns.

  5. An ever-adapting, ever-evolving platform.

    • Never pay for a plugin, theme or software update again. Once you become a member of the community, we’ve got your back.

  6. And more.

If you would like to know more about how DG1 can benefit your business, give us a call or email to schedule a consultation.

Tags: Restaurants

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