How Restaurant Delivery Apps Are Killing Local Restaurants
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Don’t Let Delivery Companies Take Advantage of Your Restaurant

May 4th, 2020 Online Ordering System Written by Josephine Myers

Restaurant Delivery

Running a restaurant is tough. It requires long hours and margins are thin, but you do it because you love it. You do it because you have a special experience to offer your customers, and unique flavors to share with the community. But with the fallout from the COVID-19 pandemic, minimum wage going up every year, the continuing rise in the cost of goods, and the fight for traction with customers, things are especially tough.

Online ordering is practically essential now, and third-party delivery marketplaces like Grubhub, Postmates, and Uber Eats have long promoted themselves as a solution for getting more customers. Simple, right? When you look at the numbers, what seems like a solution may actually be what’s killing many small restaurants.

Doing the Math on Third-Party Restaurant Delivery 

Take Postmates for instance. By the end of 2020, many restaurants reported paying a 30% commission on every Postmates delivery. In Los Angeles, Uber Eats charged 40% for the same service. For a $10 item, that’s $3 to $4 right off the top.

While there’s a significant range, restaurant consultants say that a good food and labor cost is about 60% of your gross income. Let’s imagine your restaurant is running lean and mean at 50%, that’s $5 in food and labor costs. So far, you’ve made $2 and spent $8.

Remember, you haven’t taken into account expenses such as utilities, rent and spoilage. When all is said and done, you’re lucky if you make a penny or two. More likely than not, you’ve just paid someone to eat your food!

The story is the same for the delivery app Grubhub. According to their own website, Grubhub charges restaurants a base fee of 20% of every order, and then tacks on a credit card processing fee, order processing fee, and a delivery commission of an additional 10%.

These third-party restaurant delivery companies charge restaurants exorbitant commissions for every customer order, when the only real the value they bring is helping new customers find your restaurant for the first time. When a customer orders again and again, it’s because your staff was friendly, the food was delicious, and they had a great experience. Why should you pay Grubhub a 30% commission every time a customer orders? If the phone company took 15%, 20%, or 30% every time you took an order over the phone, you would have stopped taking phone orders a long time ago.

Especially now that so much of restaurant sales have shifted to off-premise, you’re probably taking a hit on at least 30% of your orders. And no matter which third-party marketplace you’re on, the math is the same, and it doesn’t bode well for your restaurant.

 


Download our case study to see how a restaurateur fought back against third-party marketplaces and saved over $100,000 in marketplace fees by switching to ChowNow.

Read the Case Study


 

But what about marketing?

The argument can be made that these companies aren’t just delivering food for you, but they’re also promoting your brand to new customers. Marketing is a common selling point of these restaurant delivery companies, but requires a closer look to see how it actually impacts your business. Sure, you might be featured on the delivery site, and sometimes you’re part of an email blast — there’s some marketing value to that.

However, Restaurant Resource Group reports restaurants should only spend between 3 to 6 percent of their sales on marketing. That’s far less than what third-party marketplaces are charging. If the marketing exposure is what you’re after, there are less expensive options.

Furthermore, third-party marketplaces like Grubhub and Postmates withhold access to restaurants’ own customer data. They use this valuable information for their own profit, and make marketing directly to your own customers virtually impossible.

There’s so much value in owning your own customer information, so that you can encourage them to order directly from you and not pay marketplace fees time and time again for the same customer.


Get the full story about how third-party delivery apps are deceiving independent restaurants, stealing their customers, and eroding their profits by reading our new ebook: 4 Myths About Third-Party Restaurant Delivery—Busted.

Read the eBook


There’s a world beyond third-party restaurant delivery.

It’s easy to think that companies like GrubHub and Postmates are the only options out there. Their sales and marketing teams have done a great job of making you think that’s the case. But there are other options: Companies are finding ways to help you reach new customers, without spending all your money on middlemen. Companies exist that offer affordable alternatives. If you’re already a ChowNow client, you know the deal.

ChowNow, for example, takes a fresh approach to online ordering. We build you your very own online ordering system that lets you take unlimited, commission-free orders through your website and custom mobile apps for iPhone and Android for a flat monthly rate. If you’re interested in getting new customers, ChowNow will list you on its mobile app and website for free. You can even put your ChowNow ordering directly on your restaurant’s profiles across the web—including Google, TripAdvisor, OpenTable, Resy, and Yelp. That way, new customers can immediately order online, no matter where they discover your restaurant.

Calculate what your restaurant would save in online ordering fees.

And there are companies that care about their restaurant partners.

The good news doesn’t stop there. ChowNow gives you access to all your customers’ email addresses and will help you build loyalty and drive re-orders through print and digital marketing campaigns that encourage those customers to order again and again. In fact, ChowNow’s email marketing gurus have an automated email program for their restaurant partners, which has a 26:1 return on investment. You can also use ChowNow’s free loyalty program to offer additional incentives that boost visits and ticket sizes.

ChowNow Online Ordering App

In other words, ChowNow does many of the things restaurant delivery apps fall short of doing, and it will do it for the most restaurant-friendly rates in the industry. ChowNow offers on-demand delivery throughout most of the US, and also gives you the ability to use your own drivers or work with other couriers. Instead of commission—which is essentially a tax on your restaurant’s earnings—ChowNow’s delivery is a simple, distance-based fee.

The point is, there are other options. Don’t feel tied down. Don’t feel like you need to use expensive third-party restaurant delivery apps because everyone else is. It’s time to change how you do business. It’s time to stop paying companies to sell back your loyal customers to you at a 30% markup every time. It’s time to take back control of your business and your profits.


If you’re looking for a more cost-effective option, now’s a great time to get started with ChowNow. Get a free ChowNow demo from one of our experts to get started today! If you’re a ChowNow restaurant client and want some ideas about how to convert your customers off these expensive third-party delivery apps, schedule a call — we’re happy to help.


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