Australians love to eat out. According to the Australian Bureau of Statistics in 2018, an Australian household spends an average of $95.05 each week on restaurant and takeaway meals – an amount that’s about triple their electricity bills or secondary education costs. This is good news for restaurant and café businesses but operators should still focus on revenue management.
Because of the demand, meal delivery platforms such as Foodora and UberEats have become popular in the last couple of years. Australians appear to be too busy to cook or hungover to go to a restaurant. Consumer demands are moving with technology and people value convenience more than price. While food delivery has been around for decades, there’s now a wide variety of food that can be delivered to your doorstep.
The cost and logistics of offering a delivery service used to be too expensive for restaurants because they would need drivers and scooters and the ROI remains uncertain. That’s where delivery platforms come in. Restaurants can now deliver food to their customer’s door and expand their market with no capital investment.
As a restaurant owner, you have to focus on revenue management and maximise financial leverage in your business. How do you get a better return on all your investment such as your expensive kitchen equipment? It’s easy to think that through delivery platforms, you can generate a higher ROI by utilising your fixed costs and assets better. After all, you have a new customer base through deliveries. However, does that exactly translate to profit?
Delivery platforms has a commission rate from 20 – 35% of the sales sold through their platform. However, most restaurants have a net profit margin of about 2 – 10% so it is a question whether your restaurant should offer delivery services or not. To answer this question, you need to look at your gross profit margins on variable costs (without labor), the percentage of new sales from the delivery platform and the overall percentage mix of sales paid through the delivery platform.
It is important to bring in new customers because if your current loyal customers start to order through the delivery platform and the overall mix of sales made through the delivery platform is higher, then it will actually cost you more money. The overall costs of your business may increase with no actual benefit so if you want to use a delivery platform, make sure it would attract new customers or you can serve more customers without having to spend more money on operations.
To factor the delivery platform commission and protect your profit margins, you can practice the 2-tiered pricing strategy wherein restaurants charge a higher price for items sold through delivery platforms, on top of the fixed delivery fee. You can also design a specialised menu for delivery so the items are not the same as the in-store items and you won’t necessarily have a 2-tiered pricing model. Choose items that are built for durability, speed and high margin so you can still offer a great experience for your customers. Using a delivery platform also gives an opportunity to build a loyalty program.
If you can leverage new distribution channels and brand awareness while improving profit margins, delivery platforms could be good for your business.
As you look for different ways to grow and improve your business, seeking professional advice could prove to be an important and helpful decision.
You can click here to speak to a business, accounting and bookkeeping firm. We also offer hospitality business consultation and mortgage services. We will give you a call to know more about your needs. We will explain to you how we can improve your business.
We would love to help you formulate investment and revenue management strategies and streamline your processes to take your business to the next level. Our goal is to help you grow your business, find ways to invest more and increase your productivity.
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