The restaurant industry needs a new recipe for third-party delivery

Only Uber Eats did it $4.8 billion in revenue in 2020. DoorDash’s revenue jumped 268% from 2019 to 2020.

Despite this, the online food delivery business is far from glamorous or easy, and even with more than 112 million Americans using food delivery services, most restaurants aren’t doing well.

Restaurants, especially mom-and-pop stores, don’t make enough profit to survive in the long run. Their operations suffer from managing multiple third-party delivery apps while managing their kitchens, dealing with staffing issues, and servicing customers who dine inside.

As owner of Boxcar BBQ Philippe Foss wrote for Eater, “Let’s say we arrive at 20% occupancy costs. Add 15% commission [for food delivery apps]plus 60% for work and food, and that [means we only make] $1.50 on a $30 sale…While our barbecue literally and figuratively puts food on the table of so many families, mine has to survive on simple table scraps.

While large restaurant chains can take advantage of significant economies of scale, data and technology, smaller restaurants are less fortunate. Here’s why:

  • They are designed for eating in, not for large-scale delivery. During the pandemic, consumers got used to delivery, and they love it. Online food delivery is expected to account for 40% of restaurant revenue by 2025, but restaurateurs have not adapted to this new reality. Restaurants can’t survive if they keep losing money on every delivery order, and they probably can’t make up for lost revenue through order volume either.
  • They don’t use labor properly. The high demand for delivery, coupled with the pressure to manage in-person diners, has become a poor balancing act for restaurateurs. Restaurants don’t have the right tools to effectively manage existing resources so they can manage the restaurant side of the business AND the online/delivery side.
  • They are passionate about food, not technology. Small restaurants literally have a lot of pots on the fire. Asking them to manage and monitor multiple tablets for multiple delivery platforms that don’t work together is a lot to ask, not to mention trying to juggle multiple digital storefronts, branding, and execution of orders.

The bottom line is that the current state of the industry is unsustainable: delivery platforms can’t make a profit, restaurants barely get by with their operational inefficiencies, and customers demand a better experience. Consider the following solution:

  • First, a restaurant owner should have the ability to host multiple menus online that make the most of its limited resources and give customers what they want. Restaurants can use their existing equipment, expertise, and inventory to offer and promote multiple brands. For example, with the right equipment and resources, Boxcar BBQ can accommodate Gray’s Papaya and Blue Ribbon menu items for delivery.
  • Second, the technology should work for restaurateurs, not the other way around. Restaurant owners need technology that helps optimize operations and resources. Instead of trying to manage multiple digital storefronts, for example — which was never what they got into the business for — owners need to get back to managing restaurants.
  • Third, with a restaurant operating model optimized for delivery, online food delivery platforms may become more profitable. A major cost for food delivery platforms is reimbursing consumers who did not receive the correct orders. Restaurants optimized for delivery will make fewer mistakes, which means fewer refunds and happier customers.

In short, a new recipe for the industry that includes smarter technologies and a smarter operating model can ease the chronic indigestion that restaurant owners and online food delivery platforms were feeling even before the start of the pandemic. Let’s serve it.

Daniel Simon is the founder and CEO of Mealcoa technology partner for restaurants that converts their internal resources into digital-enabled operations.

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Cecil N. Messick