Jul 15, 2020

Should Your Restaurant Use a Delivery App? Maybe Not

When states went into lockdown and stay-at-home orders were first issued, sitting inside with Netflix and an order of tacos from your favorite neighborhood restaurant was considered patriotic. We were all doing what we could to prevent the spread of COVID-19 while also supporting local business owners and maintaining some sense of normalcy. 

However, as the subsequent use of apps like Uber Eats and DoorDash started to spike, some restaurant owners cried foul. They realized just how much money these delivery apps were taking from them—to the point where many started their own delivery services instead. 

If you’re contemplating using a restaurant delivery app, you might want to reconsider. Here’s everything you need to know about their fees and guidelines. 

Restaurant Delivery Apps Can Eat Your Profits

The most important thing for small business owners to know: delivery sites like Uber Eats and Postmates charge restaurants upward of 30% for food delivery. While the fees can be negotiated with the delivery services you choose, few companies have managed to get an agreed-upon fee of 20–25% or less. 

These additional fees significantly affect your profit margins. According to the website Lightspeed, restaurant profit margins in the ’90s hovered around 15–20%. Today’s profit margins are closer to 4–7%. Even if you operate on the higher end of profits at 20%, you’re still likely to operate at a net loss if a delivery service takes a 25% fee. 

Additionally, delivery orders may be less profitable as a whole because of the food items ordered. Customers are less likely to order drinks like soda or beer, which have some of the highest profit margins in the industry. 

Your delivery orders could have a much lower profit margin than your standard tickets—even before the delivery fee is added. 

As a restaurant owner, you need to do the math before you agree to partner with Postmates, DoorDash, or any other delivery app. Consider their fees and your current profit margins to see if these delivery partners are cost-effective. 

There’s More to Worry About Than Fees

Even if you can absorb restaurant delivery services’ fees and still find ways to make your business profitable, there may be other issues that restrict your ability to connect with customers and grow your sales.

For example: when you sign up for Grubhub, you agree to their terms and conditions. If they decide to market your business in a way that aligns with their brand and not yours, then you’re stuck with their decision. 

This stipulation is what a Denver-based restaurant, Freshcraft, learned when Grubhub created websites for restaurants without their consent, often adding false or misleading information to the pages. Erik Riggs, the owner of Freshcraft, shared that the website Grubhub created reported that his business was closed or not taking online orders when it was open and accepting online tickets.  

“The fact that they misrepresented my brand in these times, and pushed Grubhub clients toward other restaurants—it’s deplorable,” Riggs told the New York Times. Other restaurants in regions like Chicago and Pittsburgh noticed similar Grubhub-created websites with incorrect content. 

Whether the delivery company was intentionally malicious to drive business to other companies or careless when adding this misinformation, the damage was done. Most restaurant owners who have been burned by the company don’t want to return to it for delivery services.    

It May Be Cheaper to Start Your Own Delivery Service

If you’re concerned about following another company’s rules and paying fees for basic delivery, consider setting up your own delivery program. Without fees, your profits go directly into your business or the pockets of your employees—and the money stays local. Plus, with many restaurants still closed or operating at half capacity, starting a delivery service may help you bring employees back—and get them extra tips. 

There are a few key questions to consider when starting your own delivery service. For example: how are you going to compensate your employees for gas, wear and tear on their cars, and delivery time? Are you going to lease a car for your business and use that instead of your personal vehicle? What delivery fees must you charge to stay profitable without driving customers away? 

These questions prove that starting a delivery service is complex—they need to be considered carefully before a service is launched. You may not have all of the answers right away—many companies follow a trial-and-error process to determine what’s best for their restaurants’ needs.  

Some restaurants use Uber Eats and Grubhub for years and manage to remain profitable. They find ways to scale their businesses and save money to make these services work. However, partnering with a delivery app might not be the golden-ticket solution you think it is. 

Exorbitant fees and confining regulations might make these delivery apps more complicated and stressful than you realize. If your profits start to drop, these apps need to go. 

About the author

Derek Miller
Derek Miller
Derek Miller is a writer specializing in entrepreneurship, small business, and digital marketing. His work has featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp. He’s currently the CMO of Smack Apparel, the content guru at Great.com, and a marketing consultant for small businesses.

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