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The Delivery App Conundrum: Does it Cost My Restaurant Money to Go Online?

Apr 23, 2019 11:08:00 AM / by CSI Accounting Staff posted in restaurants, small business operations

We increasingly live in an age that is centered on convenience. Streaming services mean that fewer people go out to the movies, and car apps like Lyft and Uber mean that fewer people own vehicles. One space that has seen an online surge are food delivery apps. DoorDash, Uber Eats, and Postmates all advertise that they can get your favorite restaurant’s food right to your door, without you ever getting out of your pajamas.

While customers appreciate the convenience, and businesses might like the opportunity for a larger customer base, this only tells part of the tale of delivery apps. Rising costs for both the consumer and the restaurant have put some of these apps in the hot seat, casting a shadow on the easy, free money path that some of these apps have promised. Let’s take a good hard look and ask is it worth it to move your business online?

What Delivery Apps Offer: Convenience, Availability, and Name Recognition

Most of us are familiar with delivery apps. When searching for restaurants, this might be the first place potential customers go. Long gone are the days when you could just advertise in the yellow pages or in the local paper and hope for a recognition bump. Nowadays, it’s all about getting your name out on the internet, so unless you’re the local king of Yelp, Google Reviews, or have a large social media following online, it can seem beneficial to take advantage of some of these apps to drum up more awareness for your restaurant.

Not only do most of these online delivery apps put you in their search functions (thus getting your restaurant’s name out to the public), they also offer services like advertising to make sure that your listing can be at the top -- something that might help get more business and can be helpful if you’ve only been open for a short time. In theory, this is great; in addition to any dine-in customers, you could also deliver to a new customer base without hiring a delivery driver. In practice though, this doesn’t always seem to work.

What Problems Have Come Up: Small Profits, Unreliability, and Buggy Interfaces

Unfortunately, there are a lot of problems that have come up with the current crop of delivery apps. Many charge up to 30% of the cost of the item for use of the service. With many restaurants, this markup means that they’re actually paying for the service and not seeing any profit at all. Profit margins for most restaurants hover in the 20% range, meaning that using a service like this won’t guarantee more money for your store.

Plus, these drivers are contract employees, meaning that your restaurant is beholden to whoever decides to deliver your food. In a recent article in the North Coast Journal, Shawn Stoops and Dawn Watkins talked about how this service just wasn’t worth it for them because of the delivery driver hassles they kept having.

"We had a dude walk out on a $90 order instead of waiting for servers to finish boxing it up,” said Stoops.

This isn’t the kind of image that any restaurant wants to project, and while it might not be the typical experience, it does bring to light an area of concern -- the restaurant has no control over the quality of the driver. This unreliability means that your food may get there cold, late, or not at all. In the same article, another restaurant owner claims that orders have sat getting cold for up to 30 minutes before a driver arrived. This, plus the fees, means that many restaurants are looking for alternatives.

What Your Restaurant Can Do Instead: Make the Internet Work for You

Your restaurant may never offer the same convenience as these apps, so you shouldn’t try to. Instead, focus on the dining experience in-restaurant. While it can be appealing to chase after a new customer base, too often it’s a siren call that is more trouble than it’s worth.

"In theory, per week, [food delivery apps bring in] an extra $400 in sales but with the cut off the top... it's not a huge amount," said Stoops. "It's been more of an aggravation."

Treating your customers to a high-quality experience can help with your online reviews and lead to an organic and authentic web presence that can actually bring more people to your restaurant.

It’s also a good idea to build your own website and maintain it. Even if you don’t offer delivery, there’s no excuse for not having a place where customers can see your menu, pictures of the interior, and any specials you may offer. Encourage your friends and customers to like your page on social media, and run online-only promotions where customers can get a percentage off if they like and share your page. Like it or not, the internet is here to stay, so you can't neglect this part of your marketing. 

In the end, it helps if you can crunch the numbers to see if moving to a delivery app is right for you. That means having your accounting in order. Like any other subscription service, a delivery app can be worth it if you can prove that it justifies its worth. That’s only possible if you have a great snapshot of how your business is already running. Talk with an accountant today and see what they say. The results may surprise you. Bon appetit!

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CSI Accounting Staff

Written by CSI Accounting Staff

This article was composed by a member of our staff who interviewed our experts to get the facts straight. Any uncited information found here came straight from a knowledgeable accountant or payroll specialist.