Tag Archives: restaurant

Grub hub? Doordash? Uber? Postmates? Dispatch?- Stop wasting your time

 

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OK.  I am going to upset a lot of people with this post tonight.  I’ve been at this for far too long and have watched our customers work way to hard to grow their restaurant companies.  And so, I’m throwing my hat into the ring on this 3rd party delivery issue.

As a restaurateur, are you feeling confused about your options of how to handle 3rd party delivery services?  Are you being bombarded by Doordash, Postmates, UberEATS and so many other providers promising you the moon?  Promising you more sales?

Well, good luck with all that!  It’s a shakedown!  None of these services are adding value or growing your sales.  It’s a ticking time bomb.

Read this article in the Washington Post last week, “Not All Restaurants Are Fans of Food Delivery Services“.  The author does a great job at demonstrating how restaurants are losing control over their brand and off-premise experience.

I applaud In n’ out Burger for taking a stand and suing these guys for misrepresenting their brand.

Need more?  Check out these employment reviews about Doordash one of the darlings of the industry.  That’s a whole lot of bad will right there.  These are the people that are delivering your brand to the consumer.  Do you really want your restaurant to be reflected this way?

Here is another guy, taking to Youtube to show how Doordash is messing him up.

Postmates?  No better.  Check out this reality.

And then there are these guys!  These heavy hitters are claiming that they are going to revolutionize the business.  Not a restaurant operator in the bunch.  Technology engineers that are pitching their “fast growth” stories to Wall street and getting billions of dollars in funding.  Do they have any appreciation for restaurant operations?

None of these companies seem to care about your restaurant operations.  If they did, they would appreciate how complicated they are making things for restaurants.   As a matter of fact, they are working hard to further disrupt your restaurant operations, and they are taking a piece of the action while they do it.  And because this is a technology play, people will get super rich in the process.  This has Dot Com all over it.  The business model is doomed.

Well, I am really concerned about where this is going.  It’s a runaway train and it’s going to create dismal economics for our industry.  A lot of restaurant companies are going to go out of business in the process.

Let me share with you that I have worked in restaurants for more than 20 years.  And I can tell you, delivery for takeout is (and always has been) a challenge.

Let’s work on an example:

  1.  Let’s take a transaction of $12.00 (sandwich, drink and cookie)
  2. If you are a GREAT operator, your gross margins are at best 35%.
  3. This gives you a gross profit of $4.20
  4. 3rd party delivery services are charging 18% – 25% as a commission.
  5. This equates to $2.16 to $3.00
  6. This reduces your gross profit to $2.04 – $1.20.
  7. Your realized gross margin is actually 17% – 10%, depending on your arrangement.
  8. If you look at the math, you will actually see that with this scheme, you are splitting 50% or more of your gross profit with these services.  It’s just not affordable.

Now, I can tell you from experience that with a gross margin this dismal, it is impossible to make any money on this transaction.  In fact, I might argue that you will lose money on this transaction and you are better off not taking the business.  This is steep discounting.  It’s not going to work.

So go ahead!  Ramp up your takeout delivery business with these 3rd party players and watch your profits fly out the back door.  Watch your customers walk out the door and watch as you lose total control over your takeout business.  BEWARE!

Here are some additional facts:

  1.  The customer is not yours.  The customer belongs to the 3rd party delivery company.  The orders are being placed in their database and systems.
  2. Depending on your agreement, the more you pay and the more transactions you allow, the higher your listing and more visible your restaurant is on their websites.  They will drive more “non profitable” business your way.
  3. Not one of these 3rd party companies is making any money.  They are ALL being funded by Venture Capital and Private Equity.
  4. The business model is not sound.  Neither restaurants or the delivery companies can sustain this model.
  5. Their valuations are starting to decline.

Conclusion:

If you want to deeply discount your products and quickly cannibalize your sales, sign up for these 3rd party delivery services today.  It’s a sure way to lose your money, and fast.  Oh, they will bring you a “ton of sales”.  Thats for sure.  But you will lose money on each one.  Good luck with that.

Delivery for takeout has always been a challenge because the cost of distribution is prohibitive.  Delivery for catering works because the order values make sense.  You can afford to absorb the cost of distribution when an order is a few hundred dollars.

Saying that, do you want this guy doing your catering delivery?  Seriously?

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This topic is complex.  My recommendation for restaurants is that they should focus on the basics.  Do what you do well.  Focus on your core business strategies and don’t run head on into a technology gold rush.

If you want to do delivery, then do it yourself.  Do a good job.  Take good care of your customers and just do a good job.  Pizza operators have done that forever.  Just ask them.

Focus on a solid catering and takeout program and take care of the last mile yourself.

My two cents.

 

 

 

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BEWARE: 3rd Party Food Delivery Services are being fuelled by a Technology Goldrush

images-1OK.  So we all know that delivery for restaurants is complicated!  But wait a minute!  Are we talking about “takeout delivery” or “catering delivery”?  Does it even matter?  I think it does, and I will tell you why.

As I woke up today scouring the industry trade publications, I couldn’t help but notice all the rage about 3rd party delivery services for restaurants.   What’s even more concerning, are the crazy valuations that these 3rd party delivery companies are getting, because they have convinced investors that “their technology” is going to disrupt the entire space.  Disrupt the space?  Really?  I doubt it…….

Just read this article in tech crunch – “The Billion Dollar Delivery Wars

Or just watch this crazy video about Munchery that was on Mad Money. I mean, an $85 Million Valuation?  How is Munchery Different than any restaurant?  Remember, this is a “trend”, and all trends come to an end.  Don’t they?

Check out these crazy valuations of technology driven on-demand services for restaurants:

By contrast, I really love this article in Forbes.  “Call Food Delivery Startups by their real name.  Restaurants.”

This whole market is being driven by software development.  I know, because my team has been developing real software solutions for the restaurant space for almost 20 years.  I read another article recently about “Gold Rush Software Development”.  See the paragraph below…..

“Gold rush software development is a high risk activity. The practices employed during a software gold rush are usually associated with hacking rather than engineering: small team sizes, informal processes, long hours, little documentation, bare-bones quality assurance practices—practices I refer to collectively as “commitment-based development” (Rapid Development, Microsoft Press 1996). Use of these practices puts all but the smallest software projects at high risk of failure.”

The odds of striking it rich during a software gold rush are about as good as they were during the California gold rush—for every success story, there are hundreds or even thousands of projects that bust out. But the failures aren’t nearly as interesting as the successes, and so we don’t hear very much about them. As with the California gold rush, projects run with commitment-based development are successful just often enough, and are so enormously lucrative when they do succeed, that they convince software developers that such high-risk practices can work, thus keeping the entrepreneurial dream alive. 

And so, this really got me thinking about how all this is going to impact our community?   What happens to the restaurateur during this process?  All the hard-working entrepreneurs, franchisors, franchises and independents.   The people who have mortgaged their homes to open their restaurants?  They are being bombarded by slick sales people who say they are adding value to the transaction process.  Well, be careful, that’s all I can say.  These companies do not understand your restaurant operations.

Not only is our community overwhelmed by this “technology gold rush”, but in fact, they are putting  our businesses at risk.  As a restaurateur, if you are approached by the plethora of 3rd party delivery companies that are promising you the moon and “riches”, BEWARE.  They are simply interested in the valuations that they are going to get in the market by investors who think that they are going to get rich in the process.  They are completely disconnected to the impact that their promises will have on your restaurants execution and reputation.  The one you have worked your whole life for.

At MonkeyMedia Software and The Catering Institute, we spend all our time focused on restaurant operations and adding value to our customers by making sure we are creating products and services that are logical.  I am proud of my team for staying focused on our vision of helping restaurants to grow sales and increase profits in the off-premise space.  Takeout and Catering for pickup and Delivery.

My advice to all the restaurants out there that have to deal with this Gold Rush?  If it sounds too good to be true, it probably is.  Focus on the basics.  They always work.

Thanks for listening.

 

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