With more people opting to eat takeaways at home instead of going out, many are wondering if home delivery will kill the restaurant trade. John Burfitt reports
If you use the term ‘food delivery craze’ when discussing the likes of Uber Eats and Menulog with respected hospitality industry consultant Ken Burgin, be prepared to be corrected. “This is not a craze; it’s a permanent shift in people’s eating habits that we all need to come to terms with,” says Burgin of Profitable Hospitality.
“There has been a change in people’s desire for convenience, and this is another factor restaurateurs have to deal with.”
The facts and figures from various reports about delivery services like Uber Eats, Deliveroo, Menulog and foodora, all operating in Australia, certainly flag the seismic shift that has been taking place.
The 2017 NPD Group/Crest data Delivery, Pick Up and Global Trends report states the demand for delivery transactions is growing at eight times the rate of the total foodservice industry. A finder.com.au survey found online food delivery services now account for 12 per cent of the sales of the $44.1 billion cafe, restaurant and takeaway food services industry, with a yearly average food delivery spend of $1590.
The most striking finding in research from IBISWorld is the Australian restaurant industry benefit from delivery platforms has contributed to a revenue increase of two per cent in 2017-18, to reach $21 billion. IBISWorld senior industry analyst Bao Vuong said the delivery platforms were changing the way restaurants in Australia operate, with some restaurants considering opening solely to provide delivered foods.
“By opening a pop-up store with just a commercial kitchen and no seating, operators can maximise floor space, save money on rent and fit-out expenses, and improve profit margins,” commented Vuong in an interview with Australian Food News.
What to do?
This raises the question: in this fast-evolving era, does it make more sense just to shut down the dining room and become a full-time commercial kitchen with a line-up of delivery drivers?
Not quite, says chef Shane Delia of Melbourne’s Maha restaurant and fast-food favourite, Biggie Smalls. “It’s just not that easy to shut down one part of the business and expand the other. If it was, everyone would have done it,” Delia says.
“There remains existing operational expenses in a restaurant that you can’t just turn off. So, if your operating expenses are $5k a week, you rely on a certain amount of foot traffic as well as delivery business to cover that. So, to shut down the foot traffic of people coming in to dine, that may not leave enough cash flow to sustain the rest of the business.”
Delia says this is not the time for knee-jerk reactions. Rather, he advocates a more accommodating approach.
“The way moving forward is for more customised business for the delivery platforms, rather than throwing away a valuable existing part of your business,” Delia says. “All of us need to find a better way to manage the way we are operating, but closing a dining room that is still doing good business is not the solution.”
Dining in to stay
The online takeaway market grew by 30 per cent in 2017 and is forecast to rise from about $1.5 billion in 2017 to $4.2 billion by 2025, according to a report by Morgan Stanley Australia.
While those figures are impressive, Ken Burgin says he knows not one restaurant considering shutting down their dining room to instead become an all-delivery operation.
“That’s because while the [home] delivery services are making big inroads into the industry, they are not taking away the demand for customers to still dine in at restaurants,” Burgin says.
“The way moving forward is for more customised business for the delivery platforms, rather than throwing away a valuable existing part of your business.”—Shane Delia, chef, Maha restaurant
“If you are going to shut down in-house dining and just go for delivery, then you will need to have a formidable marketing machine that is powering your brand, far more than when you have a space that people can experience and is always there creating a visual impact about what your business is about.”
Burgin also explains that the figures simply don’t add up on the balance sheet, when delivery service charges are factored into the equation.
“What you need to do is work this out on the spreadsheets, where you have around 35 per cent on total wages and around 25 per cent on food costs. Now add in anywhere from 14 to 30 per cent on delivery charges, and just see what that leaves over for operating costs of rent, power and the rest of it,” Burgin says. “It simply does not make sense with those figures to shut down a good dining room.”
The Loose Moose Tap & Grill House is one of the most popular restaurants on the Gold Coast strip and has used Uber Eats over the past 12 months. While delivery has proven successful, marketing manager Karley Beadman says it does not come close to the profits made through in-house dining and at the bar.
“Our restaurant is very much about the experience,” she says. “They are also ordering alcohol with our cocktails and 25 beers, so it’s clear our profits are coming from people being in here, not from customers ordering us up from home.
“Restaurants run at a very small net profit at the best of times, and with the delivery services taking around 27 per cent on those orders, that’s significant.”
Combining the two
Alistair Venn is the managing director of Menulog Australia, which places a flat 14 per cent commission on each order. Venn says while customers are showing that they want food delivered on certain occasions, he does not believe they want it all the time.
“I don’t believe any particular restaurant needs to make that black or white decision of, ‘I am only a dine-in venue or only a takeaway venue’,” Venn says, adding that taking a broader view of where the new trends are taking the business and accommodating them might be the better approach.
“If you’re going through a refit on an existing restaurant, maybe you do build a bigger kitchen and a dedicated space for delivery drivers, as well as a dining room for the consumer to still have that personal experience.
“Customers can feel a little nervous about buying from a place they’ve never been into before, where they’ve built a relationship with the owner and staff and experienced the ambience of that dining room. So even having a smaller location for a few tables, that still adds value to the business.”
Venn mentions Pizza Hut’s announcement to expand its range of dine-in restaurants, after years of focusing on delivery and pick-up services.
“It’s so interesting just how cyclical all that is, and to also remember that customers still choose, based on their requirements at that time, to have a nice sit-down dinner at a restaurant.”
Shane Delia has also begun operating two so-called dark kitchens (ghost restaurants) as part of his overall business, but insists his businesses will always include a place for in-house diners, like at Maha. “There are still restaurants doing amazing stuff that have diners lining up, and I don’t believe Uber Eats or the others are about to change that,” he says.
“This is the time, however, to adapt and change, as what is going on now is going to only keep changing.”