The hunger game

deliveryCustomers love it, but is it worth signing up your restaurant to one of the online food delivery companies? Kerryn Ramsey investigates.

Thanks to the popularity of online food delivery and takeaway ordering services, restaurants and cafes need to be delivery-capable. This revolution is a real game changer in the industry, but what are the pros and cons for your business?

First, it’s important to look at the current market before signing up. The three national players in the online ordering scene in Australia are Menulog, EatNow and Delivery Hero. Major changes took place this year, starting with the merge of Menulog—Australia’s largest ordering business—with its local rival EatNow, originally run by the James Packer-backed online retail organisation, Catch Group. However, that was just a warm-up—a few months later, the Menulog group was snapped up for $855 million by UK’s Just Eat. Its chief executive, David Buttress, told the Australian Financial Review that Menulog was “growing like a train”, with 5500 unique restaurants and 1.4 million active customers. According to the Just Eat website, its orders were up 96 per cent in the March quarter.

Despite this fanfare, there are other powerful players in the market to consider. Back in 1985, Suppertime expanded its courier business into a restaurant delivery service, currently running in Sydney and Melbourne. German-based delivery intermediary, Delivery Hero, has been running in Australia since 2011, while Zomato, an Indian start-up that launched in 2008, has grown exponentially. By 2015, it had a database of more than 1.4 million restaurants globally, and entered the Australian market by taking over Urbanspoon for $60 million in June. While Zomato came under the radar as an online restaurant review service, it’s already expanded into an online ordering and delivery service.

As this slew of online takeaway and delivery services continue to sign up restaurant and cafe businesses, customers are attracted to the competitive prices. According to Menulog, “set-up and listing is completely free—no contracts or joining fee”, and it recently launched its Healthy+ initiative, identifying healthy options on takeaway menus.

Overall, the appeal of these online services to customers is that there is no misunderstanding when ordering—no more wrong dishes or the wrong address, and customers can double-check their order before paying.

“It saves a lot of time and, as everything is in writing, it minimises the mistakes made by customers and staff,” says Charlie Hoyek of Manoosh Lebanese Pizzeria in Sydney’s inner-west suburb of Enmore, who joined Menulog six years ago and EatNow four years ago. “It also minimises costs for the restaurant owner as they don’t need staff on the phone.”

“It saves a lot of time and, as everything is in writing, it minimises the mistakes made by customers and staff.”—Charlie Hoyek, Manoosh Lebanese Pizzeria

Michael Fischer of Michael Fischer & Associates, a restaurant, cafe and hospitality brokerage and consultancy firm, points out that joining these services provides new revenue. He breaks down the cost, showing that being a member is a viable option.

“When putting together a takeaway or delivery dish, your labour is approximately 40 cents in the dollar,” he says. “Your rent is up to 10 cents in the dollar. The cost of goods is, say, 30 cents in the dollar, then all your other expenses
—including profit—are 20 cents in the dollar. The only thing that Menulog is going to cost you is the 30 cents in the dollar—basically the cost of goods provided—plus a commission. You don’t pay extra rent or labour and only very little in general overheads and that means the balance goes straight to your bottom line.”

Despite this positive approach, other industry members are rather disgruntled about the commission, which ranges roughly from 10 to 15 per cent. “It’s easy for cafes and restaurants to pass it on to Menulog or the like, if takeaway and delivery are just a small part of the business,” says Fischer. “But if it’s the main focus of your business, you can’t afford that constant commission on every order.”

Menulog could not comment on business model enquiries made by Restaurant & Catering magazine at the time of press. According to James Eling, managing director of Marketing4Restaurants, the commissions are squeezing small business with profit margins as low as 2.5 per cent. “I always say, the restaurant owner takes out a lease, acquires the equipment, hires the staff, buys the food, cooks the food, does the marketing, balances the accounts, and all of the other things that are involved in running a restaurant. Then you’ve got Menulog, which takes an order, most of the time from their customer, and they get a 10 or 12 per cent commission.”

He also says that customers typically don’t have brand loyalty to any one of the online platforms. “Do you remember the old days? If you ordered takeaway, there was a 10 per cent discount,” he says. “That has disappeared, partly because they have to pay for the delivery or they have to pay fees from online ordering services.”

Rather than dismissing the growth of the online delivery boom, he’s developed his own free widget, the Free Restaurant Online Ordering System [FROLO] which is currently being beta tested and will go live in November. Its point of difference is that there are no commissions.

“We’re building this for restaurant owners,” says Eling. “The costs of taking online orders have been too high for many restaurateurs to afford. Last week, we had a new record with a ‘tester’ bringing in $1800 in one night of orders.”

FROLO is aimed at restaurants looking to improve profitability without sharing their customer database. “We want a cafe that might only do five orders a week. It’s not much but at least the restaurateur is building his database and at the end of the year, he’s going to have 250 orders, which is a start.”

According to Hoyek, whose restaurant won Menulog’s Most Popular Takeaway Restaurant award last year, the 10 per cent commission isn’t “unreasonable as it should be considered as part of advertisement”. He’s also found that the commissions are lower if ordered through the restaurant’s website.

“However, I think they should review their new sponsor bids tool which involves bidding on the highest commission to be on top of the list,” he says. “Some restaurants are creating several different listings and putting the highest bid on all to have more than one restaurant appearing on top of the list. This has to be looked at properly as I don’t think it’s reasonable.”

Despite his gripe, Hoyek sees online ordering as the future. “Diners are definitely starting to use it more frequently,” he says. “Online ordering is growing larger with each passing year. Imagine it in 10 years’ time?”

This great content is produced for members of the Restaurant & Catering Association. Find out about becoming a member here.

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