How Food Delivery Companies Are Killing Restaurants

In this “microwave” generation, it is completely clear why delivery services are a hit. Companies like GrubHub, Ubereats, DoorDash, and Seamless make it super convenient to order from anywhere with the push of a button.

While we support using delivery companies to reach new markets, many restaurants agree that they are becoming overly-dominant. Delivery companies have become so powerful that they often shadow over local restaurants’ organic reach and eat through profits.

No need to worry, however. The best thing a restaurant owner can do is be fully aware of the problems that exist so they can be followed with action.

The Problem with 3rd Party Delivery Services

They take your search traffic

Restaurants are the #1 searched industry online according to a study by market research firm Chadwick Martin Bailey. Out of all mobile searches, 75% select a restaurant based on the search results.

As seen in the picture above, a search for “local restaurants near me” brings Grubhub to the first page of Google. Furthermore, they get 800k+ visitors a month! This means countless searchers are typing in keywords for your restaurant but GrubHub has the most authority over them.

On top of this, they are also pouring in tons of money into paid advertising and bidding high amounts for industry keywords. Bidding against them would be costly but there are certain ways around it as detailed in our blog post about getting found on Google in 2020.

The costs exceed expenses

More restaurants are finding that even though their deliveries increased, they can’t say the same about their profits. It is common for restaurants to pay 20-40% of their revenue to 3rd party delivery apps.

Here is a break down of the typical costs with delivery apps, using GrubHub as an example:

  • Base price of 20% to be listed on their website
  • Additional 10% for a ‘premium’ listing
  • 10% charge for each delivery

The typical profit margin for restaurants is 15-20% so you can imagine how 40% of profit as an expense would be impactful. Often it’s hard to see the effects because of the surge in deliveries but in the long run, expenses add up. It can especially be a headache to add all the numbers up because of the variables in profits from delivery.

They take the relationship with diners away

Perhaps the biggest problem restaurants face with delivery companies is the lack of relationships with diners. Building genuine relationships with diners is so critical for a restaurant’s long-term strategy.

Nations Restaurant News (NRN) states that 71% of restaurant owners prioritize understanding who their customers are. Restaurants that are serious about their long-term planning ask questions like these:

  • Do my customers live in the area?
  • Have they dined here before?
  • How often do they visit?
  • Who told them about the restaurant?
  • How did they find us?

As you can see, these are very valuable insights that will help restaurants adjust their offers to drive more business. Additionally, restaurant dine-in guests often provide useful feedback or compliments which help the restaurant change to better accommodate future guests.

The bottom line is, business that comes from delivery services are their customers instead of your own. You have less of a chance of building real relationships with customers and establishing loyalty.

What you can do

Limit use of delivery services

As mentioned earlier, we do acknowledge that delivery companies bring in new delivery business and help a little with awareness. For this reason, you may be hesitant to stop using them and we don’t blame you.

What you can do instead is limit your use of them. Use them only when times are slow and limit the menu items offered for delivery. This works great because you can offer a popular dish to give a sneak peak at your menu. The margins will also be easier to monitor with limited menu items when costs to the delivery company have many variables that give different profit margins.

With ChowEasy, restaurants get new dine-in customers to experience their restaurant directly and only pay a flat rate percentage without any extra costs. Find out more about ChowEasy here.

Step up your marketing

While 3rd party delivery companies eat profits, you may be thinking they at least help with your restaurant marketing. After all, these companies frequently end up on the first page of Google where your restaurant listing can be exposed.

Important to note however, is that you have no control over the marketing message portrayed by these companies. They don’t run their business by marketing with your best interests in mind. They market your restaurant according to how it will bring them more business.

This is why it is important to invest in your own marketing. Get in front of potential guests so they can directly find you. Here are some things to focus on:

  • Expanding social media presence on new platforms (if on Facebook, try Instagram, Twitter, or TikTok)
  • Creating engaging, valuable social media content on a daily basis
  • Writing blogposts
  • Loyalty program
  • Website content that details what is offered and highlights uniqueness
  • Flyers, sponsored events, banners, community engagement, press releases etc.

Build an amazing dine-in experience

Sit-down orders at restaurants are by far, more lucrative than delivery and take-out sales. A relaxing atmosphere combined with excellent service often lead to additional food orders, one more drink on the tab, or dessert. Dine-in guests also directly interact with your brand and give restaurants the opportunity to plant seeds for continued business.

Even in this “get anything without leaving bed” generation, dine-in customers are of the highest value and the majority of Americans prefer dining in. In fact, 2/3 of Americans would rather dine-in than get food delivery.

People still enjoy a wholesome restaurant experience with friends and family. It’s more than just the food for avid restaurant goers. Help create an amazing dine-in experience for your guests and it’ll pay massive dividends in the near future.

If you don’t know where to start, just put some heart and soul in the atmosphere. You can use ambiance, art displays, music and aesthetic interior design to help create an experience. Additionally, you can keep them coming back through game nights, live music, art shows, and open mic nights. When it comes down to it, you want to envelop them in an immersive world they can’t wait to return to.

Looking for a fun way to grow your restaurant business? ChowEasy is a restaurant marketing app dedicated to helping you get new, quality customers in your local area. Attract passionate foodies with promos that run on your schedule and on your terms with your restaurant name revealed only to committed diners. No upfront costs or commitments! Learn more now.

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