PART 1: RESTAURANT HOW RESTAURANT COMPANIES GET “RIPPED OFF” BY SERVICES PROCLAIMING TO ASSIST THEM
After my last blog post on LinkedIn and on my websites, I had some e-mails and calls with some people that had read my posting and I received some fantastic feedback.
One constant theme I heard was that they suggested I “drill down” into the different parts of the post, with smaller more targeted topics. So, this will be the first part in a multi-part follow up series.
As consumers, when we order online from the big delivery companies (Uber Eats, Doordash, etc) we do not think about the impact our ordering through those services has on the business.
I call services like these “rip-off” services. Not because they outright steal from clients, but rather they take advantage of restaurant owners who feel they have no choice but to join these services.
And they gouge the heck out of them with fees.
The average restaurant (According to a survey completed by TOAST) makes somewhere between 1% – 15% net profit, with most in the 3%-5% range. To the “math challenged” such as myself, that means most restaurants only keep 3-5 cents out of every dollar in profit.
Not a lot of wiggle room there, we can agree.
However, when we order from delivery-services they have fees ranging from 10% of that order to 30% of that order that they will charge the restaurant. So, you can see that using these services is a “loss leader” in great times, and a TERRIBLE way to do business if this is the only way for you to serve your customers.
This is exactly what restaurants are dealing with during this pandemic.
Recently there has been a unified outcry by restaurants across the US asking these services to reduce their fees (San Francisco, New York and Boston restaurants for example).
All the major “rip-off” delivery services refused to lower their fees.
Now we have all seen the commercials from these services, tugging at our heart by telling us we should use them to help keep restaurants in business.
By using these services in these times, all we are doing is expediting the demise of most restaurants.
But the restaurants are desperate.
I spoke with a restaurant owner in New Jersey on Monday and he explained to me that he never thought the majority of his business would end up being through these services and it is killing his profitability.
As he explained it to me, he never knew he had options besides these services and quite frankly his business while very successful in his area, was not set up for being pro-active in his marketing.
Another rip off “service” for restaurants is Groupon.
Here is an example why Groupon should be banned by all restaurants:
Groupon will always suggest to you an offer…such as offering a coupon for $7.00, for $15.00 worth of food.
Now remember at $15.00 the restaurant is only making 45 cents to $1.50. For this example, let’s just say the restaurant will make $1.50, meaning $13.50 goes to expenses.
If the restaurant sells 50 coupons for $7.00 then the total revenue is $350.00.
However, Groupon takes approximately 50% of that revenue leaving the restaurant with $175.00 in revenue.
To gain that $175.00 in revenue, the restaurant will incur somewhere around $675.00 in expenses.
That is a recipe for bankruptcy.
Now Groupon will tell you that you gain new customers. That is complete BS.
What you do is increase your traffic, anger your regular full paying consumers, all while you flush money away.
And Groupon does not always allow you to cap how many you can sell.
Can you imagine if this restaurant sold 100, 500 or 1000 of these “deals”?
Also, with Groupon you do not have control of the data…the customer information is kept with Groupon.
This does the restaurant absolutely no good in the long-term.
Last week I spoke to a restaurant owner of a small cafe in New York. What I described in my example to you was nearly identical to an actual recent situation she had with Groupon recently.
Except in her case they sold over 300 and she needed to borrow money to cover her losses, because it was her first time using Groupon and she did not understand the ramifications to her business.
The solution to these “rip-off services” is to bring more of this “in-house” and take control.
Restaurants can create their own on-line ordering system for very little money and more importantly NOT have to pay 10%-30% to the “rip-off” delivery services.
Creating an in-house marketing strategy will allow you to NOT have to rely upon services like Groupon, which essentially bleed you of your profits.
Having a system to gather customer data and utilizing it to communicate with those customers when it is essential for you to do so, puts you in control of your business and that is a recipe for long-term success.
Companies like Groupon and the delivery services are taking advantage of restaurant owners who do not understand how to maximize their marketing in an efficient and effective manner.
If you would like to learn more about how our Restaurant Recovery Plan has helped restaurants in many states, please reach me at:
firstname.lastname@example.org or 774-284-0119
Thank you for reading.