In today’s digitally connected world there are many ways for the simple neighborhood restaurant to innovate and update. In this post, the concept of app based food delivery will be broken down by its positives and negatives in an effort to help you decide if it’s worth a try!
For starters, there are many apps entering this hot new market, it began in large urban cities and has now expanded into surrounding suburbs and even some rural areas that were one thought to be unreachable. For a more detailed breakdown of specific applications through an accountant’s perspective, take a look at our blog series here.
Before we begin, there are two types of delivery app services. One operates as a platform for restaurants that employ their own delivery drivers, another operates by sending the delivery driver, or courier, to the restaurant to pick up and deliver the food themselves. Both are achieving the same goal but should be thought of separately, choosing which type truly depends on the individual restaurant’s wants and needs.
Pro #1: A Larger Market
It’s no secret that featuring a restaurant on a popular mobile app would increase the market of prospective customers, though is it worth the fees associated with being seen on these apps? Among hundreds of other local restaurants, many applications are charging “marketing fees” to display your restaurant more prominently on their platform, this can be a great way to advertise if it’s within the promotional budget. If not, Facebook and Instagram ads are the best way to advertise a small business, especially a restaurant. There’s just something about a great food photograph that lends itself to a social media advertisement.
Con #1: The Cost
If you’re new to the mobile food delivery scene it’s important to understand the fees, these mega-apps have to make their money somehow, right? There will be a commission, this is almost always a percentage of the total sale (per order). The commission can range from 8% to as high as 30%, many services are shy to disclose their exact rates, and why they vary from restaurant to restaurant. Typically, there will also be a credit card processing fee (as with most industries that process credit cards), which shouldn’t be over 3%. Surprisingly, some services will collect and remit taxes for restaurants, which means that sales tax is deducted from your deposit. This process eliminates potential issues for restaurants that are caused by the need to calculate sales tax. Sales tax remittance is covered in our service-specific blog posts linked here.
Pro #2: Opportunity!
Mobile food delivery is not something to be scared of, it can be quite a good opportunity if approached correctly. We suggest NOT posting your entire menu “as-is” on the app and hoping it goes well. Perhaps design some high margin items to ensure that you’re making money. Also, design the items so that they travel well in the delivery driver’s car to guarantee that the food is arriving to the customers at your standards. If there’s a menu item that doesn’t travel well (fries steam themselves in the bag, aioli sauces separate when heated, juice from one item leaks onto another, etc..) find a way to fix this, or don’t bother offering to deliver it, unless the chef is driving it himself. American Chinese takeout and American thick-crust pizza were specifically designed for this purpose, they travel exceptionally well! I’m not suggesting opening a Chinese restaurant, but consider a new approach with the same goal. Delivery can be profitable and easy if the menu is well thought out and planned.
Con #2: The Accounting
As restaurant accounting experts and Dataurant Pros were more comfortable than most when it comes to properly recording these delivery transactions. We understand that this is a confusing and often mistake prone process for many, we want to help simplify this. For a more detailed accounting focused example, check out our service-specific blog posts here.
It is important to understand that these delivery apps should not be classified as discounts in your POS system, they are methods of payment. Correcting this common mistake will lead to a better understanding of how these transactions work. Deciding which delivery service to work with will also have a big impact on your accounting, for instance Yelp EAT24 deposits net after all your fees and taxes though OLO deposits gross and expects a commission payment monthly.
Conclusion: What’s the Verdict?
Many of these services are great, though we have found throughout our research that a lot of them can be hard to reach and aren’t necessarily optimized for the restaurant’s experience, they are more optimized for the customer experience. We expect a lot of these issues will be worked out over time, so perhaps it’s worth the wait. Otherwise, take a look over at our service-specific posts for a more thorough analysis of each application.