As technology continues to foray into the most intimate of human experiences, consumers and businesses alike are witnessing massive disruption to the conventional way of doing things.
A prime example of an industry disrupted by technological innovation is the restaurant industry. While the current food ordering process only takes a minute of scrolling past a food ordering application, yesteryear food aficionados had it very different.
You had to choose from a select few of the restaurants that delivered to selected destinations and call them using landlines. Eventually, a rider would arrive with the only option to pay in cash.
An industry that once prided in the atmosphere of its dine-in experience, the cordiality of its takeaway representatives and the location of premises has now been reduced to a supplier status – thanks to the rapid rise in the number of online ordering platforms such as GrubHub, UberEats and Doordash.
The Rising Growth Of Online Ordering Platform
The advent of the sharing economy has earmarked a significant event for the world. No business is left untouched by the impact of this significant breakthrough, and certainly not the restaurant industry.
While the first instances of food delivery date back to thousands of years, the modern online ordering platform model banks on the same idea: providing restaurant-made food for people who are not willing to leave their homes and travel to dine.
And the people here represent a significant chunk of millennials who want to enjoy premium cuisine but from the comfort of their own couch. The first online ordering platform opened up in 1995 and the industry has seen massive growth since then.
Renowned companies, like GrubHub and Seamless, joined the industry in the early 2000s. To make matters more competitive, DoorDash and Uber Eats joined in 2013 and 2014 respectively. The growing number of competitors is a testament to the growing potential of the online ordering platform industry.
The option to view multiple restaurants affords consumer choice, and the promise of swift delivery further seduces the consumer’s quest for convenience. The abundance of food choice, paying through credit and doorstep delivery combine to become a service that millions of individuals around the globe rely on a daily basis.
The growing demand reflects the growing market cap. Statista estimated revenue in the online ordering platform segment to $94.385 billion in 2019. It estimated revenue to show an annual growth rate (CAGR 2019–2023) of 9.3 percent, resulting in a market volume of $134.49 billion by 2023.
The top three of the online ordering platforms, namely Grubhub, DoorDash, and UberEats, enjoy the bulk of this increased demand. According to a survey conducted in September 2019, the three online ordering platform combined catered to about 84% of the entire meal delivery market of the United States.
While this statistic provides an insight into how the efficacy and an extensive network of these delivery services have benefitted the population at large, the other side depicts a horrifying picture for the third party involved in the industry: the restaurant owners.
As major food ordering platforms continue to assert their dominance and leverage it for an unfair advantage, it is the restaurants who are facing adverse consequences.
How GrubHub, UberEats, And DoorDash Are Costing Restaurants
When online food marketplaces first came to the scene, they benefitted both the consumers and the restaurant businesses. While the consumers benefitted from increased convenience, businesses found out they could deliver food without investing in their own delivery service and related logistics.
However, as these online ordering platforms have grown in market share in recent times, restaurants have seen themselves on the receiving end of this rise in food delivery practice. The intense competition in the industry has already afforded consumers to choose between a wide array of food ordering options.
Some cuisines that were previously considered ‘niche’ are now commonplace delivery items, such as Greek and Thai ethnic cuisines. This has already forced the price levels enacted industry-wide to fall down in recent times, in order to cater to a larger target audience.
The rising trend of food delivery has further complicated matters for restaurant owners. With more than 1 million restaurants vying for a place in the consumer order through these applications, such marketplaces have been afforded a lot of power, which enables them to decide who gets more orders and further charge excessively high commissions.
Ever-Increasing Booking Fees
One of the gravest concerns restaurant owners have regarding these increasingly dominating online food marketplaces is their excessively high booking fees which leave little for the businesses to take home.
According to the New York Post, UberEats demand a significant 30-35% cut of every bill that goes through their portal. While this may (rightfully) seem excessively high, this is the norm within the industry.
Other industry competitors, such as Grubhub and Seamless also take away a considerable chunk of your profits with commission rate ranging between the 12-24% bracket. Other brands such as DoorDash, Postmates, and Caviar don’t lag behind – asking for commission rates as high as 25%.
When taken in perspective, this is a very large percentage to absorb for an industry where profit margins are very low. Several industry-leading reports have outlined how the restaurant industry continues to struggle with increasing overheads and decreasing amount of consumers willing to come in and dine.
According to UpServe, the profit margin for the entire industry as a whole is around 3-5%. For individual eateries, this percentage can range from as low as breaking even to 15% profitability. When you add in sky-high commission cost from the big food ordering marketplaces, the restaurant is effectively operating at a loss.
In another survey by the Restaurant Report, food and labor cost restaurants approximately 50-75% of their total costs. For a $10 food item, you are paying $5 for food and labor and $3-4 for having the food delivered to the destination.
So now you have $2 left to factor in the various overhead expenses which involve utilities, rent, spoilage, and various other expenses. Even if you factor in the increasing business that is coming your way, you need to realize the fact that online ordering platforms are essentially taking business away from your core function: dine-in customers.
With a survey revealing that forty percent of food orders replace the one that would otherwise be eaten at a restaurant – restaurants are effectively incurring a loss at a service that is further deriving business away from their joint.
While this may make economic sense if such food ordering marketplaces were profitable, but that is not the case with UberEats, Grubhub and DoorDash. As the owner of Mulberry & Vine puts it: “We know for a fact that as delivery increases, our profitability decreases.”
There have been various lawsuits filed against these marketplaces. These lawsuits are usually filed by restaurant owners who are tired of the shady tactics these companies apply to charge more from such small-time restaurants.
One such lawsuit was filed by Minush Narula, owner of the ‘Tiffin,’ which operates in Philadelphia. This lawsuit was filed aginst one of the most famous online ordering platforms, Grubhub. And the details reveal the murky business these platforms deploy in order to charge extra.
Before getting into the details of the lawsuit, it is important to understand the background of the various charges these platforms apply. One such extra charges are levied on calls, where calls that are routed through the Grubhub app are treated as order calls and documented as such.
Once a restaurant chooses to enlist in the Grubhub application, the company assists them in setting up a new, independent POS and a cellphone. An additional POS and cellphone mean additional work on the existing workforce, and thus reduced efficiency. But there’s more to the story.
The appointed phone number is what is displayed on Grubhub’s site and application. Once the customer places a call, Grubhub makes use of an algorithm which determines whether the call is an order call or non-order call. This is where the caveat lies.
According to the plaintiff, Minush Narula, Grubhub is charging them as much as $9 per call for non-order calls. For a hustling restaurant, this translates to hundreds of dollars’ that are being charged regardless if an order is made or not. Nonsensical, right?
While the platform blatantly denied the accusation, the growing shadiness of such tactics has left restaurateurs searching for alternatives to GrubHub or consider dropping the delivery component of their business altogether.
Dubious Contractual Terms
If unfair high commission rates and levying vague charges on consumer calls were not enough, restaurateurs are required to conform to suspicious contractual terms that are offered by such online ordering platforms.
From a practical perspective, the restaurant is required to prepare and cook the food whereas such ‘delivery partner’ is responsible for the logistics and safe delivery of the food to their respective destinations.
However, a deeper look into such contracts reveal how such online food marketplaces mystify their contracts under complex and jargon-infused terminology to confuse restaurant business owners. In reality, this tilts the entire responsibility of the entire food ordering process on the restaurant.
Let’s take UberEats for instance. As one of the fastest-growing online ordering platforms, UberEats is one of the most popular delivery providers consumers refer to. However, that’s not what their contract states:
According to an article on ABC News, one of the most primary terms state that: “You acknowledge… Uber is a technology services provider … and does not provide any delivery or logistics services.”
Ironically, a company that does not provide any sort of delivery or logistic service is entitled to a 35% commission on every food delivery made by the restaurant. And that is just scratching the surface.
Despite Uber completely waiving off anything to with ‘food delivery’ in its contract documents, as soon as you access the UberEats website you are greeted with this:
The website is replete with direct references to delivery services and just how much they love delivering your favorite food to you. Such dubious terminology shifts the entire responsibility focus on the restaurants, where in reality, restaurants have zero control over the delivery partners responsible for transporting food.
Yet another controversial term in the contract is that the online ordering platform requires partnering eateries to accept that the ‘delivery partners are our agent.’ Simply put, they want restaurateurs to hold the sole responsibility of the food delivery drivers.
In reality, restaurants have no authority over the delivery routes or work schedule of such drivers who simply operate through the application guidelines. Even for the drivers who operate through the UberEats application, they are required to sign a contract that explicitly states that they are “… not an employee, subcontractor or agent of Uber.”
Why does Uber go to such great lengths to distance itself from any authority over the entire process or delivery people in its contracts?
The answer is simple: to avoid any responsibility if there is a mess up anywhere in the entire process. What if the food reaches the consumer either cold or in a state that it should not be in? Because UberEats has shirked all responsibility, the onus of the refund falls on the restaurants.
Acts like these adversely impact the already-strained relationship UberEats shares with its food partners – the restaurant business owners. Gradually but certainly, the divide grows to the extent that either the restaurant has to close down its delivery service or look for an alternative to UberEats.
Food Ordering Marketplaces Are Forcing Restaurants Out Of Business
Restaurants are wooed by the promise of the increased exposure such applications can afford to their businesses, particularly small-sized restaurants that don’t have the budget to market on a wide scale.
However, once they get involved in the process they find out that these online ordering platforms are not adding to their bottom line. In fact, as some eateries found out, they are actually taking away from your business.
One such victim of these marketplaces was the San Francisco-based Gaslamp Café. A hustling café which was renowned for its quality and taste couldn’t cope up with the heavy cuts levied by these delivery places.
In the end, it had to shut its doors down in February 2019. But they did convey their frustration through a sign they posted outside their now-closed restaurant: “Ordering online does more damage to businesses than it helps. Any profit from sale is stripped away by the fees they charge the restaurant, which leaves only enough to cover the cost of food.”
And it is not just the small and medium-sized companies that are finding out the harsh reality behind these online food marketplace. Even industry giants like McDonald’s have dumped these food delivery vendors.
This begs the question – when restaurants operating on a scale as big as McDonald’s fail to derive positive ROI from these platforms, then why are restaurants still using them?
Here’s why – while popular online ordering platforms like Doordash, Grubhub and UberEats continue to fuel their growth at the expense of medium-sized restaurants, the eateries cannot afford to close doors at this increasingly important part of their business.
60% of US consumers order food delivery at least once a week, with 31% stating that they use third-party online ordering platforms at least twice a week. The online food ordering phenomenon has grown at an exponential rate in the past decade, approximately 300% faster than dine-in traffic.
For a restaurant to operate in the modern business environment, offering food delivery services is a prerequisite to expose yourself to the highly delivery-geared target audience.
This is where the problem arises. While food delivery remains a necessary service, the major food ordering marketplaces are actually having an adverse effect on a restaurant’s business. What is the way out for restaurateurs? The solution lies in opting for an alternative for DoorDash, Grubhub or UberEat.
Download a free ebook and see how to negotiate cooperation with online ordering platforms.
The Solution: White Label Food Ordering Services
With the overwhelming majority of consumer’s content to order food online, restaurants need a delivery solution that prioritizes their business and benefits their bottom-line. This is where UpMenu comes in.
As one of the leading white-label online food ordering system providers, UpMenu offers restaurants a financially viable and sustainable alternative to food ordering platforms such as UberEats, Grubhub and Dashdoor.
When looked from a restaurateur’s perspective, not only do you save the money that was going from your own pocket when dealing with other online food marketplaces, but the additional features offered by UpMenu will allow you to scale further.
How Does UpMenu Help Your Restaurant Business?
Basically, what UpMenu does is allow restaurants to build their own brand presence on the internet. Your consumers benefit from a customized experience and you increase your brand awareness through your very own online portal.
Here are a few ways UpMenu can give your restaurant that much-needed boost:
Cater To Online Orders
Online delivery and takeaway is the undisputed business model of the modern-day restaurant business. With 63% of customers stating that they prefer having food delivered to their homes instead of dining in with their family – it’s safe to say that eateries must cater to the rising online demand for food.
While online food marketplaces like DoorDash charge excessively high commissions and deploy shady tactics, UpMenu allows you to create your online portal from the ground up. No need to integrate external portals or change your POS systems, with UpMenu you can integrate a highly interactive menu on your website itself.
With the industry trend shifting drastically towards smartphone applications, UpMenu allows its partners to create iOS and Android native applications as well.
Additionally, 70% of consumers state that they would rather order from the restaurant itself instead of relying on third-party online ordering platforms. This makes it obligatory for restaurants to be where their consumers are – online.
Build A Consumer Database
Having an organized consumer database is one of the most important aspects when it comes to the promotion and advertisement of your restaurant.
With the help of a database, you can send highly targeted marketing messages to people who are familiar with your business – leading to considerably high conversions when compared with advertising to the general public.
With UberEats, Grubhub, etc., the platforms keep sole possession of all consumer-related information. That allows them to develop a highly targeted database which they exploit to promote and enhance their own brand.
With UpMenu, as your customers continue to place orders, the system continues to curate a consumer database for your business that you control! For small and medium-sized restaurants that do not possess the means to market and promote, this database provides them a cost-effective way to market their brand to their target audience.
Advanced Marketing Options
What is the use of a database if you’re not using it to disseminate your restaurant-related promotional messages? With UpMenu, you don’t need to invest further money in email marketing software.
UpMenu provides you a broad range of marketing services in-built into the existing system. That means as consumers continue to order through your online portal, the system continues to create a consumer database and further allows you to send promotional messages from the same place.
While you can use popular communication channels, such as SMS marketing and email marketing, UpMenu also allows you to increase visibility by promoting your brand through push notifications for consumers who have downloaded your application.
Got a new item that you want consumers to try? Promote it with people who already like your restaurant and have signed up for your newsletter in an instance. With UpMenu, all it takes is one click.
Increased Promotional Efficiency
From fine-dining cafes to fast food joints, no business in the restaurant industry can claim to function without a promotional strategy in place. Sometimes they are in the form of loyalty cards, vouchers or discount coupons.
One of the most frequent grievances consumers have from restaurant websites is the lack of promotional services on offer. With UpMenu, you can create various promotional strategies that can help build loyalty, provide more satisfaction and ultimately improve your bottom-line.
Here is a glimpse of the several promotional strategies available:
Discount On Certain Items
Do you want to increase the sale of one of your food items? Maybe you want to remove it and want to get rid of the already-bought inventory?
With UpMenu you can offer such items or entire groups for discounted rates without any complications.
Discount On Items And Amounts
If you want to increase your AOV (average order value) and want consumers to order more than just one selected dish, UpMenu allows you to offer discounts for every second product that is added to the cart. Additionally, you can also configure discounts to apply when the total bill exceeds a certain amount.
Online ordering platforms vs UpMenu costs
Food marketplaces have several subscription levels. To see what the costs might look like, we’ve included several commission levels for them in a table. Assuming that each order costs an average of $20, for several levels of sales volume the commission is as follows.
Please note that these are only monthly costs. Raising them to the scale of a full year would be much, much higher.
For an alternative such as an online food ordering system on a restaurant website, you will pay one fixed fee. The more your customers order, the more you earn, not pay.
Having your own online food ordering system means huge savings. With even the fewest orders you can save $6,552, and with the largest as much as $37,632!
Your own online orders on a restaurant website or in a mobile app cost many times less than via a food portal. It is simply not worth basing your online sales strategy on cooperation with the portal.
As food delivery continues to become a must-have offering for every restaurant, restaurateurs are having a hard time choosing between the major online ordering platforms. With sky-high commission rates, dubious contracts and no access to consumer data, working with such platforms has adversely impacted thousands of restaurants.
On the flipside, UpMenu offers a white-labeled online ordering platform that allows restaurants to not only take control back from such marketplaces but also leverage additional features that can elevate their restaurant to the next level.
In addition to the features discussed already, UpMenu allows restaurants to cross-sell, up-sell and create a highly effective loyalty program. This provides a complete growth package for restaurants that creates a loyal group of consumers, while also appealing to the ones that are yet to convert.
With low-profit margins and increasing competition, restaurants must undertake proactive measures to cater to the ever-growing demand for food delivery. With white-label online ordering platform option such as UpMenu available, restaurants can enhance their visibility and scale their business considerably.