How Online Ordering and Delivery Services Are Reshaping Restaurant Profitability

The restaurant industry is experiencing a paradigm shift like never before. The advent of online ordering and the surge of delivery services have not only changed how customers enjoy their meals but have also significantly impacted how restaurants operate and profit. In this deep dive, we'll explore how adding online ordering and delivery options affects restaurant profitability. Along the way, we’ll share insights and opinions on what this means for the future of dining.

The Rise of Online Ordering

Online ordering isn't just a convenience—it's become an expectation. With the proliferation of smartphones and the internet becoming an integral part of daily life, consumers increasingly prefer to order food online for both delivery and pickup.

From 2019 to 2022, the online food ordering market grew by approximately 30% annually. The COVID-19 pandemic acted as a catalyst, pushing even the most reluctant consumers and restaurants into the digital realm.

The Impact of Online Ordering and Delivery on Restaurant Profitability

Online ordering and delivery have the potential to be both sources of growth and profitability for restaurants - restaurants that have embraced online ordering have seen their revenue grow by 25%-40%. Also, online ordering opens up additional sales channels, allowing restaurants to serve more customers without the limitations of physical seating capacity. Finally, online orders reduce miscommunication, leading to a 15% decrease in order errors

Commission Fees for Online Ordering Platforms

While third-party delivery services offer the allure of expanded reach, they also impose hefty commission fees that can severely impact a restaurant's bottom line. These percentages might seem abstract at first glance, but consider a modest order of $50. With a 30% commission fee, that's $15 straight out of the restaurant's pocket for a single transaction. Multiply this across hundreds or thousands of orders, and the financial impact becomes staggering

Brand Dilution

In the crowded ecosystem of food delivery apps, individual restaurant brands can become lost in the shuffle. The user interfaces are designed to promote variety and discovery, encouraging customers to try new places rather than fostering loyalty to a particular establishment. This brand dilution means that even if a customer enjoys your food, they're just as likely to be swayed by a promotion or flashy advertisement for another restaurant the next time they open the app.

Customer Data

Knowledge is power, especially in the competitive world of hospitality. When orders come through third-party platforms, restaurants miss out on valuable customer data. Information such as ordering habits, peak ordering times, and customer feedback is either withheld or aggregated in a way that offers little actionable insight. Without this data, opportunities for targeted marketing, personalized promotions, and relationship building are significantly diminished.

3 Strategies to Navigate Online Ordering

1. Investing in Proprietary Online Ordering Systems

Restaurants can (potentially) save on commission fees and have direct access to customer data by developing their own delivery platforms. By launching their own online ordering app, they not only saved on commission fees but also gained direct access to their customers. Personalized push notifications, loyalty rewards, and exclusive in-app promotions can lead to a remarkable 15% increase in profit margins.

2. Encourage Pickup Over Delivery

While delivery offers convenience, pickup orders eliminate the need for middlemen and reduce operational complexities. Restaurants can motivate customers to choose pickup by offering tangible rewards. Discounts on pickup orders, loyalty points that accumulate faster with pickups, or a complimentary item with every pickup purchase can shift consumer behavior. These incentives not only save the restaurant money but also provide added value to the customer.

3. Marketing Strategies for Pickup Order

Crafting a narrative around the benefits of pickup can be a powerful tool. Emphasize the immediacy and freshness of enjoying a meal straight from the kitchen, without the potential delays of delivery. Highlighting stories of employees preparing dishes with care or featuring customer testimonials about their pickup experience can personalize the marketing message.

Looking Ahead

As restaurants continue to grapple with the impact of COVID-19 and technology continues to evolve, restaurants must adapt to stay competitive. This might involve embracing new ordering platforms, investing in customer relationship management, or innovating with menu offerings that cater specifically to online customers.

In the end, those who can navigate the complexities of online ordering and delivery while maintaining profitability will set themselves apart in a crowded market. It's a challenging balancing act, but with thoughtful strategy and a focus on both customer satisfaction and financial health, restaurants can thrive in this new digital dining landscape.

National Restaurant Association, 2022

Restaurant Technology Report, 2022

Restaurant Technology Case Studies, 2022