The Internet is everywhere and impacts all areas of our lives. How we find and interact with restaurants is no exception. In the age of the gig-economy we have been conditioned that there will be a service worker that will connect the last mile between us and our food. Ever since the first Pizza delivery we were ready for this. And, the restaurant industry likewise has embraced the new business model. Ordering apps like Grubhub, Uber-Eats and Waitr are everywhere.
Restaurateurs are not technologists but they understand that they need an online presence so that customers can purchase food online. The switch from phone to online ordering occurred relatively quickly. Five years ago, more people still ordered food by telephone than online. Now, a majority of orders are originating online. The COVID epidemic is compounding this trend. Restaurateurs are struggling, knowing that if their restaurant doesn’t allow customers to order online they will not be able to compete and may have to close their doors.
However, in their haste to find such a solution, restaurateurs are also making grave, and sometimes fatal, mistakes. Enticed by promises of enjoying such online ordering capabilities, along with a vastly wider audience and minimal barriers to entry, they sign up to list their restaurant on an online ordering marketplace such as Grubhub or Uber Eats.
A few months into using this online system, the restaurant may have to close, having been bled dry by super high commissions while their customers slowly — but certainly— got directed away to competitors.
Online ordering marketplaces (also known as “food aggregators”) are companies such as Eat24, its parent company GrubHub, Postmates, and Uber Eats. And their pitch is positively magnetic to restaurant owners.
These platforms aggregate thousands of restaurants onto a centralized website. As a result, restaurants can easily add online ordering and delivery capabilities. Users also benefit, as they can find restaurants, browse menus, read reviews, and order food—all within the Marketplace app.
The restaurant can quickly add the missing essential online ordering capabilities and there are no up front fees. They don’t have to build or maintain any complex technology or ordering site. The Marketplace does all the hard work, while the restaurant just counts the money that is rolling in.
Sound too good to be true?
Regrettably, this old adage still holds. And, there is also no free lunch (which is well known to restaurant owners). In the case of online ordering marketplaces, the promised benefits come with a nasty catch: the extraordinarily high commissions they charge restaurants.
This may take a bit to understand. It may seem fair at first since the Marketplaces do all the work and spent all the money to make the online ordering work. The restaurants do not do anything. And, since these online marketplaces introduce these restaurants to a bigger, wider audience, it would be easy to justify the lost profits with the reach of enough new customers.
The problem is that the math does not work in favor of the restaurants. The high cost associated with these marketplaces does not become visible until it is too late.
The True Cost
The business model of an online marketplace is a shared revenue model. In this case the restaurant shares revenue with the marketplace. Let’s take a $100 order placed through GrubHub. Here is how that would break down:
|Order Commission||13.5 percent||$13.50||on order total|
|Processing Charge||3.05 percent + $.30||$3.35||prepaid orders|
As mentioned, it’s not surprising that online ordering marketplaces that do not ask for upfront fees will charge for each order. In our example, the base fee is in excess of 16% for each order processed. This alone can put the restaurant in a poor position. But more fees can be charged for positioning and advertising of the restaurant on the platforms. So, a restaurant in aggregate may actually pay more, sometimes twice as much.
Want to learn more, please see our XcooBee Restaurant Savings Calculator for an example of annualized cost calculation.
The added danger is that existing customers of these restaurants are turned into customers of the marketplaces. People that would be directly ordering from the restaurant may be enticed to “try” another competitor nearby that pays a higher commission. This creates a double hit for the restaurant that uses a Marketplace. They cannot afford to leave as their customers may be directed away, but they cannot afford to stay since they have to pay these high commissions to the food-aggregators.
Higher Cost for All
When restaurants run final total they find that delivery apps take a enormous toll on their profitability, especially with rising online ordering habits. However, the overall costs are also rising for consumers. Both sides are being squeezed.
|GrubHub Cost||15% to 40%|
|Waitr Cost||15% to 25%|
|Uber Eats||30% to 45%|
|Postmates||20% to 30%|
Why is this still going on
The enormous pressure to run a restaurant sometimes gives to quick and fool-hearty decisions. Any business person would rightfully challenge the industry practices. Yet, they persist. In today’s restaurant industry, too many restaurateurs are either unaware of these problems, or believe that their marketing dollars are well-spent on these marketplaces.
The success of these aggregators has one more element that makes it difficult for a restaurant to survive. More and more competition on each marketplace means higher search fees and fewer customers for the restaurant, causing the profit margins to shrink further.
This is a vicious cycle. Restaurants have become depended on a third party for takeout and delivery sales, but with each sale, a healthy chunk of money goes out the door. In an industry already notorious for its razor-thin profit margins, these steep cuts from third parties can—and do—sink restaurants, taking the restaurateur’s hopes, dreams, and livelihood with it.
Where do Customers Go
Restaurants try to solve this vicious cycle by creating their own online ordering systems. However, as we stated in the beginning, technology management is not a strong suit of the average restaurateur. Maintaining a site, technology stack, dealing with programmers and bugs and the overall logistics of software construction is far beyond the resources of small eateries. Only big chains would have a chance at this.
This is where XcooBee Contactless Payment fits in nicely. It is usable with tools that the average restaurateur knows how to use, such as a restaurant menu and Microsoft Word or Adobe Acrobat. It is also simple for their customers to use. And, unlike Marketplaces there are no commissions to pay. All this is available for a very affordable monthly subscription. But, there is more: Based on the security and privacy strength of XcooBee, XcooBee Pay cannot be spoofed by malicious aggregators that attempt to take a slice of the non-member restaurants’ pie by mimicking fake websites.
The Bad Tactics
Speaking of malicious food aggregators: They can destroy the hard work a restaurant has put into search engine optimization (SEO) over night. Redirecting would be diners to alternate restaurants that are in their network. They may do so, if a restaurant refuses to sign up with them.
The aggregators can also put up fake websites that look similar but are not the same and confuse would be diners. This is done, it appears, to nudge customers into pressuring the restaurant to sign up with the Aggregator. Or, at the very least, create a negative brand association in the now-confused-and-irritated customer’s mind.
How to Maintain Control
If you’re a restaurant owner concerned about the increasing control online food aggregators like Uber Eats yield over your business, there are a few things that can be done.
- Trademark your company’s name so that you can protect it.
- Add online ordering to your restaurant’s website using innovative online ordering like XcooBee.
- Claim your Google My Business listing and be sure to add your restaurant’s locations online ordering link.
- Spruce up your SEO so customers don’t get lured into a phony third party link.
- Offer incentives only for customers to place direct orders through your restaurant’s website or XcooBee enabled Menu
- Enable your Take-out menu with XcooBee smart QRs so that diners don’t have to look for a website in the first place.
Restaurants absolutely must regularly monitor SEO when using any online food aggregator. You can avoid their tricks if you know what to look for. Do so, because failing to pay attention could cost you a fortune. Be sure to regularly run promotions for orders placed directly on your site or via your XcooBee menu. And remind your customers about them as often as possible.