For the hundreds of thousands of U.S. restaurants forced to stop serving customers and pivot overnight to serving takeout and delivery-only menu items, using food delivery companies to keep the orders rolling in may have looked like a lifeline—at first.
Yet the biggest winners of “The Great Lockdown” may be the third-party delivery companies themselves, including Postmates, DoorDash, Grubhub, and Uber Eats. Uber’s Eats delivery service has propped up the ride-sharing company, which saw gross sales increase by 54 percent in Q1, while it continues to lose money elsewhere.
For restaurants without a digital infrastructure, or online ordering system, the lure of food delivery companies seems obvious. Like the millions of travel brands that use online travel agents to distribute their “products” to online consumers, restaurants can gain access to hungry and homebound diners they’re not able to reach otherwise. But the true benefits are less straightforward. Restaurant operators must be willing to make a trade-off between the revenue earned through these platforms, and the lack of customer data and being able to develop direct customer relationships, as well as margin erosion.
Is the revenue really that appetizing?
Despite the immediate benefits—distribution and increased orders, restaurants that use food delivery companies are likely to see a big dent in their margins. Some fees are reportedly as high as 40 percent. The owner of one Indian street food business with locations across New York City claimed a 17 percent commission plus delivery fees would wipe off nearly 50 percent of the value of a menu item. These costs can quickly erode any short-term revenue gains. But the loss of margin isn’t the only issue restaurants face when partnering with food-delivery companies.
By outsourcing their digital connection to customers, restaurants are essentially outsourcing their customers to these parties as well. While delivery services are vital to the industry today, restaurants must maintain direct relationships so they can communicate changes in re-opening hours, menu items, and give diners the confidence to come back to their establishments. By bringing online ordering systems in-house, restaurants can ensure they’re directly involved in customer interactions and can convert a single takeout or delivery order into regular dining experiences in the future.
Connecting the diner data dots
Each of these interactions generate valuable customer data restaurants can use to create a loyal diner base. How are consumers discovering your website? How often are they visiting and looking over your menu? What items are they hovering over yet don’t order? If your answer is “I don’t know,” that is a huge problem. All of these “dots” of diner information should be connected over time to inform every aspect of your operations, from how you market your venues and menus, to whether diners can eat at home or be incentivized to dine in.
But that opportunity is lost when restaurants give up ownership of their customers and data to third-party food delivery apps.
It’s a lesson that many retailers have learned the long and hard way. In the early days of ecommerce euphoria, companies saw Amazon as a benign solution to reach millions of consumers and distribute their products. And for a lot of businesses, it still is. Yet in a little over two decades, Amazon has completely changed consumer behavior in how they shop online—and knows so much about so many brands’ customers. It’s clear why direct-to-consumer (D2C) brands have proliferated over the last 24 months, and why brands and companies are investing heavily to build or rebuild their entire digital presence. They recognize they need to control their customer relationships, and the data that drives them.
Consumers want your food, now what?
Building a digital infrastructure to mirror the experience offered by food delivery apps may feel like a daunting task. Consumers have been conditioned by digital (and mobile) first companies in different industries; phoning in an order is no longer viable or scalable. Diners want to search, preorder, and pay wherever they are, and expect to receive promotions and communications on any device and tailored to their tastes. The good news is that there are many tools already available to help restaurants reach diners directly.
Google Maps, for example, recently added a new feature that lets users search for restaurants near them that offer delivery. The feature directs hungry visitors to a restaurant’s website, not an ordering app, allowing them to connect directly with the diner and retain more of their dollars.
But reaching consumers and retaining them are two different things. Restaurants need the ability to do both.
As I wrote this article, many restaurants across the U.S. were starting to re-open their reconfigured outdoor and indoor seating areas. So, here’s to using customer insight to rebuild the confidence to dine in physical locations and keep ordering online. In rebuilding that confidence, however big or small, restaurants have never had a better opportunity to harness valuable customer data, in addition to revenues, that can help them be more resilient on the road to recovery and back to growth.
Restaurants should ensure it is their business that survives this crisis, not just the food delivery apps.
Sean Keith is the Director of New Business Development at Eagle Eye, a leading SaaS technology company that enables businesses to create real-time connections with their customers through digital and mobile promotion solutions. Recognized by the World Economic Forum as a Global Shaper, Sean helps brands in the retail, food & beverage and hospitality industries implement digital transformation initiatives to better understand customer behaviors and drive revenue growth among Canadian businesses.