Profitable Delivery for Restaurants
Our client, Café 295, has navigated 3rd Party Delivery with huge success.
After COVID, delivery has become a big part of restaurant operations. Prior to COVID, delivery was pretty limited to Pizza, Asian cuisine and similar. Post-COVID, pretty much any restaurant can do a comprehensive delivery program with the onset of 3rd party delivery companies such as Uber Eats, DoorDash, Skip the Dishes and the like. But these companies charge upwards of 30% as a delivery fee — how do you make money with a delivery program when that is the case?
A couple of things to note:
You don’t have to do a delivery program. This is just another revenue stream that may be good for your operation – but it isn’t mandatory, especially if it doesn’t suit your brand, concept, etc., and/or if servicing that delivery program would be detrimental to your execution for guests in your establishment. It is like catering – catering could be a great add-on for your business, but by no means do you need to do catering to be successful in the restaurant industry.
You do make money on delivery. Many restaurateurs think that their profit margin is only 5-15%, so a delivery fee of 30% makes it impossible to make money – that is not the case, though. Your profit on incremental revenue is approximately 50%-60%, as the only costs associated with these additional delivery revenues are product cost (at about 30%), some additional kitchen labour to execute (at approximately 10%), and takeout packaging (at about 3-5% of sales) – all other costs you are already incurring. For example, your rent is your rent (unless you are on % rent), and your FOH Manager expense doesn’t change because you have more delivery sales. So you do make some money on 3rd party delivery.
Given the above, how can you maximize the profitability of your delivery program? Here are a couple of things that you should do:
Don’t be afraid to charge more for delivery for each item on your menu compared to your normal price — most operations do this, so it isn’t anything unusual, and consumers are OK with this for the convenience of ordering delivery. So if you typically charge $15 for an item on your menu in house, 3rd party delivery is charging a fee of $4.50 if they are at a 30% delivery fee and you are making $10.50 contribution margin after the delivery fee. If you charge $17 instead, then you are now making $11.90 contribution margin – you have essentially reduced the delivery fee from 30% on your regular price to 20% and captured an extra 10% for your bottom line.
Partner up with one of the many organizations out there that will spearhead your website delivery program. These companies piggyback on your website to broker your online website ordering, and they have better deals with 3rd-party delivery companies. Depending on your menu makeup and average check, the delivery fees on your own website orders can be more like 10%-15% rather than 30%. Once that is in place, encourage your regular guests to order from your website rather than the 3rd-party platform apps. Even if you give them a discount to order from your website, you still come out ahead.