Gradually, a greater share of delivery volume is likely to do to the dark kitchens, while some conventional restaurants may deem not playing in the delivery space at all. This particular article will help you in attaining all the insights into online food delivery and the commissions charged by the third party.
The prospect of restaurant delivery service helps you in knowing the online food delivery system more efficiently.
Restaurant food delivery is a flourishing aspect of food service that has just exploded in growth, and is expected to continue to do so- but what is the reason? Well, people are very busy in their lives and they are using these services that make their life easier. The COVID-19 pandemic has caused consumers to rely more on online ordering systems. According to many business surveys, Global food marketing is expected to rise by $157.24 billion in 2023.
The eating habits of the world are changing dramatically. Almost two decades ago, restaurant-quality meal delivery was largely limited to foods like burgers, pizza, and Chinese. Nowadays, it has taken a front seat in the global market worth more than $160 billion, almost tripled since 2018.
In the United States, the market has doubled during the Covid-19 pandemic by following healthy historic growth of 9 percent.
The start of alluring, tech-driven, and user-friendly apps has increased the expectation of consumers and has unlocked the category of ready-to-eat food delivery as a major category. Physical distancing and lockdown requirements early on in the pandemic gave this category an enormous boost with delivery becoming the lifeline of the restaurant business industry. It is stagnant to remain an undeviating fixture in the dining landscape.
Even the food delivery ecosystem is expanding continuously; its economic configuration is still evolving. Considerations such as real estate, brand, breadth of offerings, operating efficiency, and changing consumer habits will determine which stakeholders will win or lose as the industry develops.
Potential regulatory constraints, and possible changes like how drivers are compensated, will figure into the rearrangement. Meanwhile, when the industry experienced massive growth during the global pandemic, delivery platforms remained profitable.
This means that adding delivery services to your restaurant will make a huge difference in your orders going forward.
There are two major options when it comes to food delivery: Third-party service or doing it by yourself. Both prospects will give you an idea of how much online food delivery costs a restaurant.
Hiring a restaurant delivery service or third-party service handles only on-demand delivery which sounds like a great idea. This business model is entirely executing the deliveries and also outsourcing should cut down above your head, right?
Unfortunately, I was wrong. Lack of connection with consumers, sanitation concerns, and steep commissions make third-party couriers a big mistake for small-scale businesses. It is an old saying that, if you want to do something right, do it yourself.
How much does the restaurant delivery service charge?
The sheer cost of third-party services:
The restaurants that are already operating with disreputable low margins, the expense involved with the third-party service can mean the difference between staying in the business or going under the business. Studies have shown that most restaurants operate with net profit margins ranging from just 3% to 7% (pre-tax).
Third-party delivery services like ChowNow, Doordash, and Postmates charge anywhere between 20% to 40% of the commission for every order. All these ratios help us to know how much online food delivery costs a restaurant.
Based on the numbers mentioned above, many restaurants are losing money on most of the orders delivered through a third-party courier service. So if you own an Italian restaurant and receive an order for a $40 delivery order, you need to pay a delivery charge between $8.20 and $17 to handle the delivery. If that restaurant has a net profit of about 7% after paying for the rent, labor, ingredients, and other expenses, they would end up losing roughly about $5.30 to $14 on just that one order.
Not in contact with your customers
Restaurants that use third-party services give up control of customer data and other major changes like menus, marketing decisions, and other prospects of the business. Entrusting customer experience to a third party can be risky. Deliveries can take a lot of time and the delivery vehicle may not be equipped with proper refrigeration, containment, and insulation.
Lack of food safety
Outsourcing delivery poses serious sanitation and health issues. A survey conducted by US foods says that more than one in four delivery drivers admitted that they have taken food from an order delivered by them. This survey was based on responses from 510 adults who had worked for at least one food delivery app in the United States.
Couple this with the fact that more than 50% of Americans don’t wash their hands after using restrooms and outsourcing delivery becomes difficult for them. In this era where pandemic issues are on consumers’ minds, restaurants need to keep a check on the delivery boys that they are properly trained and keep the hygiene factor on top priority. Using a delivery app makes it almost impossible.
Having your in-house Delivery is a venture for the future and gives you a clear aspect of how much food delivery costs a restaurant.
In-house restaurant delivery is an immense way to expand your business and remain spirited amid technological advances and changing customer behaviors. Restaurants can tap into a growing avenue for revenue by offering delivery and many customers prefer to order from the establishment with an in-house team. Online food delivery will draw in almost $27 million in revenue in 2020 and that amount is expected to grow by about 35 million in 2024.
A study found by Technomic is that 75% of all delivery is placed directly through restaurants as compared to the third-party delivery associations. In another survey conducted by Preoday, 65% of respondents shared that they would prefer to order directly from the restaurant so the money goes directly to the business.
Within this growing sector of the market, most of the customers favor restaurants that just don’t outsource their deliveries.
What is the cost of providing Delivery?
It is important to be aware of all the costs associated with the delivery so that you can confidently continue the operations even if it is self-sustaining and also make appropriate changes if it is not. Your competitor’s delivery fee may impact the amount that you charge for your food delivery services. Always try to cover the expenses and also ideally turn a profit by examining all the variable and fixed costs associated with the delivery.
Fixed costs: It doesn’t fluctuate the sales. A typical fixed cost is rent. Mostly the cost of rent does not change from month to month in response to how many meals you have served. In such cases of delivery, fixed costs comprise expenses such as delivery software fees, auto insurance, and workers’ compensation. The following are the common delivery cost that must be taken into consideration:
- Insurance: When offering in-house delivery, insurance is very much necessary. Both driver commercial coverage and general liability coverage should be in place. For the full breakdown, you must know how much the delivery service for any restaurant is. Does your driver have the right insurance coverage?
A few insurance policies will have to factor into your delivery fixed costs
- Business auto insurance
- General accountability coverage
- Non-owned auto insurance
- Workers reimbursement
- Advertising
- Vehicle signage: A delivery car can also act as a moving commercial to promote your business. If you have your commercial vehicles for deliveries, you must think about branding them with the restaurant’s logo and other necessary information. This should be calculated as a part of your publicity budget. If you don’t own your delivery vehicles, consider magnets and car toppers.
- Shirts or uniforms: Your delivery drivers also represent your restaurant; ask them to wear an outfit that promotes your brand. This can be a full outfit or a t-shirt with your logo on the back. Take advantage of all the marketing opportunities that can add brand value to your business as these small changes help you to add up more value to your business.
- Assimilate caller ID: This integrated caller ID increases the speed of service by eliminating the need to ask the callers for their contact number and displays active orders instantly when a customer calls for an inquiry. The fixed cost is a must for many delivery operators for Pizza.
- Software for Delivery: Delivery management software for restaurant delivery helps you to increase your efficiency and also grow all your profits. Speed lines and live maps are some examples that help you effectively control the deliveries and the drivers through visual expediting and dispatch. This software can be structured as an annual or monthly subscription service or also can be a part of delivery-specific restaurant POS integration.
- Online order website: A customized branded website that showcases scrumptious food, leads your consumers through a simple ordering process, and also can grow along with your business is a great investment. If you don’t have a free online restaurant ordering system, then build one for yourself.
- Extra staff for the kitchen: If the demand for online orders increases, you might have to hire more staff in the kitchen to accommodate. You might even have to consider hiring someone sincere in his or her work and good in delivery dispatch. Always keep in mind each additional thing is a fixed cost in your calculation.
- Insulated bags: Delivery bags make a huge difference to deliveries because they keep the food intact and at the right temperature and also offer an opportunity to showcase the brand name. Every driver should be well equipped with insulated bags specifically designed to carry pizza and others are designed to carry other food items and drinks. Although it is like an investment only and it is a fixed cost as well that will help your deliveries arrive safely.
So, how much does restaurant food delivery services cost? Well, it all depends on the variable expenses.
Variable costs are straightforwardly related to sales. For example, the use of disposable items like napkins, and cutleries in orders sometimes varies due to an increase or decrease in sales. Other expenses included mileage, food, and labor costs. Variable expenses can be controlled. Less expensive packaging can be acquired, portion size can also be changed and some drivers can also have their hours reduced on short notice if it is a slow night.
Packaging:
Proper tamper-proof packaging helps your food to arrive intact without any spill or mess. Depending on the type of restaurant, you can also invest in biodegradable packaging material, food-specific packaging, or standard foam packaging. Whatever you opt for, make sure that how much an erratic expense like this will sway your bottom line.
When it comes to packaging, it is the most expensive part of the delivery cost. You have to figure out things like the cost of your product and other related materials to maintain the quality of the food that you are sending to the consumer.
Condiments:
When you are preparing an order for delivery, many other packed condiments need to be added. More orders mean more packaged condiments will be utilized. Count this into your calculation.
Vehicle operation costs:
Vehicle operation costs can be easily forgotten especially when you are calculating the delivery costs. Always determine the maintenance and fuel charges, registration, year depreciation, and other miscellaneous expenses, like parking fees, acquired during an operating year. Divide the total by the average number of deliveries that your restaurant makes annually to determine the base vehicle operating the cost per delivery.
This only accounts for routine deliveries, so always make sure that you charge extra for long-distance deliveries that are outside your delivery zones.
Vehicle reduction + fuel cost + upholding + register + miscellaneous fee
Divided by
Standard deliveries made in a year = base vehicle operating cost per delivery.
Fuel expense:
As a restaurant, you are responsible for paying the driver’s fuel expenses while they are doing their job. This changeable expense will oscillate and change based on how busy your delivery drivers are and how well your routes are pre-planned.
Using delivery zones and visual dispatch will help you assign drivers to deliver multiple orders in the same zone. This will save extra fuel, time, and cost. Another way to reduce this variable cost is to keep a track of delivery driver routes and also make sure that they are opting for the most efficient route for delivery.
Maintenance of Vehicle:
While most of the delivery operators assign space in their budget for insurance expenses and the growing price of gas, regular maintenance of company vehicles is often overlooked. Budget for preventive vehicle care and catch issues early to save yourself on costly repairs in the future.
Miscellaneous fee:
There are many miscellaneous fees associated with delivery vehicles that you should prepare for. Tolls and parking charges are just a few expenses that can come during the deliveries, so be sure to factor this into your cost of the delivery equation.
- Driver wages: the salary that you pay to delivery drivers should be fair and take into account your competitor’s rates and still give you a healthy profit. Look up the average delivery wage by the state to help you get an idea of what you should be charging.
- Costs of card processing: depending on how you take payments through credit cards, phone, online, or COD, you can face different processing fees. To avoid card payments, find an online restaurant ordering provider that keeps your restaurant out of PCI or equip your drivers with a different system that accepts card payments on delivery.
The distance, vehicle costs, and labor costs are some of the expenses that are calculated by the food delivery apps.
Delivery equation
Once you have considered the cost that makes up a delivery service, you will be properly equipped to create a budget to control the cost. A breakdown of all the fixed costs and variables shows that you can make the changes to ensure your delivery is lucrative.
Fixed costs + deliveries * variable costs= delivery cost
How much does online food delivery cost a restaurant? Let’s have a look at how much the food delivery apps charge.
The menu pricing of any restaurant has its covering costs plus a certain percentage of profit. What it does not cover is the cost incurred when associated with delivery apps. Currently, it is not clear by the Law how much food delivery apps should charge from the restaurant as a commission. What this essentially means, is that the food delivery apps can change whatever commission they want under the semblance of business cost.
Presently, according to various data available and verbal confirmations from restaurant owners, food delivery apps are charging between 30-35% of commission on every order that a restaurant business receives. They also charge a certain percentage to the end customer as a delivery charge.
The food delivery apps are essentially a business model with a bottom line of turning profits. There is some cost involved in running all these businesses
- Maintaining and running an office
- Salary of all the employees
- Fuel cost
- Time
- The labor cost of ground delivery staff
- Recurring cost of maintaining the apps
- The cost incurred in maintaining the 24*7 customer service staff
The food delivery app works by charging a partnership fee from the restaurant as well as charging a delivery fee from the consumer. In addition, its revenue model also comprises paid listings and also advertisements.
What is the impact of food delivery apps on restaurants?
With the amount of commission that these apps charge, restaurants are left with very little choice but to increase the food cost on their app menu to cover the costs. Additionally, the food apps also sometimes intimidate their restaurant partners to provide large discounts which put pressure on their bottom line. Currently, many small restaurant operators are getting impacted by delivery apps.
The online food delivery app market has been growing constantly, especially after the Covid-19 pandemic. The post-pandemic world has seen a major growth in demand every day as more and more people are opting for online food ordering systems rather than visiting the restaurant of their personal choice.
This has caused a major disruption in small-scale restaurant business operators, who do not have their delivery service. With the high commission fee of third-party delivery service, they are suffering a major loss in their business.
Conclusion:
As always, there are always two sides to the story. And this particular predicament is not resistant to it. As much as the restaurant owners are realizing the importance and need of the food delivery business models, if the pressure and constraint of commissions and fees are going to continue, they might be forced to look for other options. Currently, the big brand restaurant is capable of handling their delivery options, which might put pressure on existing food delivery businesses and their profits.
It might be time to amend laws and introduce a ceiling to all the fees and commissions that the food delivery businesses can charge from their partners. This will not only bring stability to the business but also allow the restaurant owners to reduce their online menu costs while upholding the profits.
The changes in the dining patterns, and the implications for established and new businesses, as well as for the customers will continue to take the shape. Unlocking the opportunities also requires a sophisticated understanding of where the market is heading and what are the influential forces that help in shaping the course.