Restaurants with a Branded Mobile App with in-app ordering and payment with a Loyalty Driver VS using a delivery service like Door Dash, Grub Hub, Postmates and Uber Eats.
While using a delivery service for your Restaurant sure is a convenient way to be able to distribute your menu to the public, is it worth the cost when looking at your bottom line? In this Blog, we will go over the cost of using a delivery service vs a restaurant having a mobile app built that allows in-app ordering, payment, loyalty clubs, Geo-fencing, unlimited email and text messaging to their customers as well as check-in rewards and coupons.
Food delivery: The pricing matrix
To understand how the food delivery ecosystem prices the same items from the same restaurants so differently, we decided to do some research to see if we could shed some light on what you’re really paying for when you open that delivery app.
Before diving into the data, first let’s set the stage. The biggest names in food delivery apps in the U.S. are DoorDash, Uber Eats, Postmates and Grubhub (which owns Seamless). For the purposes of this analysis, we also decided to add Caviar to the mix — a more “premium” option available in larger markets that was sold to Square in 2014 and is now owned by DoorDash.
Next, let’s break down how pricing works. The core components of pricing across all food delivery apps are:
Over several days in December we randomly selected 10 restaurants each in Los Angeles, New York and San Francisco that were available on at least four of the five apps and selected the same menu item for delivery to the exact same address. We compiled all data over a 48-hour span and tried to compare pricing for each restaurant/food item combo as close to the same time of day as possible. We then broke down all pricing by the individual components and put the line-item data into a spreadsheet for comparison (link to raw data set shared at the bottom).
Finally, to help clarify the differences in pricing, we introduced a new metric called Total Meal Cost (TMC) to refer to the overall amount it costs to order a meal through a delivery app, compared with ordering that same meal directly from the restaurant. We will refer to the cost when ordering directly from a restaurant as the Restaurant List Price (RLP).
So without further ado, here’s what we learned: While as consumers we expect to pay a premium for the convenience of the service, it turns out there can be a very significant difference between both the price you would pay when ordering directly from a restaurant, as well as what each of the delivery apps charge for the exact same item. When accounting for TMC, on the low end of the spectrum you’d pay an extra 17% over RLP when ordering via Seamless, while on the high end you would shell out a whopping 40.5% more when using Postmates.
To put the markups in further context, if you ordered $50 worth of food from a restaurant, the TMC would come to $58.49 through Seamless compared with $70.23 if you order through Postmates. The graphic below demonstrates how all the apps stack up.
In addition to looking at the overall TMC, we also wanted to zoom in on the data so we could better understand how each of its components — service fees, delivery and even taxes — compare. From a pricing perspective, it seems natural that delivery fees would have the most variability. We’ve all been trained by Uber and Lyft to understand supply and demand and that during busy times delivery can be more expensive (aka everyone’s favorite, “surge pricing”). So, while money is money and delivery cost certainly matter, we wanted to also look at how the markup of each component of the TMC differs across the various apps. You can see the summary data below.
One of the biggest take-aways is that Seamless’ comparative price advantage is largely driven by its low service fees. In fact, in 21 of the 28 data points available for Seamless, the company charged no service fee at all. Uber Eats’ comparative advantage is driven primarily by its low delivery fees — likely the result of having an established fleet of drivers and logistics expertise derived from the company’s core ride-hailing business. This offsets their highest comparative markup of menu-item list price. Postmates gets the triple-whammy of high markup, high service fee and high delivery fee. Caviar generally huddles in the middle of the pack on all variables, though its service fee is hefty for Los Angeles residents, at 18%. DoorDash falls victim to its delivery fees, which as the highest in the batch undermine their comparatively low menu markups and service fees.
In addition to the high-level take-aways, a few other things we found interesting in the data:
A quick note on taxes
Taxes charged by the five delivery apps showed some variance, as well, and there is significant legal debate currently around how taxes should be calculated. That’s a whole separate article, so we will leave that to the legal experts, as tax rate fluctuation across the apps was 1.1% or less. But it’s still fascinating that with billions of dollars of transactions flowing through these apps, the tax question remains unanswered.
It’s not just the delivery apps
It’s worth noting that the TMC markup over RLP that consumers experience isn’t entirely at the hands of the delivery services. We spoke with several restaurants about their delivery partnerships and best practices, and several noted that even though delivery partners strongly discourage doing so, they often elect to increase on-app list prices when selling through delivery apps as a way of offsetting the up to 30% fee the delivery apps charge. And while we have not seen any egregious examples of menu pricing markups, in talking with several restaurant owners we were surprised to learn that the delivery companies themselves often list restaurants they have no formal relationship with. The restaurants don’t have to pay them a fee, but as one restaurant owner told us, “Yes, theoretically any non-partner app could list one of our salads for $4,000” and any added profit would go entirely to the delivery service, much like a concert ticket scalper earns profit that doesn’t go back to the artist or event producer.
The Exclusivity Land Grab
As noted above, the primary differentiation between delivery apps today is not based on innovations that meaningfully impact user experience, but instead comes down to a handful of restaurant brands with which the various apps are in a land grab to create exclusive delivery relationships. For example, Postmates has the trendy Sugarfish sushi in Los Angeles, Uber Eats had McDonald’s (until the chain recently added DoorDash), Caviar has local San Francisco favorite Souvla and DoorDash has Outback Steakhouse. While this strategy may help for those users that order religiously from these restaurants, reports suggest that the national chain deals are coming at a major cost to the delivery companies.
Opportunity to innovate
Getting millions of meals delivered quickly, accurately and still warm (or cold) from restaurants to consumers each day is no easy feat. Continually improving the core logistics associated with this undertaking requires massive funding and ongoing investment. You can only play phone tag with your delivery driver and receive a soggy Egg McMuffin so many times before you give up on paying a premium for the convenience. That said, delivery apps must equally invest in consumer-facing innovations if they want to build sustainable brands and reach profitability.
There are far better product minds who can opine on the best ways to innovate on the delivery app experience, but a few examples of features we came up with after consulting fellow delivery addicts include:
So, what does it all mean? Well, it’s no secret that companies in the on-demand economy are still struggling to figure out how to make the economics work as both public and private investors become increasingly impatient. In the meantime, the push for profitability has also resulted in questionable labor practices, such as DoorDash applying tips toward its delivery workers’ wages, effectively asking customers to subsidize the wages so the company didn’t have to pay their workers their guaranteed delivery minimum out of pocket (a practice the company has since reversed after public outcry).
As the on-demand food delivery economy continues to hurtle toward a projected $385 billion by 2030, it has also begun to reshape the global restaurant industry. As more and more consumers opt (or are ordered) to stay home and press a button for food instead of going out, restaurant owners are increasingly choosing to forgo expensive real estate and front-of-house staff, and are instead expanding into virtual kitchens that cater exclusively to the on-demand audience. This transition from traditional to “virtual” restaurants may prove to be one of the defining platform shifts of our time, and the venture community has taken note. As the virtual kitchen market grows, so too will the demand for the apps that get the food from the delivery-only commercial kitchens to consumers.
As the battle for market share and profitability heats up in the new wild west of food, consumers have demonstrated they are willing to accept the implicit trade-off of paying a premium for convenience. But as this industry pushes forward toward profitability and sustainable operations, we believe that the companies that embrace transparency and innovate on the core product and service — not on pricing markups and services fees — will emerge as the winners in the new food economy.
Now, what should I order for dinner tonight… and better yet, which app do I use?
The Average Cost of a Branded Mobile App with over 100 features built into it including but not limited to In-App Menu, Ordering, Payment Processing, Loyalty Clubs, Geo-fencing, Coupons, Discounts, Google Maps, Unlimited Push Notifications and Emails to your Customer Base. Mobile apps link to all your social media outlets as well, including Facebook, Pinterest, Instagram, Twitter and even YouTube. We will show you below how you can save Thousands per year by having a Branded Mobile App.
How can your own custom branded app help your Small Business?
In today's business world, Millennials are driving a very high percentage of sales in all markets, especially the restaurant industry. If it is one thing that Millennials prefer when dealing with any business is that they want the places they frequent at the touch of their fingertips. In today’s ever changing world, a branded website is just not enough to engage with your current customers. 90 percent of companies plan to increase investment in mobile apps by 2022, so act early, if you don’t, there’s a good chance you’ll be left behind by your competitors.
Here are at least 4 Ways Your Business Can Benefit from Having a your own Branded Mobile App.
1. Provide More Value to Your Customers
Business is all about reciprocation. You offer a product, the market opens their wallets with their demand, right? Maybe you’ve sat down with your employees and tried to nail down the best way to encourage more of this wallet-opening engagement from your customers. You want to increase their interaction with your business to promote sales, of course, but you also want to provide a level of value for your customers that they can’t get anywhere else. One way to do this is create a loyalty program within your app. It would work like this: The more customers interact with your business and product, the more points they collect, which can in turn be used for great deals on the products they already know they want. Starbucks uses their mobile app to their advantage by offering rewards exclusively to app subscribers, which then motivates customers to buy coffee (And other delicious snacks) from them. They’re even more ahead of the curve by allowing their users to pay directly from the app, speeding up the whole transaction process.
If you already have a program like this in place – great. You can incorporate it into your mobile app, digitizing the entire process, making data on their purchases available to you instantly. If you don’t have one, get on it, fast. And when your customers see their points adding up in real time (rather than having to send in points in the mail or wait until they can access your website to enter them manually), they’ll be impressed and more enticed to follow up on their purchases in the future.
2. Build a Stronger Brand
One of the most important things a mobile app offers to consumers is awareness of and communication with your brand. And through that regular interaction with your target market, you’re fostering trust. The more your audience trusts you, the more likely they’ll be to listen to later sales pitches and even commit to your brand.
With an app, you’ll demonstrate to your users why they should trust you by showing (rather than telling) what your brand stands for. In the same way as distributing fridge magnets, calendars, and other random memorabilia with your company logo on it has served in the past both as advertisement and assistance, mobile apps strengthen your brand and educate your customers. That’s why so many businesses across all the major sectors are developing strategies for mobile apps.
3. Connect Better with Customers
Customer service isn’t just about face to face communication between smiling sales associates and customers anymore. Since 95% of Americans now have high-powered mobile devices within arm’s reach at all times, the true game-changer in customer service is now mobile apps. Why? Firstly, your app won’t be merely a human being, subject to mood swings and poor performance. And, through a solid mobile presence, you’ll always know you’re presenting to the customer the same face – an interface geared specifically to provide them with the best experience of studying and deciding whether they want to buy your product. In fact, the vast majority of marketers see their apps as a means to primarily improve customer service.
Your customers have access to your business 24/7. So, if customer service is one of your top priorities (like it should be), mobile apps are the answer to raising customer satisfaction across the board.
4. Boost Profits
When customer satisfaction increases, sales typically do too. In fact, according to Salesforce, 70 percent of buying experiences are influenced by how customers feel they’re being treated. The more interested and pleased people become with your product and your business, the greater consumer demand will grow. And let me assure you, if you have a product your customers can’t wait to get their hands on, that demand is going to provide you with some serious returns. That’s where the mobile app comes in like none other. But it’s important to keep costs low while you’re developing it. Sure, you should have a website with a responsible design that can adapt to any of the various mobile devices there are now. This eliminates the necessity of having a frustrating, secondary “mobile” site to manage. But if you launch a mobile app in addition to your responsive website, you’ll boost sales while enhancing the customer experience. According to Techcrunch.com, 59.4 percent of Black Friday sales last year were completed on mobile devices.
Now is the time to truly crunch the numbers between a delivery company (Uber Eats, Postmates and Door Dash) and the cost of doing it yourself with one driver, a branded mobile app with in-app ordering and payments.
Most small business owners have no idea what a mobile app costs to design and build. 5-10 years ago, mobile apps were priced between 10k-60k. loyaltydoctors.com and ibuildmobileapps.com are two companies that specialize in helping out the small business and have made it affordable for even the smallest of businesses approximately $3 a Day. The best part is that they offer a 24 hour turn around.
This Comparison is based on a small restaurant delivering only 60 orders per week at an average cost of only $41.00. Initial Set up Fees for Delivery Company averages $800.
2 × Fish Tacos $8.00
3 × Carne Asada Tacos $10.50
1 × Carnitas Plate + Rice & Beans $12.50
1 × Guacamole & Chips $6.00
1 × Bottled Soda $2.00
1 × Bottled Water $2.00
Product Total $41.00
Sales Tax (8%) $3.28
Receipt Total $44.28
Delivery Company Fees
Initial Set up Fees for Delivery Company $800
Marketing Commission (20%) ($8.20)
Delivery Commission (10%) ($4.10)
Processing Fee (3.05% + .40) ($1.65)
Total Commissions & Fees ($13.95)
Total Revenue to Restaurant $27.07 plus the Sales Tax of $3.28
Fees from Delivery Company for 60 orders in a week ($13.95 X 60) $837 Weekly plus the Delivery Company keeps all the tips @ an Average of 15% on $2460 in Orders = $369 Weekly
And do not forget to break down the Set-up fee from the Delivery Company $800/52 =$15.38 weekly
Weekly Loss. $837 + $369 + $15.38 = $1221 Weekly x 52 Weeks = $63,511 Per year.
Doing it yourself through a Branded Mobile App and all Fees Including a Driver and Insurance.
One-time App build fee of $597.00 and in-house wireless printer $300 = $17.25 per week
Driver $2.13 per hour plus tips - average 40 hours = $85.00 per week
Employee Taxes (25%) = $21.25 per week
Insurance $2000 (most expensive found) a year divided by 52 weeks = $38 per week
Mobile App Hosting Fee $1000 a year divided by 52 weeks = $19.23 per week
Total per week for employee to be a delivery driver $180.73 per week and your Driver makes the $369.00 in tips.
The Total Numbers without the tips included as it is not a loss to the Business Owner directly.
Delivery Company= $43,524 per year/ $837 per week true cost to Business Owner
Mobile App and Driver= $9,360 per year/ $180 per week true cost to Business Owner
In Summary, if you own your own Restaurant or Restaurants and are looking at the differences between outsourcing and in-house delivery through your own Branded Mobile App. You would put an extra $34,164 in your pocket per year per location!
Click Here for your very own Branded Mobile App and start lining your pockets again!