Food delivery for a cafe is a post meant to provide a perspective from the other side of the equation. In this case, the service outlet rather than the customer.
Consumers are familiar with what food delivery platform do for them. What about food outlets that use UberEats, DoorDash and Menulog and others. Its is operation that is behind the order and done in the background. Not something we as customers are aware of. .
I am writing this post as I came across something that I learnt while having a meal at a cafe.
This particular food outlet serves ethnic cuisine from South East Asia. It was set up in 2022 during Covid. I understood that the owner has no past history in F&B. But a passion for cooking for family and friends.
I am circumspect about identifying this restaurant and the country it is located in. The reason is what the staff told me. Something unexpected while I was having my meal. Nothing bad but it goes to the reason for this post.
It was few years since this restaurant was set-up during the covid days. Despite being a relatively basic cafe fit-out it has done well.
Signing up for food delivery
I had gone there late in the afternoon, close to 3pm for a late lunch. There were few patrons in the roughly 30 seat restaurant. I did hear it was popular and hard to find a seat on weekends at meal times. Hence my late visit for lunch.
While I was having my meal, within a space of 20 minutes, 3 food couriers from a popular food delivery service came for pick-ups. I asked the staff out of curiosity if food delivery was big for their outlet. His facial expression in response was telling.
He told me that they had signed up with a food courier service only 3 days ago. Prior to that they had not done food delivery.
He told me it was absolute mayhem from the very start. They have been overwhelmed with orders. So much so, they had to shut down the order terminal during peak periods from day one as they could not cope. They would turn on the terminal after peak hours.
The “malfunctioning” order terminal
They just did not have the staff and space to handle online orders during peak periods. They did not anticipate such a high demand and only prepared for a slight increase.
He also told me when the terminal was shut down, customers began calling the restaurant directly. They wanted to find out why their app was showing the restaurant as unavailable for orders.
Now the restaurant began facing a second challenge, handling the incoming phone calls. Out of desperation they told the customers that the terminal was malfunctioning.
Price inelastic
This might be the appropriate time to introduce the concept of “price inelasticity”, a term in Economics which captures this phenomenon well.
When the price of a product or service is increased with no increase in content or quality, and customers are not sensitive or concerned, it indicates price inelasticity. Customers are prepared to pay more.
One of the phenomenon of food delivery in the new gig economy is that customers are prepared to pay. A much higher prices for delivery even up to 35 % more than the prices for dine-in customers. Go see the menu prices for dine and food delivery. The difference is significant.
Primary reason is convenience of home delivery and the high charges become acceptable. Bear in mind, the delivery fee is usually separate and usually a flat fee.
Fee charging models by food delivery aggregators
Uber, Deliveroo, DoorDash etc charges merchants such as restaurants a standard fee or a percentage of the ordered items value for their delivery services. It usually include set-up, terminals, marketing and then the stock delivery. The main models are percentage or subscription based or variations of it.
For Australia it is primarily percentage based ranging from 25% to 35% of the food items ordered. It may or may not include a separate delivery fee.
If the cost of dish at a restaurant cost AUD 30, when delivered by a food couriers and if the commission is 30%, the customer will be billed AUD 39.
Food outlets will generally mark-up the delivery prices to cover the cost of these commissions. Some must have thought the food delivery platforms only revenue source is the delivery fee which is relatively small.
Is proximity a factor?
Talking to some food outlets and anecdotal evidence from family and friends is that orders are generally for locations that are close by. A short drive would have done it. Not just convenience, they want it quick.
The considerations are delivery time and having the food arriving in warm condition. But I suspect the paramount reason is convenience.
One clear exception is fine dining with high end cuisine. The key considerations are the dining experience as well the food that needs to be served in appropriate condition and in time from the kitchen. Nothing that Uber and DoorDash can do to make it better.
Lessons from the “malfunctioning” order terminal
The main lesson is that customers are prepared to pay 35% or more above the dining-in price for the convenience of having their meals delivered.
The second lesson is underestimating the demand for online orders. I suppose for food outlet operators if their outlet is popular for dine-on customers, the online orders will be high.
I have seen queues of food delivery couriers at popular food venues usually at well known fast food chains. Brand recognition and nature of fast food preparation helps with online orders so demand is expected. I have seen up to 7 riders waiting for ordered food.
One popular coffee chain outlet in London, Cafe Nero, staff told me online breakfast orders are very high on weekends and surpasses walk-in revenue.
It also explains why some restaurants and food outlets are now operating a second kitchen in cheaper rent location or taking on a lease in central kitchen to handle online orders.
It is more efficient to run and cost wise cheaper if their online orders cross a certain volume threshold.
Busy and pause modes on food order terminals
Uber Eats, DoorDash and other food delivery service providers do have features such as busy and pause mode buttons on their terminals. In this case the staff of this cafe were not aware of the pause or busy mode feature of the terminal and switched the whole terminal off as it was new to them.
Turning on busy mode will add more preparation time and customers will see a more extended time for delivery such as 15 mins to 30 mins more than the usual delivery time. It manages customer’s expectations. The pause mode will stop order acceptance.
I suppose in this case, it was easier to say the terminal malfunctioned to the customer than explain they are struggling with online demand.
It is interesting that I rarely see any articles to say that food delivery platforms have increased demand and revenue for food establishments owners. But that seems to the case when they struggle to meet demands.