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Delivery services like DoorDash and GrubHub have become part of the restaurant landscape. Many local restaurants (and virtually all of the large chain restaurants) rely on these services for additional business and greater visibility. Others see these services as venture-backed vultures who chew into the meager profit margins of independent restaurants and are ultimately hurting the overall restaurant community. At Satchel\u2019s, we think there is a role for these services, but only under certain conditions and only for certain types of restaurants. <\/p>\n
It helps to understand how these companies make money. When you place an order on DoorDash or GrubHub, you typically pay a set of fees (delivery fee, service fee, processing fee, etc.), all of which go to the delivery service. As a result, if you purchase $30 worth of food, after all the fees (and sales tax), the total bill may be over $40. In addition, the delivery services charge the restaurant a series of fees (marketing fee, merchant processing fee) that usually add up to between 20%-30% of each order amount. So using that same example, when you place an order for $30 worth of food, and your total bill exceeds $40, the restaurant will only receive around $21-$24. Sounds crazy, right? This may help explain why some restaurants choose not to use delivery services. It also may explain why some restaurants have a \u201ctiered\u201d pricing: one for in-house orders and another higher price for delivery services. <\/p>\n
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In addition to the cost, working with these services pose some operational challenges. When orders are placed on the DoorDash or GrubHub platform, most restaurants have to re-enter the information in their own computer system (increasing the likelihood that an error is made). And if there is an error or problem with the order, or a refund needs to be issued, it is a pain. You first need to call the Help Desk of the delivery service, which then in turn coordinates any refund or corrected order with the restaurant. Sound messy? It is. <\/p>\n
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The only thing to keep in mind is that these delivery services do offer some marketing power. Many people may find a new restaurant using DoorDash that they otherwise would have never discovered. Indeed, many consumers choose the delivery service before they choose the restaurant. So if your business is not on that delivery service, then those customers will never find you. <\/p>\n
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Having said all that, paying 20-30% for a third-party delivery service is simply too expensive for many restaurants, especially those which have high food costs. Which brings us to Satchel\u2019s. If you go to a pizza place, you are mostly eating a lot of pizza dough (pretty low food cost). If you go to a Thai place, you likely will be eating a lot of rice (again, pretty low food cost). Pasta? Yeah, pretty inexpensive. At a BBQ restaurant, the \u201ccenter of the plate\u201d is meat, which is expensive. So giving up 20-30% of revenue is tough to make work. You may find yourself losing money on each individual sale but hoping to make it up in volume (think about it\u2026.that doesn\u2019t work). <\/p>\n
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We have used DoorDash in the past, simply because they have agreed to keep their total fees to 20%. No other service has agreed to do that (not GrubHub, not UberEats). But even that \u201clow\u201d fee makes it hard; twenty per cent off the top is a big hit to the bottom line. For that reason, when we get busy and worry about running out of food, the first thing we do is shut down our DoorDash platform. <\/p>\n
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Our new delivery service is offered through our merchant processing company, Square. Odds are you have seen Square at coffee shops and eateries throughout town. I like them (something I have never, ever said about any other merchant processing company, which is in general a fairly odious business). The company has fair pricing and provides excellent customer support. For delivery, they charge the consumer a $6.99 delivery fee (this is about the same as all other delivery services for smaller orders and quite a bit less for larger orders) and they charge the restaurant $1.50 for each order. Quite a bit less 20-30% of the total bill. And here\u2019s the weird part\u2026.they subcontract to the same delivery services (DoorDash, GrubHub). My guess is that they have used their size and marketing power to negotiate a far better deal from these companies than any individual restaurant could manage on their own. To which I say, thank you very much! <\/p>\n
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