Dining in Is Dying Because Delivery Is Killing It

Food delivery represents a $210b market, and restaurants are scrambling to be a part of it — often to their own detriment. Facing eroding margins, food quality issues, and high fees, restaurants are fighting the shortcomings of delivery to stay profitable. To compete with delivery, restaurant brands must effectively incentivize customers to stay loyal to the restaurant themselves — not the ordering platform. Here’s why restaurants are turning to modern loyalty programs to help them achieve that goal while driving incremental revenue.

Delivery services are gaining ground — and killing full-service restaurants.

In the age of instant gratification, “whatever’s on Caviar or UberEats” is the fastest growing food demographic: According to the National Restaurant Association’s Restaurant Industry Forecast, 74% of millennials responded that they would order delivery from a full-service restaurant, if available. Millennials increasingly are rejecting traditional dining experiences in favor of food that’s available on the ordering app du jour.

While the lazy diner ordering delivery could represent incremental revenue for restaurants (read: the person who never would have eaten at the restaurant, but now will order delivery and ultimately represent new revenue), there are mostly downsides for full-service restaurants making their food available via ordering network. If you’re a restaurant operator, these might look familiar:

Loss of Revenue/High Delivery Fees:

Another financial disadvantage to using a network delivery platform is their high fees — UberEats charges as much as 30% to restaurants, while still collecting a delivery fee from customers. This type of margin erosion can hit small businesses hard — especially when their loyal customers stop buying in-store and start ordering from the platform.  Adding to this, the fact that payment is held up in their system for delayed payment. Some delivery companies only pay restaurants once per month, after taking their service fees, which can be as high as 20%. This can put a significant strain on a restaurant by forcing them to wait — sometimes weeks — to receive their money for services already rendered.

Reputation Damage/Brand Erosion

While the allure of increasing volume is understandably attractive to restaurants, the reality is that there are risks involved in letting outside vendors interface with your customers. From the unknown person handling your food to the ability of delivery services to change the pricing of your product, there are plenty of opportunities for your customers to be disappointed when they’re interacting with a third party.

No Customer Data/Non-Loyal customers

Companies that take orders and offer delivery orders generally don’t share any information data with the actual restaurant, meaning, meaning restaurants are missing out on the opportunity to remarket to those customers. In essence, the ordering/delivery platform now owns the customer, not the restaurant brand. They have no way to connect with them later, to build a relationship, and keep them coming back.

Now, the customer becomes loyal to the platform, not to the brand. As loyal customers represent nearly 70% of a restaurant’s revenue (source: Ultimate Guide to Loyalty in 2017), it’s critical to retain the full value of these customers.

Taking Back Your Customers

So, how do you deliver (pun absolutely intended) on the increasing demand for on-demand delivery? Many restaurants are accepting orders through their own websites/apps, contracting out the delivery service but collecting payment themselves.

The main message is: instead of relying on 3rd party systems (also problematic when they become expensive) restaurants need to consider the value of mapping data to their own customers. Card-linked offers technology works particularly well to achieve that end (ahem, what we do at Thanx). By linking with customers’ credit cards and gathering data every time customers pay, restaurant operators can gather crucial data about who their customers are, how much they’re spending, and how to best keep them engaged.

Where Customer Loyalty Comes In

A millennial-friendly loyalty program is a great way to incentivize customers to come into your restaurant and earn progress towards rewards. With an app-based program (with direct ordering integrated!), guests will order directly through your own platform easily rather than looking for you on the aggregate ordering platform. This means you’re making more money on every transaction because you’re retaining the margin that would have otherwise gone to the delivery platform. Add this to the fact that loyalty program members spend more, visit more frequently, and are more likely to tell their friends about your business… and it seems like a no-brainer.

To learn more get our free Comprehensive Guide to Customer Engagement for Table Service Restaurants.