How Restaurants Everywhere Are Losing Money to Uber Eats, Delivery Apps, and More

In the era of convenience, food delivery apps like Uber Eats, DoorDash, and Grubhub have become a staple for consumers looking to enjoy restaurant meals from the comfort of their homes. While these apps provide an additional revenue stream, they also come with significant costs that can erode a restaurant's profit margins. Many restaurants sign up because they understand it will increase their sales, however, increased sales with little to no profit margin causes the restaurant owners to no longer be cash-heavy and depend on more sales to sustain themselves.

In this article, we’ll explore how much money restaurants are losing by being on delivery apps and how they can improve their profitability by opting out. To learn more about a real case study of this, read La Costa Seafood Grill's journey.

‍

Problem 1: App Commissions

Restaurants may see a boost in orders when they sign up with delivery apps, but the fees associated with these services are far from negligible. According to data from , delivery apps typically charge restaurants a commission fee ranging from 15% to 30% per order.

• Uber Eats: Takes a commission of about 30% per order.
• DoorDash: Charges around 15% to 30% depending on the service level.
• Grubhub: Similar to Uber Eats, Grubhub charges around 20% to 30%.

‍

Let’s break this down with an example of 20% commission:

• Suppose a customer places a $50 order.
• If the restaurant is on Uber Eats or Grubhub, they could be paying up to $10 (20%) in commission fees to the delivery platform.
• This leaves the restaurant with $40 before accounting for food costs, labor, and other overheads.

According to Toast, most restaurants have a profit margin of 15% nationwide. The more profitable restaurants with a great logistics setup & customer base may have a higher 25% profit margin. Let's assume you are running a very successful restaurant and bringing in 25% profit per order. If that same order was done on a delivery app, you would be left with only 5% profit assuming they took up 20% profit.

If you chose to do self-managed delivery, the cost of delivery would be put upon the customer and you would not lose any money on the transaction.

‍

For many restaurants operating on tight margins, losing up to 20% of every delivery order is a significant hit to profitability. In fact, for smaller establishments, this can mean the difference between breaking even and operating at a loss. The other issue this causes is it will cause the restaurant to be cash-poor because they are operating on tight margins with little to no profits. They will have to increase their volume of putout in order to bring in more profits, which causes them to increase the number of cooks and general overhead. It is an endless cycle.

‍

Problem 2: Increased End Cost to the Customers

Another major issue that delivery apps are causing is how much more expensive they make the cost of food for the customers. Restaurants not only have to increase their pricing to keep up with the commissions, but the fees and tips are all forced upon the customers. This means the cost of food has gone up significantly and both restaurants AND the customers are being burdened by them.

Example:

In this example, we compared the cost of ordering a burrito bowl from Chipotle versus the cost of ordering a large specialty pizza from Dominos. Our goal is to show how much more customers perceive they are paying for fees in relation to the total they have spent on their food. This is based on real food I personally ordered on Uber Eats and Dominos App

‍

A burrito bowl from Chipotle ordered through Uber Eats had the following price breakdown:

• Bowl: $18.25
• Fees + Tips: $16.33
• Total: $34.58
  ‍

A MeatZZa pizza from Dominos ordered through Dominos app had the following price breakdown:

• Pizza: $18.99
• Fees + Tips: $10
• Total: $28.99
  ‍

This means with Dominos only 34% of my cost was to delivery + tips, but on the delivery app it was 47.5% of my total cost
‍

Problem 3: Reduced Calories Per Dollar:

Before starting this section, I want to note that Pizzas are most caloric dense foods at lowest cost you can buy. However, I have also done the price comparison for a scenario if that person were to order takeout from Chipotle and not do delivery.

Calories per dollar is calculated by how many calories were in a food divided by how much that food cost. Fairly simple.

Example 1: Chipotle Bowl via Delivery App

• Calories: 700
• Total Price: $35
• Calories Per Dollar: 20 Calories per dollar

Example 2: Chipotle Bowl via Takeout

• Calories: 700
• Total Price: $18.25
• Calories Per Dollar: 38.4 Calories per dollar

This means if you order Chipotle from a delivery app instead of doing takeout, you are losing over 92% buying power for your calories.

Example 3: Domino's MeatZZa Ordered Directly

• Calories: 2,880
• Total Price: $29
• Calories Per Dollar: 99.3 Calories per dollar

If you are poor or on a budget, Pizza seems to be the best option for calories though it may not be the healthiest.

‍

Problem 4: Competing with Ghost Kitchens

It is no surprise that there are a lot of suspicious sounding restaurants on Uber Eats and other delivery apps. These restaurants with no real store-front are called Ghost Kitchens. Often what they are is: A white labeled kitchen that makes food under many different brands and names on delivery apps.

For example: You ordered chinese takeout from Restaurant A. You wanted to go with Restaurant B, or C initially but decided to go with A. You thought you were ordering from different places but actually all 3 brands were the same place, making the same food. You missed out on Restaurant D which was a real restaurant, because A, B, and C were taking up too much space.

What's happening here is that local restaurants that are family owned and operated are often outcompeted by ghost kitchens because ghost kitchens manage to take up more space on delivery apps and take away eyeballs & ultimately orders.

The end result is that customers will get mediocre to bad food experience, and family owned legacy restaurants will start losing money to these useless restaurants.

‍

Problem 5: Losing Growth and Profits

Let's say we have a restaurant that's running at national average of 15% profit rate (According to Toast). These figures are rough estimations for the sake of visualizing the difference.

Scenario A: No delivery apps

- This restaurant made $100'000 per month
- Profit put aside was $15'000 per month
- Profit put aside by end of the year was $180'000

This money can help the business upgrade their furniture and decor, or even be used as a downpayment for a second location.
‍

Scenario B: On Delivery Apps

- This restaurant made $100'000 per month
- Profit put aside was $5'000 per month
- Profit put aside by end of year was $60'000

How much more do you think a restaurant could do with an extra $120'000 cash sitting in their bank account? The amount of stress and operational difficulties having an increased number of orders at terribly low margins brings takes a toll on your restaurant as a whole.

‍

How Restaurants Can Increase Profit Margins by Opting Out

Given the high fees associated with delivery apps, it's rarely worth it for restaurants to sign up for delivery apps. Here are some strategies restaurants can employ to increase their profit margins by opting out of these platforms:

1. Sign Up for a Direct Online Ordering System:
   • By offering online ordering directly through their website, restaurants can bypass the hefty commissions charged by delivery apps. This approach allows restaurants to retain more of the revenue from each order. Tools like Lunchbox, Menufy, and others provide restaurants with the technology to manage their own delivery services, maintaining customer relationships and keeping profits in-house.
     ‍
2. Encourage In-House Pickup and Delivery:
   • Some restaurants are investing in their own delivery drivers or encouraging customers to pick up their orders. This not only saves on commission fees but also provides a better customer experience, as the restaurant has more control over the quality and timing of the delivery.
   • You can set aside certain employees strictly for deliveries the same way asian restaurants and pizza shops have done for decades.

‍

Conclusion: Profitability Is One Of The Most Important Factors For Your Growth

In conclusion, while food delivery apps like Uber Eats, DoorDash, and Grubhub offer the allure of increased sales and convenience, they come with significant financial drawbacks that can severely impact a restaurant's profitability. The high commission fees, increased operational costs, and reduced profit margins place substantial strain on restaurants, often forcing them to operate on razor-thin margins. Moreover, customers end up paying more for their meals, with less value per dollar, due to inflated fees and tips. In addition, the rise of ghost kitchens on these platforms adds further competition, making it even harder for traditional, family-owned restaurants to thrive.

If you are interested in increasing your restaurant's profitability and overall income, let our team at SwitchGear marketing help! You can read one of our most successful case studies with La Costa Seafood Grill to learn how we've managed to help them and many other restaurants gain 20%+ increase in revenue. Let's grow your business together.

Get in touch today to learn more!

‍