Restaurant’s Facing Increasing Delivery Costs Begin Charging for the Service

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on May 2, 2019 9:00:00 AM
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Do you remember when it was considered close to a felony to raise your restaurant pricing in order to make up for the high delivery rates that third-party providers charge for this service? I do. Of course, I dwell in the generation when hippies and mustangs roamed the earth.

Actually, it wasn’t all that long ago, in the not too distant past, that it was considered a violation of the restaurant agreement to inflate prices. Restaurant prices had to be in line with online prices. Due to rising restaurant costs, including labor and food, third-party delivery providers are understanding that restaurants simply have to make a profit and cannot rely on the “hope” that those who find them through these providers will ultimately turn into in-house guests.

These same delivery providers feared that an increase in costs would lead to a reduction in orders. After all, if you can get the same food for less cost by picking it up yourself, who wouldn’t? Apparently, a lot of people. Delivery has become a trending topic and statistics are verifying its popularity.

According to Upserve Restaurant Insider’s 2019 online ordering statistics, 31 percent of those surveyed say they use third-party delivery services at least twice a week and 34 percent of consumers spend at least $50 when ordering online. 57 percent of millennials surveyed said that they have restaurant food delivered so that they can watch movies and TV shows at home.

Because of this growing popularity in delivery service, restaurants are finding that increasing their delivery prices is not affecting the number of patrons ordering in.

Restaurants That Are Raising Delivery Prices

Delivery services often charge fees that range between 15 to 30 percent of the order, making it difficult for restaurants to make a profit. Some restaurants are fighting back.

Restaurant Business recently reported that The Habit Burger Grill, who just recently started delivery services through Postmates, upcharges delivery orders by 25 percent. Yes, you read that right, 25 percent! Even more astonishing is that they’ve found that their customers are willing to pay for the service.

When Fazoli’s, a fast-casual Italian chain, tested higher delivery prices at a few locations in their biggest delivery markets, they found that there was little change in the number of orders coming in from delivery services.

Legends, a restaurant located on the North Side of Pittsburgh (a city with some of the highest delivery numbers in the U.S.) recently reported to the Pittsburgh Post-Gazette that they are increasing delivery prices. As an example, their antipasto is $10.95 on the in-house menu and $12.95 on the delivery menu. It’s really a matter of simple math. If a restaurant’s profit margin is 10 percent, after food, labor, and fixed costs, an additional 15 to 30 percent delivery charge throws them into the red.

The Numbers

In today’s mobile world, the truth is that delivery can account for as much as 40 percent of sales during weekdays and 25 percent of sales on weekends. With these types of numbers, restaurants are finding the importance of working with these delivery providers while negotiating agreements that can keep both parties profitable.

With increasing flexibility among delivery providers, we’re certain to find more restaurants opting to offer this much-in-demand service to their guests. We’re also certain to be finding delivery prices at a premium as restaurants opt to ensure profitability even as they expand their delivery services. Home delivery is becoming a luxury, and one that, apparently, most people are willing to pay for.

We have entered the age of convenience. For some restaurateurs, delivery may well prove to be their saving grace.

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Topics: Technology, Cost Reduction, Food Delivery

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