Restaurant Earnings from Food Delivery: GrubHub and Postmates

With the rise of food delivery apps like GrubHub and Postmates, restaurants have expanded their customer base and gained unprecedented convenience. However, the shift to digital ordering and delivery comes with a financial quid pro quo. Understanding how these apps affect earnings is crucial for restaurant owners to optimize their strategies for maximum profitability.

Understanding the Revenue Model

The main revenue source for restaurants should ideally translate into higher profits. But in reality, the partnership between restaurants and food delivery apps is a bit more nuanced. Two primary components determine the effectiveness of these partnerships:

Commission Structure: Delivery apps typically charge a percentage (often between 15% to 30%) of the order cost as a commission. This is handed directly to the courier service, which might be outsourced by the app. Quantity and Quality: Higher order volumes can offset the lower revenue per order, but the quality of orders (average price per order) matters too.

Analyzing the Financial Impact

The core question often revolves around whether the increased volume of orders makes up for the cut taken by the delivery apps. Let's break it down with a simplified model.

Step 1: Base Calculation

Assuming a restaurant's base earnings from on-site orders is $100 per order. When an order is placed via a delivery app and the app takes a 20% cut, the restaurant retains:

$100 * 0.80 $80

For every delivery order, the restaurant nets $80 instead of the full $100.

Step 2: Volume Analysis

While the calculation above suggests a lower immediate revenue per order, the key to profitability lies in the quantity and the average price of these orders.

If a restaurant typically serves 100 on-site customers per hour, but manages to attract an additional 30 customers via food delivery apps, the total quantity rises to 130 per hour. Even if the app takes a 20% cut, the incremental orders can help in making up for the lower per-order earnings.

Maximizing Profits Through Strategic Practices

So, while the app's cut does affect individual order profits, there are several strategies restaurants can adopt to ensure they maximize their overall earnings:

Optimize Pricing: Setting competitive yet profitable prices for delivery orders can help in generating higher volumes. Restaurants can offer discounts or promotions to boost orders during off-peak times, ensuring a steady stream of high-margin orders. Improve Menu Diversity: Offering a wider variety of menu items through the app can attract different customer segments, leading to a higher average order value (AOV). A diverse menu can also cater to customers who might opt for delivery over dine-in, increasing overall revenue. Enhance Order Fulfillment: Streamlining the delivery process reduces errors and improves turnover time, leading to higher order volumes. Ensuring the restaurant is well-staffed and equipped to handle an influx of delivery orders can significantly boost efficiency. Customer Loyalty Programs: Offering loyalty points or other incentives can encourage repeat business and potentially increase the average order value. Satisfied customers are more likely to order more frequently, thereby increasing overall revenue.

Conclusion: Balancing App Integration

In conclusion, while food delivery apps like GrubHub and Postmates represent a significant opportunity for restaurants to expand their reach, the financial implications are complex. Restaurants must carefully analyze their business model to ensure that the benefits of increased order volumes outweigh the commissions taken by the apps. By adopting smart strategies such as optimizing pricing, menu diversity, order fulfillment, and customer loyalty programs, restaurants can maximize their earnings and achieve a balanced and sustainable growth strategy.