Does it deliver the results?

Andrew Wooding - Menzies Accountant

Andrew Wooding – H&L Specialist

Recent reports suggest that more than two thirds of the Top 100 casual dining brands in the UK are engaging in the delivery market, which is a 4% increase on 2018.

With so many casual dining brands now offering delivery, it must surely be the right move for all casual restaurants?

It’s not as simple as that though! Offering takeaway delivery through services such as Deliveroo and Uber Eats comes at a cost. They take a slice of the dough for each pizza delivered – usually around 30% of the price of the food. This is not an insignificant cut into the profits of those who are primarily set up to serve sitting customers.

The pitfalls of partnering

Restaurant businesses need to be cautious if they’re thinking of making the step into partnering up with delivery services. Taking the time to forecast the income and costs of this ancillary income stream is important. Business owners need to know how such a large cut and a potential move to increased delivery would impact on their cash flows and profits. If the delivery option is replacing falling restaurant sales, then this could be a recipe for disaster. There may well be a tipping point beyond which relying on the delivery sales becomes unsustainable – you still need to pay rent and front-of-house staff when you are set up to feed people in person!

Continue to measure performance

Having too much delivery can also impact on your walk-in customer’s experience and therefore could harm your brand image. If staff are visibly distracted by deliveries or these appear to be taking precedence over paying customers who are visiting a restaurant, it will damage your relationship with the sitting customers.

Setting a maximum percentage of delivery sales as a KPI might help restaurants ensure they are not losing focus on their walk-in customers. After all, it is those customers who you are not losing 30% of the sales value on.

If your restaurant continues to outperform on delivery, then it might be worth considering servicing the delivery orders in so called “dark kitchens” where chefs only prepare food for delivery. Clearly, the underperforming restaurant still needs to be handled in the most cost-effective way but going “dark” will save money on labour and rent/rates as you only need space for the kitchen.

There’s a benefit if you have a business with multiple units/locations, such as a franchisor or franchisee with multiple franchises. You could trial deliveries from certain locations first, to ensure they perform as you expect before rolling them out across all your business units.

How can Menzies help restaurant business owners?

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We recommend that all businesses implement three-way forecasting, which comprises cash flow, profit and loss, and balance sheet. This model allows you to identify problems before they become irreversible and enables you to assess opportunities, such as whether to offer deliveries as part of your service model. We advise business owners on forecasting and strategy, helping them to maximise their business’ potential.

Posted in Blog, Hospitality & leisure