Food industry: innovate or die

You might think that with the rise of app-based food delivery services like Uber Eats and Deliveroo that business would be booming for the hospitality industry. But that’s not always the case.

Despite the staggering numbers – Australians spent $2.6 billion on food delivery last year – these digital disruptors are causing some serious damage to the food industry.

How? By eating away at margins.

Profit margins in restaurants are usually less than 30%. Big take-aways like McDonalds make around 22% profit, while casual dining restaurants operate on a 5-10% margin, while fine dining restaurants make about 4-6% and most of that is on alcohol sales.

And the alcohol sales – or more importantly, the in-house dining experience – is what they’re losing thanks to the food delivery apps.

This is compounded by the fees charged to the restaurants by the delivery apps, which can be up to a 30-35% commission. So whatever margin the establishment was making, gets eaten up even further.

It’s further compounded by the rules of engagement with the apps, which prohibit restaurants from charging more for food ordered through them.

However, the simple fact is that ordering online and having restaurant quality food delivered to your door is growing in popularity. The market gets what the market demands. As a result, the hospitality industry is going to have to get innovative to counter-balance their profits being eaten up by the likes of Uber Eats and Deliveroo.

One good example comes from a restaurant in Brunswick that has gamed the system by developing a completely different menu that’s available on the apps, which allows the restaurant to set their in-store and take-away prices however they like, and try to recoup some of their losses.

Another idea is that hospitality business operators are going to have to invest heavily in creating an experience in their restaurants that will lure customers off the couch. Now more than ever, if you’re not prepared to innovate, your business could find itself in financial dire straits before you know it.