How GrubHub Can Hurt a Restaurants Long Term Future and Financial Stability
The Pandemic Has Changed Consumer Behavior Making It a Challenge to Get New Guests.
Shutdowns Have Made Dine-in No Longer An Option For Most Restaurants. Leaving Only a Few Tables on Your Patio or Parking lot Available to Serve. Take-out and Delivery has become a much larger part of a restaurants' revenue. And This is Why Third-party apps like Grubhub and UberEats are booming.
So What's The Problem?
The restaurant business is a thin margin business to begin with. And these platforms take 20-30% of every sale made. So while food ordering platforms might offer convenience as a value proposition. They don’t solve a restaurant’s new economic challenge resulting from the pandemic.
As Collin Wallace, Grubhub’s former head of innovation said:
“The delivery platforms are not actually in the business of [take-out and] delivery. They are in the business of finance. In many ways, they are like payday lenders for restaurants. They give you the sensation of cash-flow but at the expense of your long term future and financial stability.” -Collin Wallace
Why would the former head of innovation at GrubHub say these third party apps jeopardize your "long term future and financial stability"?
What’s The Average Lifetime Value of One Customer to a Restaurant?
How does UberEats and Grubhub jeopardize "your long term future and financial stability"? Delivery platforms own the customer relationship. Leaving restaurants no way to market or build a database of customers who have ordered using the app.
Your customer’s information is not shared with you. It's not surprising that 43% of restaurant professionals believe third-party apps, many of which withhold data, interfere with the direct relationship between a restaurant and its customers. You can learn why its important to own your restaurants database and how to monetize it here.
This is why it's important for restaurant's to look at the lifetime value of these customers. I promise you, that's how these third party apps are viewing them. That's why only 43% of them share customer data with the restuarant. They know data is king.
Based on the national average, the lifetime value of one satisfied customer is $6,620. That’s what one customer is worth to a restaurant. Now multiply that by 10 satisfied customers and that total value jumps to $66,200. The total value of One hundred satisfied customers is $662,000!
I'm sure most restaurants are doing anywhere from 10 to a 100 online orders a day from third party apps.
By relying on these platforms to generate new customers and cash flow for your restaurant. You're potentially leaving over $600,000 on the table!
We made an infographic of how these numbers break down for a restaurant. You can view it below.
How to Determine The Lifetime Value Of One Customer For Your Restaurant.
In every discovery meeting we have with a restaurant, one of our first questions is, "What's the average ticket sale per customer at your restaurant?" Most restaurant owners know this number. If you don't, ballpark it.
Let's say the average sale is $20 at your restaurant. Next multiply that number by the average monthly frequency of that customer. The national average of a loyal customer visiting your restaurant is 2 times per month. So we'll go with that, but your number might be higher.
Break out the calculator and multiply $20x2 and that gives you $40 per month. $40 x12 is $480 per year. That means at the very least, that customer is worth $480 per year to your restaurant.
But on average in the restaurant industry, one loyal customer stays with a restaurant for 5 years. Break out that calculator again and multiply $480 x 5 and you get $2,400.
For every year a customer stays happy with a business they refer to at least one person. So it's safe to say that one happy customer over their lifetime with your restaurant will refer 5 new people to your business. That's the average, but we don't want to pad these numbers. So let's low ball it and say that that one happy customer will refer at least one new person to your restaurant. Use our trusty calculator again and multiply $2,400 x 2 and you get $4,800.
So that one customer who spends an average of $20 on GrubHub and gives "the sensation of cash flow" to a restaurant is potentially worth $4,800. That's a lot of money being left on the table. And that's what one customer is worth to a restaurant who orders through a third party app. Imagine what 10 customers are worth, or even 100 customers who don't order directly from you. That's not including the average number of family members eating at home. Again, we don't want to pad these numbers.
A Big Opportunity For Restaurants.
When you begin to frame the issue from the perspective of lifetime value. It's easy to see how these third party apps jeopardize "your long term future and financial stability" for your restaurant. The good news is that this provides a big opportunity for restaurants. Few restaurants are providing a way for customers to order online directly from them. According to Sense360, 63% of consumers prefer to order delivery directly from the restaurant, versus 18% who prefer third parties.
And only 30% of restaurants are offering some type of loyalty program to increase customer retention. The upside to adding a loyalty program and online ordering to your restaurant is massive.
While your competitors are stuck doing the same broken traditional marketing strategies. There's a new restaurant marketing strategy that only the most successful restaurateurs have caught on to with digital. If you can provide your customers a way to order from you and not from a third party. Plus, own your restaurants database. You will be ahead of the game because very few restaurants are doing this. It is a complete blue ocean out there.
To see how our restaurant marketing agency allows customers to order from your restaurant inside every marketing ad they receive. Plus, builds a database of customers who have "opted-in to your offer". While also tracking exactly how much they have spent, then we urge you to schedule a one-one-one strategy call with us.
On this call, we will dive deep into how we can help your restaurant take advantage of this big opportunity that most restaurant's are ignoring. We will map out a custom restaurant marketing strategy for you that will increase sales by at least 20% this year. This call is free of charge and lasts anywhere between 15-30 minutes. There are no obligations to work with us and the restaurant marketing strategy is yours to keep. Schedule your Free call Today.