Is Your Restaurant Online Ordering Model Destroying Your Profit Margins?

Hospitality Leader – 3/16/2016

http://www.hospitalityleaderonline.com/doc/is-your-restaurant-online-ordering-model-destroying-your-profit-margins-0001

Restaurant And Hospitality IT News For VARs

Online ordering is changing the way restaurants do business. While the restaurant industry has always been competitive and risky, changes over the past five years in tech have added a new variable for restaurant owners to consider: online ordering is now a vital part of how restaurants handle pick-ups, deliveries, and reservations. Millennial customers also have higher loyalty rates depending on how accessible their favorite restaurants are online. In the end, online ordering is a must-have for any restaurant today.

Because of shift in customer thinking when it comes to online ordering, restaurateurs working to build their market share find it essential to have online ordering options available to their customers. But the most common online ordering options have high fees which can make the difference between success or failure for restaurant owners. By contrast, the right online model can help your business grow and thrive instead of potentially dooming it to failure.

Are Percentage-Based Ordering Models Eating Into Profit Margins?

To restate what most owners already know: depending on a restaurant’s overhead, the profit margin can often be rather small (often from 3% to 10%, according to recent industry estimates). For successful restaurants, the profit margin can be anywhere from 20-30%, but the built-in costs of restaurant maintenance mean it won’t get much higher– and that profit margin is almost always the difference between success and failure. In fact, most new owners don’t realize at the outset just how razor-thin restaurant profit margins can be, which is why the restaurant industry claims a staggering 60-70% failure rate on average over a ten-year period (some analyses actually put the number slightly higher). However, assuming that a restaurant was profitable before the age of online ordering, adapting to new marketplace realities can seriously change the game for the worse. Here’s why.

A recent article in Quartz magazine, taking into account data from multiple restaurant online ordering companies’ IPO’s, discovered that the average commission made by these companies was a staggering 13.5%. Whatever benefit these companies provide in terms of helping restaurants build their business online is almost completely erased by the fact that the percentages they take out can often be considerably higher than a restaurant’s profit margin, meaning that the business will actually be unprofitable over the long term. Even worse, most business owners are rarely aware of what is happening, as their statements seem to indicate hidden fees and penalties that weren’t necessarily explained, leading to individual charges looking much smaller than the actual totals being charged to the business.

Faced with the possibility of moving into negative cashflow territory, restaurants often find that making use of online ordering can hurt their business, so they are faced with two uncomfortable choices: taking losses with large online ordering companies (directly affecting their cashflow) or skipping out on online ordering altogether (meaning a serious loss of revenue in today’s business marketplace.) The inevitable result for restaurants choosing the former option is to raise prices to offset the loss from online ordering, which usually results in tacking on a fee to offset the cost of the online ordering system or raise prices on their dishes overall. The result in either case is customer inconvenience and, in many cases, attrition.

Finally, to make matters worse for the industry overall, predatory online ordering companies almost always target new restaurant owners to “lock them in,” with those owners not realizing just how much of their profits are being eaten into by their online ordering system.

Even worse for restaurant owners, often these companies use SEO techniques which create total dependence on the online ordering company. A good example of this is the use of “microsites” that exist on the online ordering company’s end. They create mini websites that steal traffic from a restaurant’s own website. This technique is the opposite of traditional advertising, such as PPC (which is designed to reach new users) and user base advertising (reaching out to existing customers a restaurant acquires).

Often when restaurants sign up with online ordering companies, microsites for the restaurant will be created on the online ordering company’s website. (This is important to remember, because this is not going to the restaurant’s website, but the online ordering company’s site.) Because of the relative weight of the online ordering company’s size, chances are that potential customers looking for a restaurant will see the microsite before the restaurant’s own website, meaning that native web traffic that would have gone to a restaurant website (people looking for a restaurant’s menu or directions, for example) will be redirected to the online ordering company’s website, which will then downgrade the restaurant website’s own ranking. What this means for the restaurant in this example is that the exorbitant fees involved are compounded by a new problem: online web traffic is being shifted from the restaurant site to the online company’s site– meaning online ordering companies actually damage a restaurant’s web presence to build their own customer bases.

Solutions Where Online Ordering Can Mean the Difference Between Success and Failure

Recognizing the potential for disaster these margins mean for the online ordering industry and the restaurant industry in general, one online company has decided to do something about it. Food Online Ordering Systems, a successful national online ordering solutions provider, has developed a food online ordering system which allows business owners to take control of their web traffic and get online sales without paying a commission. This flat rate service saves restaurants $1,000 each month in commissions they are currently paying making the cost of running an online ordering system more manageable overall. With online ordering tied directly to the portal, everything from order tracking to payment organically becomes part of a restaurant’s existing order process.

Further, by focusing on a restaurant’s organic SEO visibility, restaurants using Food Online Ordering Systems’ portal are no longer trapped by online ordering companies’ predatory SEO techniques. A restaurant with well-maintained SEO is not dependent on the online ordering company, but gets to keep their customers for themselves, without worrying that their online ordering company is trying to undermine their own client acquisition efforts.

Flat rate ordering means that the total cost of online ordering leaves the realm of percentages of overall sales volume and moves towards a single, easy-to-understand pricing model. Online ordering moves over to the general cost of maintenance, and worries over how much is going to be taken out in a given month is over. This also means that the problem of worrying about increased costs overall is related directly to profits and volume, not how much the online ordering system will take out in a given month.

Online Ordering that Helps Manage Costs

Restaurant owners are discovering two facts about online ordering that direct them in opposite ways. The first is that online ordering is a virtual necessity in the modern business marketplace. The second is that many online ordering companies are extracting commissions from them that can crush their business model without making potential catastrophic changes to their pricing structure.

In this market environment, Food Online Ordering Systems offers restaurant owners a cost-effective alternative which is set to disrupt the online ordering industry. By helping restaurant owners by giving them the ability to finally get their online costs under control, the company’s flat-rate model is bound to change the way restaurants treat their online ordering systems. And in an industry where 7 out of 10 restaurants can’t make enough of a profit to survive, Food Online Ordering Systems’ flat-rate model is making enough of a difference to help establish this competitive industry’s future success stories.

If you’re a restaurant owner and have become concerned with the total cost of your online ordering system, it might be time to look at an alternative pricing structure that fits your business from Food Online Ordering Systems. With some online ordering companies charging well over 15% commission rates to get a business online, using an affordable, stable flat-rate online system that integrates with your existing POS may be the missing piece that makes the difference between long-term success and failure later.

About Food Online Ordering Systems

A fixed cost provider of custom online ordering solutions for restaurants, Food Online Ordering Systems can stand alone next to any point of sale system or be fully integrated. It is completely white label so it is your branding that your customers see. It can also be made available to customers as a branded mobile app for Android, iOS, Windows devices, or as an app on Facebook. The company can help build the code and design the best look working with the restaurant’s colors, logo, and photographs of its menu items and help set up secure payment portals. They also accommodate restaurant loyalty programs and can generate maps to allow customers to locate branches quickly. Food Online Ordering Systems will build and design a custom solution tailored to your restaurant.

http://foodonlineorderingsystems.com/

You may also connect with Food Online Ordering Systems on Facebook (http://www.facebook.com/FoodOnlineOrderingSystems), Twitter (http://twitter.com/Folosinc), and YouTube (http://www.youtube.com/c/foodonlineorderingsystemsforrestaurants).