We have often written in this blog about the benefits of finding additional revenue streams through corporate catering, particularly in these tough times for the industry. Delivering to offices can be a great way to reach new customers, avoiding downtime in the kitchen, and bringing in high-value orders. But with marketplace sites charging a big portion of the order value, might caterers be better avoiding them?
Innovators thrive in a tough sector
These are challenging times for caterers. A report yesterday from UHY Hacker Young found that pre-tax profits of the UK’s top 100 restaurants have dropped 80% in the last 12 months. Major brands have been forced to close multiple outlets to avoid further hemorrhaging in a market of political uncertainty, rising business rates and minimum wages increasing.
Peter Kubik, insolvency partner at UHY Hacker Young, commented on the overall difficulties seen in the sector, as well as the notable successes of Wagamama and Leon, saying that “The restaurants that are doing better are those who are innovating by offering their customers something more unique.”
Looking further back, at his take on the chartered accountants’ previous report into the industry in March, he noted another reason for the drop in profits: “The rise of Deliveroo has also had a mixed impact on restaurants because it has often deprived them of sales of alcohol and other drinks, which are normally high-margin sales in restaurants.”
Staying relevant and Marketplace sites
These two observations might be connected. In their desire to stay relevant, companies understandably want to move online and they find marketplace sites a quick way to do this. But in selling through third party sites, they can end up handing over a large portion of their order value as payment to the platform.
With profit margins for retail and restaurant chains tight and under pressure, this fee lost to the marketplace could be the difference between success and failure.
There’s no doubt that innovative caterers can benefit from the secondary revenue streams that come with drop off catering, but those that hand over the entire ordering and delivery process, quite simply, don’t own the customer relationship.
In many cases restaurants might be using marketplace sites unnecessarily, with sales cannibalising orders that would otherwise have been made directly through their website or app. It’s hard for a restaurant to know how many of the sales achieved through a third-party would have come in directly, but what we know for sure is that many caterers are operating their delivery service through a marketplace for increasingly diminishing profits, or even at a loss.
While marketplace sites often argue that they offer incremental revenues, bringing in sales that wouldn’t have occurred otherwise while introducing new customers to the caterer, this is often only the case to start with. An article in The New Yorker found that the market for delivery is growing so rapidly that companies reliant on sales made through high-margin third-parties often end up making a loss as high-cost delivery orders replace orders made directly.
Many caterers pay huge amounts for the exposure offered by a marketplace site, with commissions being negotiable as they scale up their operation. But as the brand becomes better known and customers are more aware of the caterer, an opportunity arises to move away from the marketplace entirely, selling direct and keeping the margin.
Almost exactly a year ago we wrote about the pros and cons of marketplace sites, where we looked more at the benefits of third-party apps. There’s no doubt that they have a place and can help caterers get their name in front of a lot of potential customers, but in a challenging market, and with a strong digital presence easier to build than ever, this might be a good time to consider the costs.