Restaurants taking more online control over ordering and fulfilment to mitigate the volume loss from their price rises
Episode 38 November 2022
Restaurant price rises are putting customers off - low income households are staying away while higher income households are trading down
Restaurants are responding by more efficiently managing their orders, menus, stock and fulfilment using order management technologies
Order management providers are attractive to restaurants because of their lower ‘take rates’
Order management providers are growing revenues faster than delivery platforms and have attracted a rebound in venture capital funding
In this episode of Aggregators, I look at how delivery restaurants are using e-commerce tools to help them tackle the gap that has emerged between the inflation in their unit costs and the price rises that they have been able to pass on to consumers.
As we saw in the previous episode of Aggregators, basket values of delivery restaurants are not keeping pace with input costs, and furthermore, restaurant food inflation is lower than retail food inflation because restaurants have less bargaining power over consumers than grocers and supermarkets do.
Menu prices have had to go up (Nando’s 8%, McDonalds 10%, etc.), but inflation in meal value terms has not been as high. Why? Trade-down - volume has shifted to lower-priced items. US research from Black Box Intelligence tells us that the restaurant chains that had the lowest ‘check growth’ posted the highest ‘traffic gains’ — 16 percentage points higher compared to the quartile of chains that had the largest increase in average check. And many low-income households, with nowhere to trade down to, are buying less frequently. YipitData find, again in the US, that the share of restaurant sales from low-income households (below $45,000) declined in July. Higher income households (earning over $100,000) are staying engaged (their share of sales rose to 40%) but are trading down from their premium preferences, hence inflation in spending is lower than inflation in menu prices.
How have restaurants and their technologies responded? Judging from the noise around trade shows in the second half of this year, the key themes have been around refining menus and pricing to respond to demand, saving costs by integration between order channels and workflow, optimising engagement with third-party sales channels to economise on platform commissions, and creating effective low-cost direct channels to reduce dependency on third parties. Emerging order management technologies are automating all of these processes.
Menus are 10% to 20% smaller than at the start of the year
On menu pricing, one response has been to remove the unpopular items to save costs. Menus are about 10% to 20% smaller per restaurant than at the start of the year, according to a US survey by Toast (in June, reported in November). In the UK, though, Lumina Intelligence have pointed to some menu expansion in September, with new items at higher price points. Point Of Sale (POS) systems, extending into order management systems, can monitor menu pricing and manage inventory, including removing items from menus when out of stock to maintain satisfaction levels. Some can order products as well as schedule labour based on historical sales data.
Restaurants are starting to catch up with other verticals, like hotels, in how they engage with online aggregator marketplaces
To make the most of current demand, restaurants are accelerating the optimisation of their online presence on what are now very crowded marketplaces. Restaurants are starting to catch up with merchants in other verticals, like hotels, that are more mature in how they engage with online aggregator marketplaces. They are managing this using tools to achieve search prominence on filters, to ensure their customer reviews are highly visible (including inside menu pages), to alter menus instantly across multiple aggregator platforms, and to reduce workflow delays in the kitchen so as to reduce overall delivery times,
New demand channels are being taken more seriously. The average number of channels used by restaurants has risen. The aforementioned Toast survey found restaurants employing an average of seven ‘service models’ out of 10 that exist: counter, table, curbside, takeout, delivery, catering, retail, wholesale, food hall, and drive-through. Order management tools are claimed to bring consistency and efficiency across multiple channels.
The affordable pricing of the various order management tools are part of the solution too
The affordable pricing of the various order management tools are part of the solution too. In contrast with the high per transaction fees of the delivery platforms, the low fixed subscriptions and low per transaction fees of the order management players result in much lower ‘take rates’, as the table below demonstrates.