Menulog, the UK owned Restaurant order aggregator, has continued to grow through 2017 and the impact that it is having on Australian consumers is becoming more apparent as more Restaurants are impacted by Menulog.
Menulog merged with Eat Now in 2015 and shortly after was bought by Just Eat in the UK in June, for USD $687 million. Since then, it has gone from the dominant player in the market with virtually no competition, to experiencing fierce competition in the capital cities from UberEATS and Deliveroo and across the country from cheaper alternatives such as our own Free Restaurant OnLine Ordering system (FROLO), which provides a mobile-based online orders manager and unlimited free orders.
How Menulog has impacted diners
Menulog’s business model dramatically decreases Restaurant profitability and has forced many Restaurants to:
- Change recipes to decrease the portion of high-cost proteins like meat and fish We are noticing a big difference between restaurants with the amount of chicken in a chicken vindaloo and the amounts of vegetables in some dishes.
- Change ingredients, moving from premium and mid-range quality to lower quality ingredients
One local restaurant was very frank about the need to maintain prices low enough to retain customers, but needing to cut food costs, so he went with cheaper ingredients.
- Scrapping of discounts for take out
Remember the 10% discount for pickup? That has all but disappeared from the Australian market as restaurants have fought to cover the commissions that Menulog is charging them.
- Increasing of delivery fees
Some restaurants are increasing delivery fees in an attempt to recoup costs.
- Decreasing portion sizes
Using smaller containers so that they can spread their food costs over more customers. Some Restaurants are shipping meals half the size of their competitors in an effort to remain profitable.
This information has come to us from a range of sources, including Restaurant owners themselves and our investigations on food deliveries. Obviously, Restaurant owners are reluctant to talk about decreasing the quality of their food, but there is an increasing feeling of desperation across the industry as struggles with how to maintain standards for their customers and maintain profitability for their restaurants.
The decreasing quality is difficult to assess, but restaurant owners do talk about the cost-cutting that they are forced to do. Portion sizes is a lot easier to judge. Consumers do not order their Vindaloo or Sweet and Sour Pork by the weight or volume, there is rarely even a size mentioned. Unlike Cadbury’s, which was caught out for decreasing the sizes of chocolate bars, the decrease in portion sizes is more insidious because unless customers have the old containers, they will not notice. It is also common to increase the portion of sauce / vegetables and decrease the fish or meat.
Menulog and Restaurant Brandjacking
Many consumers are dealing directly with Menulog without even knowing it. Menulog has for a long time been in the practice of Restaurant brandjacking. This is where a domain name is registered by Menulog and a templated website is built which looks like it is the website from the customer. The customers order through the website and pay the commission to Menulog. Menulog report back to the Restaurant about how effective their ‘marketing’ is, when in reality they have taken a customer who wanted to deal directly with the Restaurant.
By querying the WHOIS database, it can be determined that Menulog (or Eatnow) has registered each of the domain names. This makes it very difficult for the owner to get details changed, or even to have their own website created at the domain.
Menulog the verb – decreasing Restaurants branding
Menulog has worked very hard to create a brand that has become a verb. “Just Menulog it!” is the catchphrase that they have tried to create and Twitter shows the success of this marketing. It effectively cuts the restaurant out of the customer decision process, allowing Menulog to funnel the customer towards the Restaurants paying the higher commissions for sponsored positions.
Menulog was even rated as the best Restaurant Meal Delivery Service, even though it has never delivered a meal!
How much does Menulog charge?
Menulog charges 13% commission in Australia. The Restaurant commission rate can be significantly higher. Restaurants can pay a premium to their listing higher in the Menulog app and Menulog sometimes runs ‘promotions’ in suburbs where participating Restaurants offer a 30% discount and Menulog promotes those restaurants over all other Restaurants. This can have serious financial impacts for Restaurants. We have had customers that have had their revenue go from $2,500 a week to virtually nothing because they didn’t want to offer a big discount to customers.
More importantly, we believe, is the fact that Menulog does not share the customers’ email address with the Restaurants. We believe that if the email address goes to someone else, then they aren’t your customer. The long-term effect of this is to deny the Restaurant of an email marketing database (one of the cheapest ways to market!) and give all of that information to Menulog. As a big data company, Menulog is able to cross-reference orders from many Restaurants by each individual customer and determine what kind of offer to send them at what time with what discount and for what cuisine. It is important to understand that Menulog doesn’t care where a diner places an order, but just that they do and that place more orders than they would normally do.
No loyalty? What happened to the Menulog loyalty offers?
Menulog previously offered Restaurants that facility to give their customers a loyalty discount. These were typically buy “8 meals get 1 free,” which effectively is an 11.1% discount (1 in 9 meals is free). Menulog recently scrapped these offers and we believe the reason is that they were too effective at creating loyalty to the restaurant, rather than to Menulog.
We find loyalty discounts work very effectively. They increase customer purchase frequency and they increase the number of times a customer purchases, increasing the long term customer value of each customer. After each order, an email is sent out detailing how much of a loyalty discount the diner has accrued and how many meals they have to go before being eligible for their free meal. This is a great incentive for consumers and works very well for Restaurants.
The worst Restaurants with the highest discounts
We have identified a pattern that we call the “Restaurant Circle of Life.” It is where a new restaurant owner (experienced chefs don’t operate like this and have a much better plan), intent on creating the restaurant of his dreams, maybe a Chinese restaurant focusing on food from Sichuan province, will sign a lease and work 80 hours a week for the next three months to get ready for the big opening. There is no time for marketing because their is fitout to organise, the kitchen to get installed, menu to design and staff to hire and train. On opening day they are worried because their are very few customers. The friendly Menulog salesperson is there to offer help with some great discounts to get some new customers in. The discounts are big, but it creates a lot of buzz.
The Restaurant is pumping and there are a lot of orders. Life is very chaotic for the first month, but everyone is busy. Cash is a little tight, but more orders will help the restaurant catch up. Three months later and it isn’t quite as busy, but still quite a lot of orders coming through. Cash is a lot tighter, but with luck the restaurant will trade out of it. Customers love the food. Six months after opening and the restaurant is six weeks behind in rent and there is not enough money to make payroll.
Finally, the owner comes to the realisation that the restaurant isn’t making money. Menulog has taken over $8,000 in commission, but the restaurant is broke. Sadly, the restaurant closes. All of the regulars are really shocked when they drive by or try to order next (you can’t email them because you don’t have the email address). The landlord panics, but the real estate agent does his job and finds another person keen to create the restaurant of his dreams, a Thai restaurant focusing on local produce. He starts fit out and in three months time the friendly Menulog salesperson is there to help get him some new customers.
Menulog under severe financial pressure
Since being bought by Just Eat in 2015, Menulog has suffered from fierce competition by UberEATS and Deliveroo, who provide an army or riders as they looked to simplify delivery, and our Free Restaurant OnLine Ordering system as they looked to cut costs.
This dramatic increase in competition has seen Menulog struggle to justify its AUD $865 price tag, which worked out to be a price / earnings ratio of 369. It paid a price per restaurant of $157, 272 whilst each restaurant was only bringing in $4,727 in revenue. The latest financial figures show Menulog losing money as it struggles to pay back the large amount that was borrowed to purchase it.
How can Restaurants improve food quality
We believe that the way the Menulog platform is built makes it impossible for independent local restaurants to prosper, especially as it cannibalises its existing marketing with local independents with its growing associations with big chain restaurants like Red Rooster.
The Menulog platform doesn’t meet the need for the modern Restaurant.
- It doesn’t collect email addresses
- It doesn’t provide customer recency and frequency information
- It doesn’t provide in kitchen order management
- It doesn’t allow restaurants to differentiate themselves
- It doesn’t provide comparative analytics
- It doesn’t support loyalty discounts
- It doesn’t allow for pick up discounts
It doesn’t do any of these things and it still costs at least 13%.
The Free Restaurant OnLine Ordering system disrupting the online ordering aggregators
As we have developed our Free Restaurant OnLine Ordering system (FROLO), we have added more of the features that Restaurants wanted to be able to improve efficiency and increase the customer retention process.
Our mission is to help Restaurants to find more customers and turn them into repeat customers, and our FROLO system has been a key component in helping is to build our customer base to include Restaurants in 11 countries.
Our model is very different to the Menulog model. We have a small sales team, (only a couple of people) and predominantly we find customers who are keen on building their restaurant business who have been listening to our podcast, Secret Sauce, the world’s number 1 Restaurant Marketing Podcast. This, and our focus on Restaurant profitability, has enabled us to develop FROLO and FORBS (the Free Online Restaurant Booking system), which has taken $25,000,000 in seats for Restaurants) and give them away free, both to our customers and to any restaurant that is looking to take their business online and save money from wasted charges like per booking or per order fees.
If you would like to cut the cost of online ordering today and start building your Restaurant’s email marketing database, sign up for FROLO today.