A recent article in BRW by Adam Schwab, a minority shareholder in Menulog has detailed why he thinks the pricetag of $855 million at a Price / Earnings (P/E) ratio of 371 will look cheap in a few years time. The P/E ratio is a measure of how expensive a stock is. Most companies trade at between 10 and 20 times, so 371 implies that Menulog will grow profit dramatically faster than most other companies.
Menulog commission to rise significantly
Most disturbing for Australian and New Zealand Restaurants is that the current commission charged by Menulog of 10% which Scwab describe as “far less than those charged in the United States and Europe”, will have to increase. Increasing the Menulog Commission % will dramatically increase the amount of profit that Menulog makes.
Schwab stated that Menulog could make $100,000,000 in a couple of years. Lets assuming that he is talking profit and they can make a Net Profit of 50% (that is extremely optimistic), this assumes revenue of $200,000,000. Just exactly how many Restaurants are there in Australia and New Zealand? If they increase the number of Restaurants that they have from 5,000 to 15,000, it implies $13,000 in commission from each and every Restaurant, which would be $88,000 in sales per year online. That is possible. We will definitely see an increase in the amount of orders that are being processed online each year for Restaurants, but importantly, it sees Restaurants paying over $1,000 per month for online orders.
I think that there are a couple of issues with assumptions that are being made here. Schwab compares Menulog to Seek, REA and Carsales, each of which has a dominant position. Menulog is certainly number one in Australia, but it faces renewed opposition from Delivery Hero which has raised more money and is looking to increase market share in Australia and Zomato, which will roll out a new online ordering system for restaurants following up on their acquisition of Urban Spoon.
Also, increasing the Menulog commission from 10% to 15% is not going to be easy. Virtually all of the Restaurants that we speak to think that 10% is far to much commission as it is.
Restaurant owners need to buy the food, prepare the food, cook the food, deliver the food, they hire the staff, they manage the staff, they train the staff, they fire the staff and they do all of the other things required to do to run a small business. Wages account for around 45% of turnover, food another 15%, leasing 12% leaving just 28% for all of the other costs: marketing; legal; accounting; repairs and maintenance; training. After all of that, maybe, just maybe there will be something left over for the owners wages and profit for the business. Menulog takes the online orders, thats all, just one thing, which they believe entitles them to 10% of the cost of the order, a rate which they are hoping to significantly increase. High wages and low returns mean that Australian Restaurants will be increasingly keen to try alternatives to paying the menulog commission rate.
The alternative to paying Menulog Commission
The team at MarketingRestaurants have been busy preparing a system that will help Restaurants take orders online without paying the Menulog commission. Our Free Restaurant OnLine Ordering System (FROLO) saves Restaurants time and money by building their customer database, including emails, and also saves them money, because it is completely free. No monthly charges and 0% Commission of each and every order. This is a great way to stop paying the Menulog Commission and most importantly the Restaurant gets to keep their customers email address secure. Menulog take the customers email address and then send out discount offers to other Restaurants. We think this is very unfair and one of the biggest reasons for decreasing customer loyalty.
To find out more about how to take online orders for your Restaurant, contact the Marketing4Restaurants team.