Menulog’s goal of $100 million in revenue – what does it mean for your Restaurant and your online ordering?

The Australian Financial Review (AFR) is reporting that Menulog is confident that they will be able to achieve revenue of $100,000,000 in the coming years. Former Groupon CEO Alistair Venn is predicting that Menulog will continue to grow despite increasing competition from Uber Eats, Deliveroo, and Foodora and from Restaurants ‘cutting the cord’ and using a Free Restaurant OnLine Ordering (FROLO) systems to take orders online. The growth expectations come from the planning figures that Menulog is using that 200 million meals are delivered in Australia, but that the majority were still ordered over the phone and only 20-30% were ordered online.

What do you need to know about the economics of Restaurant online ordering? Check out our two part podcast, where we discuss 7 ways that Restaurants are increasing their online orders. We look at packaging, email marketing, menu engineering and unpack some of the secrets of the Domino’s model for pizza delivery and the big secret that underpins their profitability.

Menulog released that, for calendar year 2016, their revenue had jumped 64% to $68,000,000 and orders had increased 42% with more than 9,400 restaurants featured on the site, having listed an additional 1,500 restaurants in the last six months. It is important to note that revenue jumped to 64% when orders only jumped 42%. This would be because of the increase in commission that Menulog was able to extract out of restaurants.

Menulog released that orders increased to 14 million for the year.  With 9,500 restaurants on the platform, that would equate to 4.8 orders per restaurant per day, (assuming the restaurant is open six days a week). It also means that the average restaurant paid Menulog $8,500 per year in commission. There will be a wide variance from that.  We have seen some restaurants spending over $25,000 a year, and many restaurants get very few orders.  We suspect that these high volume restaurants will begin to reconsider the value that Menulog creates for them in return for the $25,000 especially when there are free order taking alternatives available.

One interesting piece of information was that Menulog released was that on 60,000 deliveries happening on Menulog in a two-hour window. This is something that many restaurants know, partially because of the number of orders that they get in that peak time, but also because of the increasing instability of the Menulog platform. The migration to the Just Eat software will probably be welcomed by restaurants around the country who have been impacted by issues with the ordering system in peak times.

How much commission does Menulog charge?

When Menulog was bought by Just Eat, they were charging 10% in commission. That has now risen to 13%. We have also seen some variable pricing where Menulog directs customers to certain restaurants who are prepared to pay higher commissions and we have also seen postcode-wide promotions where restaurants are offered the opportunity to partake in a promotion in a suburb, but must offer a certain percentage off their price. They are forced into the dilemma of offering a discount (often 30% and getting an increase in orders but at a heavily discounted price) or seeing their weekly volumes slashed.

One interesting variant we have seen, which is a potential response to the popularity of our free online ordering system is a decrease in the commission charged on orders from the Restaurants website. This can decrease to 6.5% and we have unconfirmed reports that some larger restaurants have negotiated free commission on website orders. This is probably because Menulog has become expert at Restaurant Brandjacking and Restaurant Adwords Arbitrage. These practices have been reported in the AFR and can have a significant negative impact on Restaurant profitability.

What does Menulog’s revenue target mean for your Restaurant?

There is the potential for further increases in the standard commission, as well as a drive to get more restaurants on the platform. The requirements to increase profits for Just Eat in the UK will be almost insatiable given the price that Just Eat paid for Menulog and we think that another round of increases in commission rates is inevitable.

What about phone orders for Restaurants?

One of the big bones of contention that Restaurants have when using the Menulog platform is the difficulty customers have in locating the phone number. This is borne out of the fact that the last thing Menulog wants is a customer dialling direct and Menulog missing out on the commission.  Many people want the flexibility to make a phone order.  They may be unsure of online ordering, have a query about the food, or just prefer to place a phone order.  We see a strong correlation in the marketing campaigns that we run on Facebook for online ordering with an increase in phone orders and using a system that doesn’t support phone ordering is decreasing the effectiveness of your online ordering offering.

What is the impact for consumers?

The impact for restaurant customers is an increase in fees as restaurants try to cover the 13% commission. With some restaurants doing more than 50% of their revenue through take out, it is clearly unsustainable for 13% (and potentially higher in the future) commissions to be leveraged on each order.  We have seen the death of the old 10% discount for take out food as restaurants have struggled to claw back margin.  I spoke to my old local Indian restaurant last year about the decline of food quality (we’ve since found another Indian Restaurant with a much better Vindaloo!) and he said that with the rising costs in the restaurant, including wages, electricity and Menulog commission, he had changed his spice supplier, his cut of meat and his recipe quantities to try and maintain margin. The sad thing was that this was clear in the taste of the food. What was once a warm (not hot 🙁 ), fragrant and tasty Vindaloo had become a bland curry with a couple of bits a tasteless meat thrown in. This is the long-term impact of rising costs for Restaurants and the impact that it has for consumers.

One particularly chilling statement in the article is:

“Customers love all the restaurant choices, but it can be hard to know which ones to choose. We’re excited for the day that someone can open up the app and Menulog will know what the customer wants to eat that evening. A lot of work is going into that.”

The database the Menulog is building is designed to build a picture of what each consumer wants to eat and when.  Menulog will then be able to steer that consumer to the Restaurant that is prepared to pay the highest commission to them.

Given the monopoly status that Menulog has outside of the built up areas, this will be particularly bad for restaurants who don’t start protecting their brand and building up their own email marketing database.

What will happen with online ordering competition in Australia?

UberEats and Deliveroo are fighting for supremacy in the built up areas.  We have seen some restaurants reporting big drops in Menulog orders when UberEats came out, and we suspect that some restaurants are even pulling out of Menulog entirely, because they can’t justify the 13% commission when for 35% they can get someone else to deliver the food.

Foodora will probably exit Australia in the next six months. They get very few orders as it is and are probably hemorrhaging cash. A decision from head office in Berlin could come at any time. The decision to close Delivery Hero appeared to be very sudden last year.

Because UberEats and Deliveroo operate in a three-way market (they need restaurants, customers and delivery drivers), they need high urban density areas and this will limit the amount of growth that they can have geographically. This will leave Menulog with a vast monopoly throughout most of Australia.

What is the best Menulog alternative?

Whilst it is unclear how much Menulog will increase its fees, it is very clear that they have an extremely strong monopoly in outside of the areas served by Uber Eats, Deliveroo and Foodora since Delivery Hero left the country.  The best way for Restaurants to be able to survive and even thrive in a monopoly environment is not to participate we believe.  We are seeing Restaurants using Free Restaurant OnLine Ordering system (FROLO) and saving the 13% commission. That 13% is then split with 6.5% going to maintain margin and the other 6.5% becoming an ongoing marketing budget. Over a year this can be a significant amount and is used to run campaigns and to build a loyal following of customers who are looking for quality food at a reasonable price.

If you want more information on Australia’s largest completely free (no monthly charges and no per order charges, check out the Free Restaurant OnLine Ordering system.)  Even though it is free and we don’t make any money out of it, we are continuing to develop and improve it, with recent introductions including the support for some Epson receipt printers and the linking into the Free Restaurant CRM system    we have some restaurants who will save over $13,000 a year on commission and be building a strong email database of their existing customers.

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