Disintermediation occurs when there is a decrease in the use or number of intermediaries between producers and consumers. Restaurant disintermediation is the decrease in the use of companies that exist between a restaurant and their consumers.
Who are the Restaurant Intermediaries and what do they do?
In the late 1990’s and early early 2000’s, it was extremely expensive to develop eCommerce solutions. There were only a few available, none worked very well for Restaurants and they were very expensive to implement. Companies like OpenTable, GrubHub, Menulog and Just Eat spent a lot of money developing Restaurant eCommerce systems so that Restaurants could finally take bookings and orders online. The investment was large, the technology new and the learning curve both for Restaurants and Customers was steep.
The original business plan for these companies was to ‘clip the ticket on the way through’. OpenTable charged a monthly fee plus a fee per booking or seat and online ordering companies charged a % of the total meal price.
Restaurant Disruptors evolve
The next step for online ordering was providing the delivery component. Enter UberEats, Food Panda and Deliveroo. Online Bookings saw the creation of Table Management apps.
For almost all of the intermediaries, their businesses evolved to be the ability to sell customer information as they looked to monetise the huge databases of customers and their eating habits and preferences. Restaurants that where struggling could pay to have the aggregators send out emails on their behalf. Aggregators evolved their Big Data capabilities to better target consumers.
The whole model rested on their ability to put themselves in between the restaurant and their customers. Once they have achieved that, they can then either clip the ticket on the way through, influence consumers as to which restaurant they will purchase from, or both.
What effects do Restaurant Intermediaries have on the Restaurant Industry?
The Restaurant Imtermediaries have 4 effects:
- They increase costs for Restaurants;
- They increase the costs for customers;
- They increase the distance between the Restaurant and the customer; and
- They collect contact details of restaurant customers.
They increase costs for Restaurants –
Restaurants experience higher costs because every order or every booking incurs a tax which they need to pay. This can be increasingly costly, when say a Restaurant conducts a marketing campaign to increase delivery orders. For each new order, there is a 35% fee to the Restaurant and if that is below the break even point for that order (which, at 35% it most probably is), then they are increasing the volume of unprofitable orders.
They increase the costs for Customers –
The costs of the clipping the ticket on the way through have to be borne somewhere and in the notoriously low margin hospitality industry, those costs have to be passed onto customers, usually through delivery fees or higher prices, or both.
They increase the distance between the restaurant and their customers –
Many intermediaries will not pass on the customers contact details. They often state that this is because of privacy reasons, but the argument is really over how owns the customer. If a regular customer orders food by phone and then starts ordering by Just Eat, the costs go up and Just Eat gains the email address of the customer
Why Restaurant Disintermediation?
There is increasing media attention on the negative effects that the practices of the intermediaries and the need for Restaurant Disintermediation.
Forbs wrote about how UberEats can lead to bankruptcy, and numerous articles have come in Australia about Restaurants leaving the UberEats platform describing UberEats as being incredibly exploitative.
Our podcast about Restaurant Frenemies covers a lot of the in depth techniques that large companies use to get in between restaurants and their customers.
Simply put – Restaurants, now more than ever, need to be closer to their customers now, more than ever and leaner now more than ever.
Restaurant Disintermediation does this. It cuts out the middleman and cuts out the skimming on prices, so that restaurant profitability improves.
Here is a very interesting video from SBS Australia about branding jacking and adwords arbitrage. It is pushing up the price of take out for Australian consumers (and anywhere Just Eat, Menulog, Grub Hub operate.) If you want to know more, check out our podcast on it.
Posted by Marketing4Restaurants on Wednesday, March 21, 2018
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If you’re struggle with Restaurant Disintermediation, talk to the team at Marketing4Restaurants. Our success is bringing you closer to your customers.