Restaurants have had a few tough consecutive years with the economy causing people to eat out less and the increasing costs of labor as well as food stock. Restaurateurs are looking for anyway to increase their revenues to help keep their businesses profitable. The rise of Amazon Prime and the “instant delivery” culture are causing restaurants to explore new ways of providing food deliveries to expand their client base.
UberEATS delivery bike box inUberEATS delivery bike box in London, England, United KingdUberEATS delivery bike box in London, England, United Kingdom. Uber Eats is an on-demand meal delivery service powered by the Uber app. It is one of the first expansion products by Uber Technologies Inc., the technology platform that connects drivers and riders, and utilizes its existing network to deliver meals in minutes. The online food ordering service partners with local restaurants in selected cities around the world and allows customers to order meals using the Uber smartphone application. Delivery time is claimed to be 10 minutes or less. (photo by Mike Kemp/In Pictures via Getty Images)
Uber Eats is the newest iteration that is being offered. Uber Eats is a new service that the Uber taxi service is providing to their users. Food is picked up to order and delivered to you. The service is fairly straightforward, it’s just very labor intensive.
Ignoring the above, restaurants are looking to gain an edge in their profits. But, Uber Eats is not the way to a brighter and more profitable future. It is likely going to cause you to lose money with every order. The Uber Eats model is to charge the restaurant and you. The only one truly profiting from this entire exchange is Uber.
Uber Eats charges a restaurant 30% of their listed prices for the privilege of delivering their food. For example, Bob’s Deli charges $10 for a burger. Uber Eats would take $3 dollars as a fee for delivering their food. Also, Uber Eats does not permit restaurants to increase their prices to “cover” Uber’s cost. Thus, Uber is telling restaurants that they must eat the cost and lose money or we won’t deliver for you.
The problem here is that the average profit margin for a restaurant is under 30%. Fast food such as McDonalds reported profit margins about 22% in 2017. Casual dining or family style restaurants have a profit margin between 5% to 10%. Lastly, full-service restaurants such as fine-dining have average profit margins of about 6.1%.
Based on the average profit margins above, every restaurant that engages Uber Eats will lose money on every order they take. The more orders coming from Uber Eats, the more money a restaurant would lose.
On the other side of the phone, you will have to pay a “booking fee” for your delivery that is also being paid directly to Uber. Thus, Uber is getting its cake and eating it too.
Uber’s argument is that by gaining new customers through their app, then restaurants would gain a profit from the long-term business of the person making the order. This is great in theory, but it’s unlikely in practice. Assuming that they order again from the restaurant, it is likely that they’d just order through Uber Eats again making the restaurant just lose more money.