Fast food needs speedy de­liv­ery, but this can be a fi­nan­cial bur­den on a fran­chise al­ready work­ing to tight mar­gins.

Inside Franchise Business - - Insights -

De­liv­ery is now a fun­da­men­tal el­e­ment of Aus­tralia’s re­tail scene, par­tic­u­larly in the food arena. Al­most two mil­lion Aus­tralians use meal-de­liv­ery ser­vices such as Foodora, De­liv­eroo, Menu­log and Uber Eats, ac­cord­ing to re­search by Roy Mor­gan.

Younger Aus­tralians are lead­ing the charge and em­brac­ing these meal-de­liv­ery ser­vices within the so-called gig econ­omy: in fact 16.1 per cent of mil­len­ni­als/Gen Y, be­tween 28 and 42 years old, have eaten a meal de­liv­ered by such a ser­vice in an av­er­age three months.

In com­par­i­son, the older pop­u­la­tion is sig­nif­i­cantly less en­gaged with meal-de­liv­ery ser­vices with a take-up of just 4.5 per cent by baby boomers and 3.6 per cent by pre-boomers, aged 58 and older.

The re­port points to the im­por­tance of lo­ca­tion with, un­sur­pris­ingly, ur­ban­ites three times more likely than their re­gional coun­ter­parts to use a de­liv­ery ser­vice.

The Metrotech com­mu­nity of sin­gle, young, well-ed­u­cated, in­nercity pro­fes­sion­als is the ma­jor group us­ing meal de­liv­ery, ac­count­ing for nearly a quar­ter of the busi­ness (22.5 per cent). High-in­come fam­i­lies (11 per cent) and young, av­er­age Aus­tralians (10 per cent) fol­low.

But de­liv­ery ser­vices are a challenge for food fran­chises, says Roy Mor­gan CEO Michele Levine. On the one hand, busi­nesses that pro­vide an in-house de­liv­ery op­tion face eco­nomic dis­ad­van­tages. Fast-food bil­lion­aire Jack Cowin, chair­man of Domino’s Pizza and owner of Hun­gry Jacks, has hit out at de­liv­ery busi­nesses in the gig econ­omy and called for stan­dard­ised pay and con­di­tions across the in­dus­try.

Cowin cites the dis­par­ity of De­liv­eroo, Foodora and Uber Eats pay­ing con­trac­tor wages with­out ben­e­fits while fast-food chains such as Domino’s pay award wages.

In an in­ter­view with ABC’s The Busi­ness he de­scribed the “gig so­ci­ety” as where peo­ple con­tract to do de­liv­er­ies. “They don't get em­ployee ben­e­fits, they don't get penalty rates, they work on a con­tract rate that is a lot lower than wages.”

Cowin ac­knowl­edged that some fran­chisees within Domino’s do use con­tracted de­liv­ery firms as part of their busi­ness, but re­jected sug­ges­tions these fran­chisees should stop third-party de­liv­er­ies.

“What I’m say­ing is it should be a level play­ing field in which ev­ery­one, whether you’re a part-time con­trac­tor or a part-time em­ployee in a store, has the same ben­e­fits.


Cowin be­lieves there should be a gov­ern­ment in­ves­ti­ga­tion into the wage dis­par­ity.

Ac­cord­ing to In­ter­net Retailing, food-de­liv­ery plat­forms are em­pha­sis­ing the flex­i­bil­ity con­tract work of­fers their rid­ers, as par­lia­ment con­sid­ers a

Bill to ex­tend work­place pro­tec­tions and ben­e­fits to work­ers in the “gig econ­omy”.

De­liv­eroo coun­try man­ager Levi

Aron says peo­ple choose to work in the gig econ­omy be­cause of the flex­i­bil­ity it al­lows. “Across Aus­tralia, peo­ple are choos­ing work that al­lows them to earn well while pro­vid­ing the free­dom to choose when, where and whether to work,” he told In­ter­net Retailing.

An­a­lysts at IbisWorld last year es­ti­mated that food-de­liv­ery plat­forms drove a 2 per cent rev­enue in­crease in Aus­tralia’s restau­rant in­dus­try in 2017-18, play­ing a crit­i­cal role in bring­ing e-com­merce func­tion­al­ity to a still mostly bricks-and-mor­tar busi­ness.

In fact the on­line food de­liv­ery in­dus­try cur­rently worth $600 mil­lion could reach a $2.4 bil­lion turnover by 2025, ac­cord­ing to Mor­gan Stan­ley.


“Uber de­liv­er­ies may seem fan­tas­tic for the cus­tomer, but what is the busi­ness and so­cial re­al­ity?” asked MD Peter Buck­ing­ham of ge­ol­o­gis­tics firm Spec­trum Anal­y­sis.

He points to Antony Crowther, New York Minute Burg­ers MD and a 20-year QSR-in­dus­try vet­eran, who has ar­gued that the mas­sive up­take of Uber Eats rep­re­sents the sin­gle big­gest in­dus­try shake-up of the past 50 years.

“Run­ning an ex­pand­ing gourmet burger fran­chise, Crowther knows the Uber econ­omy means busi­nesses must change their mod­els or per­ish,” says Buck­ing­ham.

John Saadie, from Or­der Up agrees that de­liv­ery apps are putting busi­nesses un­der pres­sure. In In­ter­net Retailing, Saadie said “It has been noted by sev­eral restau­rants that the com­mis­sions taken by food de­liv­ery apps are sim­ply not sus­tain­able.

“While the four ma­jor apps – UberEats, Menu­log, Foodora and De­liv­eroo – are re­luc­tant to dis­close the of­fi­cial com­mis­sion or sur­charge amount, Menu­log put up their hand and de­clared a 12 per cent com­mis­sion rate plus a 2 per cent pro­cess­ing fee,” he said.

“The other prob­lem lies in the fact that food re­tail­ers are of­ten in­formed of the ex­act terms of agree­ment only once they’ve started the sign-up process.”

Some restau­rants us­ing Uber Eats claim de­liv­ery com­mis­sion can ramp up to about 30 per cent of an or­der, how­ever the com­pany de­nies this.

A state­ment from Uber Eats reads: “Restau­rant ser­vice fees give restau­rant part­ners ac­cess to a large network of de­liv­ery part­ners and con­trib­ute to 24/7 cus­tomer and op­er­a­tional sup­port, as well as app de­vel­op­ment, mar­ket­ing cam­paigns and busi­ness in­sights. Uber Eats can be a cost-ef­fec­tive chan­nel for reach­ing an en­tirely new cus­tomer base.”

Buck­ing­ham points out that de­liv­ery pay­ments can be a growing ex­pense whit­tling away at the net profit, and there is also a drop in the net profit to sales ra­tio.


“In the mean­time, you are con­tin­u­ally un­der pres­sure for rental in­creases, as your lease has set an­nual in­creases well above CPI. Labour costs are ris­ing, but if you don’t of­fer de­liv­ery, will your sales drop?”

The in­cre­men­tal busi­ness gained by food fran­chises may be lost as the spread of food-de­liv­ery ser­vices ex­tends, he sug­gests, di­min­ish­ing a fran­chisee’s mar­ket share. That is ef­fec­tively wip­ing out any com­pet­i­tive ad­van­tage.

But can a fran­chisee af­ford not to of­fer such a ser­vice?

Saadie be­lieves that while food de­liv­ery ser­vices may work for some, they may not be right for ev­ery­one. “For many restau­rants, fear is driv­ing their de­ci­sion to sign-up to food de­liv­ery ser­vices. If you’re not on­line, do you re­ally ex­ist? As food de­liv­ery ser­vices grow, will restau­rants be left be­hind?

“What restau­rants should be do­ing is work­ing di­rectly with con­sumers to elim­i­nate the mid­dle­man. Ul­ti­mately, it’s up to the in­dus­try to set the pace of change,” he sug­gests.


So what are the op­tions? Buck­ing­ham raises two pos­si­bil­i­ties:

1. Fran­chised out­lets that oc­cupy a smaller foot­print with fewer in-store seat­ing op­tions, a smaller rent, and a busi­ness re-aligned to fo­cus on de­liv­ery or­ders; 2. The in­tro­duc­tion of so-called dark kitchens, non-re­tail spa­ces in lower-cost in­dus­trial ar­eas from where ser­vices can pick up and de­liver or­ders.

“The black kitchen would need to work on a set of eco­nom­ics know­ing all the busi­ness will be pay­ing the Uber de­liv­ery charges, but a low-rent, tailor­made en­vi­ron­ment may be able to han­dle the Uber sales for about a 5km ra­dius area quite eas­ily.”

There is no doubt food de­liv­ery is a game changer. It is an is­sue that needs to be ad­dressed, and po­ten­tial food-in­dus­try fran­chisees need to quiz their prospec­tive fran­chisor and other fran­chisees in the network over the real costs and ad­van­tages.

They don't get em­ployee ben­e­fits, they don't get penalty rates, they work on a con­tract rate that is a lot lower than wages.

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