How is Uber changing the Quick Service Restaurant (QSR) environment?


It may be convenient and give more options to all of us as consumers, but at what cost to business which ultimately needs to be passed on?


Uber Eats Image2

Uber deliveries may seem fantastic for the customer, but what is the business and social reality hiding behind Uber Eats, the flashy app and feel good brand? For 3-month period recently, I have personally availed myself of the convenience Uber Eats deliveries offers (and we are 60+). In the tech-savvy hipster enclaves of inner city Melbourne, Uber Eats usage is approaching binge proportions!

industry shake up

Antony Crowther, Managing Director of New York Minute Burgers, and a 20-year QSR industry veteran, argues that the massive uptake of Uber Eats represents the single biggest industry shake up of the last 50 years. Operating an expanding gourmet burger franchise, Antony knows that the Uber economy means that businesses must change their models or perish. Unbeknown to most consumers of Uber Eats, the multinational tech-giant carves 30 – 40% of the sale price for every order away from small business, and into their substantial coffers. For an industry based on a 10 – 20% profit margin, Antony says you don’t have to be a genius to understand that Uber’s 30 – 40% commission effectively obliterates small business’s profit margin.

As a business owner, and even as a consumer, you may be seeing these sorts of things start to happen in an environment where Uber Eats is operating heavily.

  • Store sales seem to be constant
  • You are seeing fewer customers at the tables, and less people coming through the door,
  • Expenses seem to have gone up, as owners now have a new and growing expense called “Payment to Uber”.
  • The Net Profit is now lower than before, and the Net Profit : Sales ratio is decreasing. In the meantime, as a business owner in this scenario, you are continually under pressure for: n Rental increases, as your lease has set annual increases well above CPI, n Labour costs are rising,
  • If you don’t offer Uber delivery, will your sales drop?
  • You don’t want to re-employ your own delivery drivers, as they are too inflexible.

Some may put this down to seasonal adjustments, or possibly the financial changes have not been realised yet. My guess is that this Uber East impact is happening for many QSR business owners, and they don’t fully comprehend the impact yet.

How did it come to this?

Uber Eats started as a great idea to help utilise the vehicles and drivers who would be relatively quiet over dinner time. It began where Uber would charge a 20% commission on the Sales, and at first it looked like some incremental business over your competitors. In many cases this gave businesses access to the delivery market without having to employ delivery drivers.

Uber have progressively pushed the commissions up to now be around 30% of Sales (or higher), and as ‘nearly everybody’ is using this service, the incremental business has dropped back to your normal market share.

What does life with Uber look like?

From a customer’s viewpoint, we now enjoy a quicker delivery, and the convenience of an App, including payment taken directly from our accounts. Being able to see the arrival of our food coming on our phone all combines to make Uber a far superior service to having your own delivery drivers, or other 3rd party delivery services, who do not have the flexibility of the numbers of Uber vehicles.

From the store owner’s view, the negative issues that come from these Uber sales include minimal incremental sales you may have enjoyed as the customer previously came to the restaurant, maybe bought a drink, and generally stayed longer and spent more money.

Uber1

My take on it is that a simplified monthly P & L could now look something like this:

Based on 40% sales now Uber delivered

  • $2K saving in table service
  • $2K reduction in sales (incrementals not purchased)

How might this play out?

Antony predicts that the financial implications of Uber will be felt right across the retail industry. Shopping centres have been able to replace the lesser demand in specialty businesses like clothing, and large department stores with increased food offers. Restaurants have become larger as the casual

dining fad has taken effect, and we have been seeing the growth of the alfresco centres like Knox Ozone, Charleston Square and many other Super and Major Regionals (shopping centres) who have moved into these areas.

If rentals keep climbing, and we see less people eating in the restaurants as these sales are outsourced to Uber Eats, then the rental pressures will drive many of these businesses broke, or a re-adjusted rental level will be necessary.

Uber2

There seem to be two other options that could be considered: Right Sizing the restaurant.

If Uber is becoming the largest “client” of the restaurant, then should you be looking at a smaller footprint, less tables and chairs, hopefully a smaller rent, and re align the business to the new operations? Many facets of the business could be addressed including levels of table service, convenient parking and pick up for the Uber drivers – so they are not in the way, and even a person solely responsible for this category of sales.

The Black Kitchen

I believe some businesses have looked at a separate “non-retail” kitchen, set up more in an industrial area or lower cost, back-street establishment. This facility would be where the Uber sales can be cooked, made up and picked up from. Whilst distance to customer can be an issue, for areas of inner Melbourne and inner Sydney this could be a good option to decongest the more formal restaurants, and reduce the high rentals paid for purely kitchen facilities.

Uber3

The Black Kitchen would need to work on a set of economics knowing all the business will be paying the Uber delivery charges (around 30% of Sales), but a low rent, and tailor made environment may be able to handle the Uber sales for about a 5km radius area quite easily.

According to Antony, this is the biggest game changer in the food business in his 20+ years, and those that do not address it now may be out of business before they know it. Whilst great restaurants with unique products may see the benefit of incremental sales through Uber deliveries, most will just see the same sales through the store, with a new additional cost that is reducing their net margin very quickly.

I’d suggest we all think of Uber more as a cost than additional business, and something that needs to be monitored for its impact to a QSR establishments’ long term economics.