Kauppalehti recently wrote an article about a restaurant in Helsinki that made 570,000 euros in revenue through a courier service (in just 4 months), but was not able to turn a profit due to high courier commissions. Here is a link to the article.
The main points will be summarised in English below:
Courier services like Wolt and Foodora grab about 30 percent of the price of a serving. Of this, the majority is spent on the salaries of the messengers.
The commission for the restaurant is high, while the margins in the sector are low. Therefore, selling food through a courier service may not be profitable, even if the restaurant makes significant additional sales through it. In addition to the 30% commission charged by the courier service, restaurants have additional costs such as take-away boxes, cutlery and transport bags. Restaurants practically compensate for low home delivery fees from their own margins.
Would customers be willing to pay a bigger delivery fee?
They would – at least at certain times. This has been noticed by Kotipizza, who uses dynamic pricing for its own home delivery. The model is familiar to anyone who has bought a train ticket or booked a hotel night: the higher the demand, the higher the price.
People crave pizza mainly on Fridays, Saturdays and Sundays. During the beginning of the week, demand was clearly lower, and this was a challenge for Kotipizza’s business. Then, the chain decided to introduce dynamic pricing (by Priceff) to its online store.
“We lowered the fixed delivery price during quiet times – and magic happened. Then we started to raise prices during peak times so that restaurants could get better margins, ”says Heikki Lummaa, CEO of Priceff.
As a result, sales volumes increased outside of peak hours, while weekend sales did not collapse.
“Even a small difference in price drives non-time-critical demand elsewhere. At the same time, anyone who really wants pizza on Friday night gets their order more quickly. The restaurant, on the other hand, is able to optimise resources better when demand is more even and margins are higher. Everyone wins, ”says Lummaa.
Kotipizza’s delivery fee is 2.90–7.90 euros, depending on demand.
“When we introduced the pricing algorithm, we saw double-digit growth figures in both delivery volumes and sales. The peak in demand brought by the corona virus has been separated from these figures, ”says Johanna Kuosmanen, Kotipizza’s Director of Digital and Customer Experience.
Pick-up, save money?
Kotipizza is a nationwide chain that has the resources to build its own transportation infrastructure. The situation for small restaurants is different. Home delivery is always a cost for restaurants – whether it’s investing in your own delivery capacity or using courier services.
Dynamic pricing could also be used to encourage customers to pick up a portion from the restaurant themselves.
“There could be a dynamic discount on pick-up portions, especially during quiet hours. The consumer sees effort in picking up the food, but receives a discount in return. If pick-ups are dynamically priced, the restaurant could increase demand and save on transportation costs. ”