Connections for Success

 

05.16.11

Delivering Solutions To Excess Capacity
Brandt Kucharski

Did you know that according to the National Restaurant Association (NRA) yearly revenue from restaurants is $600 billion? Even more pertinent is that nearly 50 percent of this revenue comes directly from delivery, take out and drive-thru.  This begs the question why wouldn’t every restaurant offer delivery, or takeout?  The answer can be broken down into a couple of key points which are outlined below.

Restaurants at Full Capacity

Some restaurants are consistently at full occupancy and have every table seat accounted for during the week.  For restaurants that are at full capacity, and have 100 percent of the Chef’s time committed, the option of further services, such as delivery or takeout, is not feasible.  Kitchen space, staff workload and capacity are typically the main reasons a restaurant is not able to offer additional services such as delivery and takeout when they are at full capacity.

All other restaurants

Other restaurants that are not high-end establishments or not at full capacity the answer regarding availability of delivery and takeout is a mystery.  After all, $300 (National Restaurant Association (NRA) estimate) billion dollars of sales are generated yearly alone on delivery and takeout.  To explore this further lets breakdown the cost structure of a typical local restaurant [based on national averages”]:

Revenue Estimate:

Number of Tables: 20
Nightly Table Turns: 4
Estimated Average Occupancy: 60%
Estimated Average revenue per table: $80

Yearly Revenue $1,401,000

Expense Estimate:

Cost of Food (30% Estimate):  $421,000
Salaries and Wages (40% Estimate):  $560,000
Rent and Overhead (15% Estimate):  $210,000

Total Estimate Expenses   $1,191,000
Estimated Net Profit: $210,000

Many of us would agree that 210K of profit is substantial and well worth the effort of running a restaurant establishment.  But what if I told you that a restaurant only experiencing 60 percent capacity could increase their net profit by $108K? Would anyone turn this down? The answer is an obvious no.  However, at GrubHub, we talk with restaurant owners every day who are not offering delivery or takeout and realize that leveraging their excess capacity is the answer to increasing  profitability without having to invest a lot additional capital to make it happen

Let’s look at an example:

  • Average delivery and takeout orders are roughly $30 to $35 dollars.
  • Restaurant capacity is 60% (in theory, you should be able to prepare additional delivery and takeout food without incurring additional headcount in the form of wages).
  • All other costs are fixed, such as rent, insurance, utilities, etc.
  • The only incremental cost of offering delivery would be the cost of the drivers which can be absorbed partially if not completely by charging a delivery fee.

Based upon these assumptions, an estimate of additional net profit is illustrated below:

Incremental Revenue from Delivery and Takeout

Number of Monthly Delivery Orders                         500
Average Order Size                                                           $30
Monthly Incremental Revenue Generated $15,000

Incremental Expense

Cost of Food (30% Estimate)                                      $3,000
Delivery Driver Wages                                                 $3,000 (assuming delivery fees are charged)
Net Expense $6,000
Net Profit $9,000

My example illustrates that an additional $9,000 of profit per month (or $108,000 per year) is achievable by leveraging the capacity available to the restaurant.  Additionally, advances in technology have assisted restaurants in not only gaining the exposure necessary to succeed in adding delivery and takeout part of their menu of services, but it has assisted in making it more profitable (see my prior months article Eating Made Easy (we’ll provide the link).

Here at GrubHub, we’re on target to send a projected $200 million in food orders to local restaurants across the United States by the end of this year.  As the leading search and online food ordering website and mobile app, GrubHub is working with more and more restaurants to help attract additional new customers and bring them more delivery and pickup orders to increase their bottom line.

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