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last updated 28/08/2020

Franchisors help as cost of delivery bites into food margins

last updated 28/08/2020

28 August 2020 – Takeaway-only restrictions in Auckland have fuelled demand for delivery services again. What’s the impact on franchisees, and how have franchisors responded?

With the return of Alert Level 3 to Auckland, hospitality businesses were once again restricted to takeaway and delivery options only. While many franchises already had the service protocols in place, it was still a blow – and the cost of delivery via services such as Uber Eats only adds to their problems. As we explained in this article last year, Uber Eats charges a restaurant or café up to 35 percent of the GST-inclusive price to deliver their food, and the restaurant cannot raise prices to cover the charge. This has a significant effect upon profitability.

During the last Level 3 period, there were a number of campaigns on local social media groups educating people about the margins that delivery companies such as Uber Eats took from each sale, with people saying that now they were aware they would collect their takeaways in person. With Auckland’s return to Level 3, that seems to have been forgotten by many customers.

Recognising this, some franchisors are helping franchisees through fee relief. The Coffee Club has been providing its Auckland franchisees with a straight $5 rebate per delivery order, to help offset the cost of using delivery services. The rebate is offset against any franchise fee invoice for the week, and has so far been made on over 2700 orders.

‘It’s simply in recognition of the fact that on Level 3, Uber Eats is making up a significantly higher percentage of sales than usual,’ says Brad Jacobs, director of The Coffee Club NZ. ‘With the tighter margin on Uber Eats sales, and no usual in-store sales to balance this out, it can become an issue for the franchisees’ Cost Of Goods figures quite quickly.  

‘Of course, we don’t charge franchise fee on the Uber Eats portion/commission of the sale to begin with. That’s pretty standard, although I believe there are some franchisors who do still charge their franchise fee on the gross sale. Personally, I think that’s terrible when the franchisee is not even receiving the 30-35 percent of the sale that goes to Uber Eats to begin with. ‘

We ran a series of articles during Lockdown on how franchisors and service providers were helping their franchisees through Covid-19, with a series of case studies looking at different industries. Read it here.

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