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As the National Restaurant Show lumbered into its third day, GrubHub and Seamless, two leading online ordering providers for independent restaurants, awakened the industry with a major announcement — a merger that would form the nation's largest network for mobile and online ordering menus.

For many restaurant executives, the announcement in the Wall Street Journal, ABC News, or USA Today may have been an awakening to the power and the promise of online ordering and how sites like the two powerhouses are redefining the ways that diners and restaurants interact and do business in the digital age. This article is an attempt to inform restaurant chains about these services and provide new information about how online ordering can help to drive incremental sales and diners to your stores.

How GrubHub and Seamless Work
1
. Customers visit www.grubhub.com or www.seamless.com (or use the GrubHub or Seamless mobile apps) to discover local restaurants, view their menus and place prepaid orders.

2. After a guest places an order, GrubHub/Seamless send the prepaid order to the chosen restaurant, typically through a fax, dedicated PC and printer or dedicated tablet running their merchant-facing app.

3. The customer arrives to collect the order or the restaurant delivers the order to the customer.

Just how big of a force will this combined entity be? Here's where the two companies stand today.

Top Facts (Sources: company websites and press release)

  • 3.6 million+ diners use the services on a monthly basis.
  • 20,000+ restaurants use the services in 500+ cities across the nation.
  • 89-92 percent of these diners are first time customers.
  • The "10 largest investment banks, top 200 law firms, and thousands of companies order every meal through Seamless," which began as a corporate food ordering solution and was once owned by Aramark.
  • 90,000+ orders per day are processed through the two platforms.
  • $875 million in combined food sales in 2012.

What online ordering means for chains
Restaurant chain franchisees typically require daily payment for orders, with diners' payment transmitted directly to the store's credit card merchant account.

As a result of these specific requirements, many restaurant chains seek to work with white-label, POS-integrated online ordering providers, who send payments to stores on a daily basis, rather than working with platforms like GrubHub or Seamless, which can generate new sales and new diners but typically wait to pay restaurants for an average of fifteen days.

A restaurant chain may also choose to create a branded online ordering website or mobile ordering app so that its diners can have a differentiated ordering experience, consistent with the restaurant chain's brand, such as http://order.dickeys.com. Beyond branding, these branded apps and websites allow restaurant marketers to gather valuable data about their customers across multiple transactions and preserve the restaurant brand's independent relationship with its diners – avoiding the risk of exposing them to competitive restaurants on the same common marketplace. Restaurant operations department typically require that orders be transmitted to stores in a specific way: integrated directly to the point-of-sale (POS) system, so that online orders do not create a disruption to existing operations.

Choosing the middle way
The opportunities for creating a mobile or online ordering experience, then, are vast, and savvy restaurant marketers will analyze a number of factors before pushing the button on any one tactic.

The first, of course, is cost. While rates for the many offerings range, operators should consider costs as an investment that reaps positive rewards. Consider the incremental profit from a connection with an online marketplace such as GrubHub/Seamless. The average listed store receives 4.5 orders per day (90,000 orders/20,000 stores). These orders would not require additional staff, additional real estate, or other additional cost of goods sold (COGS) aside from food cost.

With food cost at, say, 30 percent, that means 70 percent profitability on these 4.5 incremental orders. If an average online sale is $20, that means an incremental $90 of top line sales, and $63 of bottom line sales each day, resulting in $22,995 in incremental profit at each store on an annual basis.

With potential profit in mind, the second consideration is size. GrubHub and Seamless, for example, are targeted to independent restaurants, while branded online ordering platforms are more suited to chains with 25 or more locations. Branded mobile apps are often best for much larger chains that have a significantly large and loyal following.

There is a middle way — linking a restaurant brand's own online ordering system with GrubHub/Seamless. Brands can still receive POS-integrated orders and direct payments at the store, while also being linked to the GrubHub marketing engine. (The photo to the right is how Five Guys shows up in the GrubHub iPhone app search results for "burger")

Whatever direction your brand decides to turn, this week's announcement has reminded the market that the destination needs to be digital.

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User Comments – Give us your opinion!
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Noah Glass
Noah Glass is the Founder & CEO of online and mobile ordering pioneer Olo. Since 2005, Olo has raised $13.75M from PayPal and leading venture capital firms. Olo has been featured on “Good Morning America,” The Wall Street Journal, and ABC World News.
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