Online food ordering has finally reached the age of maturity. A consequence of that is the online ordering industry has gone through a bit of consolidation, posing difficult questions for restaurants. Some things are still the same. With Seamless, restaurants must weigh hefty fees against an influx of business.
The biggest change is that Seamless and Grubhub are now one company, putting them way ahead of the competition. Although they maintain their different brands, together they are growing rapidly in size. Access to Seamless and Grubhub’s users can be critical to a restaurant’s business if it does a substantial amount of online ordering. Both Seamless and Grubhub, however, take such a sizable fee for each order that may make a restaurant think twice before signing up.
Spread of Online Ordering
The other major evolution in online ordering for restaurants is that it is now a national phenomenon and not limited to major cities. Seamless and Grubhub both have moved into the suburbs.
Undoubtedly, restaurants see the benefits of online ordering. Like customers, restaurants experience an increase in employee efficiency as the need to answer the phone decreases. In the next few years, we may see the conventional delivery phone call vanish from much of the USA.
The late night or lunchtime call for delivery has already been on the decline, and companies, most notably Seamless (formerly SeamlessWeb) and Grubhub (its sister company), are set on making the phone largely an artifact of the past. Online marketing technology for restaurants has not plateaued, as more and more reservations are made over Opentable, and the like.
Seamless was always far beyond their competitors in branding, including Grubhub, and their site has become even more customer friendly. In the latest version, it is not without annoying bugs that can make it frustrating for customers. Grubhub, though equally popular, lags behind in these areas, but not by much anymore.
Corporate to Personal
Seamless is old by Internet standards, having started in 1999. What they offered was pretty novel at that point. Through the Internet, Seamless provided technology so that customers could order online using a credit card. Of course, restaurants still do the actual delivery, but with the new online ordering technology, they need to dedicate less personnel to phone orders. Also an online ordering system makes it more difficult to mess up an order. When the company began in New York City, it focused on providing food ordering services for companies. They built up a large profile of corporate accounts from some of the biggest players in NYC, from investment banks to elite law firms.
Eventually, in 2005, Seamless became available for personal use. To this day, a substantial percentage of their revenue comes from business accounts. By most measures, for such a big operation (Seamless has more than 12,000 restaurants, and have a stranglehold on NYC), the company wasn’t once as successful in expanding into smaller markets the same way OpenTable has been. Now, even with Seamless’ high fees, Seamless has spread out, gather a large and loyal following across the country.
Seamless is pricey. From our informal survey, Seamless expects 12 to 18 percent of an order. Some restaurant owners accuse that Seamless charges a marketing fee. This made sense in the very beginning when Seamless had, more or less, cornered the market in major corporate accounts in Manhattan. 50 % of orders through Seamless were from corporate accounts only 2 years ago. But the rest of the USA doesn’t operate like Manhattan so perhaps this rate is lower. In Manhattan, Seamless has caused problems similar to Opentable although not on the same scale. Essentially, once the software and hardware are in place, Seamless does nothing but take their share, a share which hovers around a restaurant’s margin for deliveries.
Seamless keeps their contract terms behind close doors (or non-disclosure agreements), and the rates vary by restaurant. What rate goes to what restaurant is not clear. This incredible lack of transparency shortchange restaurants as they cannot explore their options fully. It also hinders an efficient marketplace. It gives restaurant owners little room to compare not only Seamless to its direct competitors but also to online ordering systems that functions exclusively on a restaurant’s website. Restaurants cede also incredible freedom to Seamless to use their proprietary brand content. The biggest drawback, however, is that restaurants cannot offer different pricing for menu items on Seamless than their regular menu. This prevents restaurants from offsetting Seamless’ cut of a delivery order and shrinks margins.
The future will probably move from online ordering to mobile ordering and both Seamless and Grubhub have mobile apps. These aggressive expansions go with their general strategy: to control as many of the key online restaurant resources as possible, such as menu sites. Mobile ordering however presents the biggest threat to restaurants who opt out of Seamless and Grubhub.
Mobile ordering takes up 40% of traffic on a good day and this area is still growing. The mobile apps really cement Seamless/Grubhubs position as there are stand-alone ordering programs. that restaurants can hook up to their websites, but they will be at a severe disadvantage when it comes to mobile ordering. Apps always beat websites when it comes to using a mobile phone.
With the rise of mobile comes an increasing allegiance of customers to ordering services like Seamless and Grubhub, which weakens a restaurant’s bargaining position. Few customers will download an app of an independent restaurant, so restaurants who go it alone cannot enter the mobile ordering marketing. Some restaurants seem to have given up entirely, surrendering their online marketing to Seamless by settling for Seamless’ cookie cutter websites. Restaurants should be very concerned about branding even if still having to work with Seamless. Unlike Opentable, customers who order through Seamless must leave the restaurant’s website. At the end of the day, the interests of individual restaurants is secondary to the customers as Seamless knows that with a loyal customer pool restaurants are forced to pay a high share to be listed.
It is definitely difficult for restaurants to navigate new technologies and the gatekeepers to those technologies. For restaurants that rely on orders, Seamless is convenient and presents increased visibility but not without significant expense.