5 Metrics To Track While Building A Business Plan For F&B Startup
The fear of eating out severely impacted the Food and Beverage (F&B) sector during the pandemic in 2020
Little did we know that online sales during those times would experience a steep jump as the cases peaked and localised lockdowns were imposed
Keep a close eye on these five metrics. They can actually work wonders for a restaurant in the online business
The fear of eating out severely impacted the Food and Beverage (F&B) sector during the pandemic in 2020. There was a ‘dramatic’ decline in the restaurant industry nationwide during the first lockdown. Little did we know that online sales during those times would experience a steep jump as the cases peaked and localised lockdowns were imposed. Yes, due to the fear of contamination, customers immediately switched from dining to online ordering en masse, where they could order with just a few clicks.
Like many other food brands, we realised this trend immediately after the first lockdown was lifted in August 2020. Onwards at that point, our goals were clear — to increase our online sales to fend off future lockdowns. However, we had our reservations because momos and dim sums fell into the area of impulsive purchases and weren’t appropriate for internet purchasing. But we were pleasantly wrong!
I’m going to outline five crucial actions we took to develop our presence online. Without further ado, let’s get started:
Improve Food Packaging
As a food brand focusing on online delivery, it is important to take extra precautions to ensure that the prepared food is delivered right. No ice cream company would like a customer to receive melted ice cream after ordering.
Make The Brand Easily Searchable
Unless your brand is synonymous with the products you sell, it is a good decision to display the brand name with what it specialises in. When we first listed on aggregator websites, we were listed as Zomoz. We were quick to realise that this was a reason for low visibility.
After changing our name to Zomoz – The Momo Company, we saw a good uptick in orders. This also helps you to rank in the list when a user is ordering food online because the search algorithm of the food delivery apps matches keywords and displays relevant search results.
Though this demands a separate piece in itself, there are a few fundamental points that need to be highlighted.
As a cloud kitchen, the menu needs to describe itself. It is necessary to have pictures of all the items on the menu, with proper descriptions of the relevant ingredients. I highly recommend hiring a professional for the food images. We tried multiple options, but a professional image of the products subconsciously elevated the image of the brand.
Some brands also saw an increase in price after an online page do-over. Improving menu aesthetics has a direct impact on a very important parameter online restaurants track, the Menu To Order (M2O).
M2O = Total Order Value/Total page views
A properly designed menu has a higher probability of converting into sales when a consumer opens the page of a restaurant in the food delivery app. An M2O between 18 to 20% is considered a good number.
It is fundamentally important. Structuring a menu to show higher-value combo items at the top has always worked for online restaurants. Generally, the items at the top have more orders than the ones that come later on the menu. Prompting an add-on together with a high combo value increases the Average Order Value (AOV).
AOV = Sales/No of orders = The money we make from every order
Almost all of us who run online food brands work day and night to ensure that our AOV keeps going up. Generally, the food aggregators break even if they make around INR 90 per delivery. By that logic, if we have our aggregator commissions at 25%, we would have to maintain an AOV of INR 360. Otherwise, it becomes imperative for the aggregators to raise their commissions. In the process, we will keep earning less. A higher AOV has a lot of other advantages that I’ll talk about in the subsequent points.
Pricing items correctly depends on the restaurant category. A biryani or a pizza player can easily reach an AOV of 500, but for a South Indian cuisine restaurant, it is very difficult. When we introduced a new item a few months ago, we envisioned it to be a premium product and initially kept a price of INR 200. It was really interesting to note that both the sales and product ratings were lower than expected. As soon as we decreased prices by 15%, we saw sales and ratings pick up.
These three points will help new restaurant businesses before they launch online. The other two factors are how we can raise order volumes.
The competition has become much more intense since the introduction of cloud kitchens. It is imperative to spend money on promoting a restaurant, and that’s where spending on performance marketing comes in. Like in any other digital marketing setup, we pay aggregators to display our restaurant in certain slots at the top and pay them when a customer clicks on our restaurant. What we pay them per click is called the click rate. It varies from region to region.
Let us consider a restaurant named MEALCASE setting aside INR 8,000 to be spent on performance marketing. Assuming INR 10 as the click rate, the restaurant would buy 800 clicks. Now, in the food delivery app, a visitor will see MEALCASE on one of the top slots; this counts as an impression. When the customer clicks on the MEALCASE icon, the aggregator charges the restaurant INR 10.
Let us consider that the MEALCASE has an M2O of 15% and an AOV of INR 200. In that case, it generates 120 (15% x 800) orders of INR 200 each, amounting to a revenue of INR 24,000 (120×200). Essentially, the restaurant has spent INR 8,000 to generate sales worth INR 24,000, resulting in an ROI of 3 (24000/8000).
When we spend money on performance marketing, the aggregators share the details of our M2O and ROI periodically. For good brands, the ROI is generally 3.5 to 4.5. In this case, M2O and AOV play a significant role. As these parameters improve, restaurants tend to spend less on performance marketing.
The online food ordering space is a discount-driven market, and it is going to stay this way. The competition is such that restaurants have to offer discounts because other brands are doing so. We regularly see new restaurants offer huge discounts to lure customers in and gradually taper that off. Most restaurants settle on a stable discount configuration that is relatively P&L friendly.
We have seen that the most popular configuration is the 30% off on a minimum order value of INR 159, and the discount value is capped at INR 75. Here again, AOV plays a huge role in determining how much money a brand loses in discounting.
Let us consider MEALCASE, with an AOV of INR 200. The discount calculation for the 30% discount configuration is as follows: Since INR 200 is greater than INR 159, a 30% discount, i.e., INR 60 (30% x 200), is applied. Since the discount cap is INR 75, the effective discount would still be INR 60 (30%).
We see that another advantage of a higher AOV is that restaurants can afford to keep higher discounts to push order volumes. These factors helped us scale our business and make its foundation stronger.
Keeping a close eye on the five points above can actually work wonders for a restaurant in the online business. These have greatly aided us in scaling quickly and profitably during the Covid waves. Now we no longer live in fear of another wave. In fact, we are prepared for it!