Third-Party Delivery & the Impact on Accounting

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As restaurants enable off-premise options with third-party systems, issues arise not only for overall operations and service, but for back-office as well.

Third-Party Delivery & the Impact on Accounting

By Dorothy Creamer - 10/31/2019

Hospitality Technology hosted the fourth and final meeting of the 2019 Restaurant Accounting Innovation Council on October 2, 2019. Finance leaders with a charter to improve efficacy and efficiency of restaurant accounting systems and processes for other operators formed the council, underwritten by Restaurant365.

According to Hospitality Technology’s 2020 POS Software Trends Report, 44% of operators will upgrade point of sale systems in 2020 in order to foster integration with a third-party delivery service. As more and more restaurants focus on enabling customers to opt for off-premise options, issues arise not only for overall operations and service, but for back-office as well.

Mark Quandt, CFO of Wood Ranch BBQ & Grill, admits that his organization hasn’t gone all-in on delivery yet, however he sees that as more people put high value on the convenience of delivery, it stands to be a main driver of sales moving forward. With that, he does believe rising costs of delivery will be an issue as restaurants grapple with how not to pass that cost on to the consumer.

“We’ve started testing DoorDash and we’ll see how much cost the consumer is willing to bear,” Quandt explains.

Scott Gillman, chairman of Mascott Corporation, acknowledges that the cost of delivery services has become a sticking point because most restaurants believe they have to utilize third party services to remain competitive. He calls out that for certain restaurants delivery may be incremental, but it’s also just helping them “tread water and stay where they are.”

“Restaurant comps are up 3% this year, but delivery is up even more and it’s not incremental,” he says.

The issue is with delivery fees that can be as much as 8 or 9% of the sale itself. Accounting will be impacted as restaurants – as one of Gillman’s clients is considering – look to fold delivery into operating expenses.   

John Moody, co-founder of sponsor Restaurant365, has seen his clients grappling with the challenge of delivery on the accounting side and reconciling third party with what is getting billed through the POS. “At an accounting level, it makes it harder to see whether or not a restaurant is making or losing money on a delivery,” he says.  “Restaurants need to be able to have analysis around sales through delivery versus in-store.”

Quandt bemoans the lack of a standard, especially as Wood Ranch explores delivery options and asks peers for advice. “I can ask four different restaurants how they are handling reconciling these transactions and how they flow through the back-office and I can get four different answers,” he says. “It’s is not simple or automated.”

2019 Restaurant Accounting Innovation Council Members

Scott Gillman, Chairman, Mascott Corporation

Melissa Haman, Finance, Broadway Restaurant Group

Steven Song, CFO, Luke’s Lobster

Mark Quandt, CFO, Wood Ranch BBQ & Grill

Michael Lubitz, CFO, Wolfgang Puck Fine Dining Worldwide

Christi Hing, CFO, Kona Grill Inc.

Brandon Keith, CFO, World Famous Fare

Bill Valentas, Vice President of Finance, Freddy’s Frozen Custard & Steakburgers

Bruce Nelson, CFO, Nova Hospitality Group

John Moody, Co-Founder, Restaurant365

Abigail Lorden, Vice President, Group Brand Director, Hospitality Technology

Dorothy Creamer, Editor-in-Chief, Hospitality Technology

 

Steve Song, CFO, Luke’s Lobster believes that the first data entry point should be at the POS. In order to accomplish that with third party delivery orders, he shared that some operators he knows in a worst-case scenario will enter everything in manually from the third party tablet. An additional burden is the issue of chargebacks or third parties shorting the restaurant if the customer demands their money back and that is not known by the restaurant until a deposit is light.  Another issue is reconciling pricing should a restaurant charge higher prices for third-party orders to offset the perception of the delivery fee and some of the margin erosion.

To solve for this, Song sees the need for systems that integrate directly into the POS to save on manual issues. The vision of a universal adapter that would integrate and innovate with all the major delivery platforms and many POS systems would allow all information to flow into the POS just like any other sale.

Gillman says to counteract the constant discrepancies his clients experienced, he worked with Restaurant 365 to build custom integrations to reconcile the end of the month. Tracking things like customer credits down at the end of the month and entering them manually is possible, but very time consuming.  

“Getting the delivery orders into POS is vital,” Gillman agrees. “It does make getting into reconciliation a little easier especially doing food cost analysis.”