We’re admittedly new to the cannabis industry, but that doesn’t mean that we’re incompetent.
One thing we’ve noticed is that dispensaries seem to be copacetic with losing tons of money on delivery.
Yes, top line revenue is nominally higher, but each transaction is margin-negative and the dispensaries are losing money in offering delivery.
Who would do such a thing?
We’ll tell you who.
Restaurants.
For the past few years restaurants have effectively been mandated to use third party delivery services. When COVID hit, they literally had no other options but to offer food-to-go.
Enter delivery companies like Doordash and UberEats.
And then as the US government pumped literal trillions into consumer bank accounts via stimulus payments, they subsidized the high-falutin lifestyles of delivery splurging.
Because who can afford to pay 2x what a meal costs to have it delivered?
People who “made” tens of thousands of dollars in 2020 and 2021 just for fogging a mirror when COVID struck.
Many restaurants can’t do math. We’re not excluding large chain restaurants from this indictment, either.
Eventually, though, restaurants were getting calls from their bankers.
“Hey Joe, 100% of your orders are coming in through delivery because your state doesn’t allow in-store dining. Good news is you made $114,000 this month! Bad news is you actually lost $28,000 and you’re now bankrupt. We’ll send you the paperwork Tuesday to close down shop.”
Delivery is a convenience.
Accordingly, consumers must pay more for the convenience of delivery.
Most restaurants eventually figured this out and realized that they needed to pass through their delivery costs onto the consumers choosing delivery.
This is why you will see various prices when ordering the same item from a delivery provider versus directly from the restaurant.
See this link, with images of an identical order placed at Firehouse.
According to Loup Ventures, the average cost of a third party delivery order is 50% more expensive than ordering directly; adding a 20% tip actually balloons this number to about 100%, or roughly double the cost of ordering directly from the restaurant.
That’s a huge cost for convenience, and something we expect to dissipate as discretionary spend dries up .
Cannabis dispensaries also need to learn math and do the same thing by marking up their delivery orders to cover the premium cost of delivery.
What strangled restaurants was this idea that all these third party orders were incremental, and that if they weren’t somehow willing to lose money on the demand platforms, that they would lose the revenue entirely.
It became this self-fulfilling flywheel… of death (read that link to understand how this happens).
In many cases this means that delivery will be about 50% more – which accounts for the delivery’s service’s 30% tariff on the retailer, and the 20% markup the delivery company will then charge the consumer.
We know it’s tough to swallow when cannabis sales are down 25% from the pandemic highs and many markets are looking overbuilt.
But you’re only going out of business faster if you don’t understand the basics of profit and loss.
Restaurants eventually overcame their irrational fears of losing customers by not losing money on delivery.
Use their learnings to your advantage.