Cost ReductionTechnology

Third-Party Delivery Apps Vie for Small, Independent Restaurant Market Share

The drive for market share among third-party food delivery apps continues to excel as the industry faces stiff competition, mergers, and little to no profits. DoorDash, Uber Eats, and Grubhub are still vying for the top three spots, with DoorDash driving ahead with over 45% of the market share.

In 2015, the revenue for U.S. food delivery totaled $8.7 billion. In 2020, that number rose to $26.5 billion, an increase of 204% in five years. By 2025, the projected revenue is expected to reach $42 billion.

To get a bigger chunk of the delivery pie, these third-party food delivery services are appealing to the smaller, independent restaurants that could not afford their 30% commission and fees. Here’s a look at what these delivery services are offering.

Grubhub Direct

In May, Grubhub made a stark left turn from previous policies regarding customer data and online ownership with Grubhub Direct, the brand’s first commission-free platform for restaurants.

Operators choose fonts, colors, and images that suit their brand, and Grubhub builds a custom ordering website. Restaurant customers can use the site to order for delivery or pickup. Restaurant operators have access to their customer data, including email addresses and order history, with details like lifetime spend and fulfillment methods.

Grubhub also gave the reigns to restaurants in terms of order management. The restaurant can receive, confirm, and cancel orders through the platform, change the menu, access performance insights, and utilize Grubhub’s loyalty and promotion tools.

In exchange for these services, restaurants pay standard credit card processing fees. Should they choose to use Grubhub delivery drivers, an optional service, they will also pay a competitive delivery fee. In May 2022, the delivery app will start charging customers a one-time setup fee of $99 and a monthly website hosting fee of $49.

DoorDash Main Street Strong

Over a year ago, DoorDash launched Main Street Strong, a program that helps restaurants build and operate an end-to-end digital ordering solution. Customers can order delivery or takeout through these online stores, and DoorDash delivers the final product. In April 2021, the company reduced store pickup fees from 15% to 6% and eliminated fees for the Storefront service.

At the same time, the delivery service announced its new three-tier pricing plan. Independent restaurants with less than 76 locations in the U.S. choose between three plans with commission fees ranging from 15% to 30%. At the lowest percentage, customers receive higher fees, the delivery radius is smaller, and the restaurant can expect less brand visibility.

Those opting for the 25% commission fee have access to DoorDash’s premium membership customers and more visibility on their app. At 30%, restaurants have access to all of DoorDash’s premium offerings plus lower customer fees, a larger delivery radius, and a guarantee that if they do not receive at least 20 orders in a month, their total commission fees will be refunded.

As you may have noticed, customers face additional charges when delivery services such as DoorDash lower their commission fees. This, of course, has led to a bit of contention, with Uber Eats front and center.

Uber Eats Pressured to Provide Pricing Transparency

Recently, Uber Eats made an agreement with the attorneys general in Pennsylvania and Washington, D.C. that it would disclose the following: The menu prices on their app may be higher than the menu prices at the restaurants they serve. In these two markets, this disclosure will now be posted on the Uber Eats app. Both attorneys general urged other third-party delivery services to follow suit. Uber Eats quickly noted that the restaurants set the menu prices on their app, not the company.

Ditching Third-Party Delivery Apps—The Co-Op Model

Even as restaurants turned to third-party delivery services to help them make it through the pandemic, others opted for other sources and creative solutions in an attempt to avoid paying high commission fees. One of these solutions currently making waves is the delivery co-op.

Jon Sewell, the owner of a D.P. Dough restaurant franchise in Iowa City, came into the restaurant industry with a retired healthcare executive background. In his role, he developed hospital cooperatives that enabled smaller, rural hospitals to pool their resources, accessing technology and equipment that they would otherwise not be able to afford.

Using the same model, he developed Chomp, a co-op delivery service in Iowa that started with 20 restaurants. Delivery fees are set at about 15%, restaurants control their data, the original investors receive profit-sharing, and drivers receive hourly pay.

That was four years ago. The co-op delivery platform is now called Loco Co-Op, and franchises can be found in Knoxville, Tenn., Richmond, Va., and Omaha, Neb. with more coming to Nashville, Orlando, Tampa Bay, Las Vegas, and Los Angeles.

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