The National Restaurant Association’s latest industry snapshot found that, while customers’ desire for meal delivery continues to grow, about 13% of restaurants stopped using third-party delivery services due to the high commission rates. While only 7% of quick-service establishments cut ties with the likes of GrubHub, DoorDash, Postmates, and Uber Eats, about 17% of fine-dining establishments went their own way, taking on the process of delivery in-house.
The latest actions by DoorDash may further increase the restaurant delivery transition from third-party to internal.
DoorDash Takes Aim at Restaurants Charging More for Delivery
Some delivery services charge as much as 30% in commissions. In order to make money using third-party delivery services, many restaurants charge higher prices for food that’s delivered compared to in-house dining and takeout. DoorDash is targeting restaurants utilizing this practice, ranking them lower on their app and showing customers which restaurants reflect the same prices on DoorDash as their menus.
According to Business Insider, communications sent to restaurants from DoorDash read, “Stores are much better off reducing prices than being subject to prioritization updates on the homepage.” DoorDash is taking this action, in part, due to customer complaints about higher prices for delivery and the resulting reduced sales and reorder rates.
Making Delivery Work for You
It’s estimated that the number of people using meal delivery will reach over 2.4 billion by 2027. Additionally, about two-thirds of American adults report ordering takeout more than before the pandemic. To top it off, Nation’s Restaurant News reports that online food delivery is expected to account for up to 40% of restaurant revenue by 2025. While the pandemic escalated the demand, it’s clear that the use of food delivery will continue to expand.
The big question remains: Are restaurants better off incorporating their own delivery service into their operations or going with third-party services?
The Benefits of Third-Party Delivery Apps
In addition to reducing the extra burden on operations, one of the main benefits of third-party apps lies in their marketing. Newer restaurants benefit by getting their name out to customers who may not have otherwise known about their offerings. It also reduces the cost of starting their own delivery service.
Operators upload their menus, and customers place orders on the service’s app. The orders show up on a tablet or can integrate directly with a POS system. Commission charges typically range from 15-30%. To offset these prices, restaurants like Chipotle consistently markup menu prices for delivery orders. During the third quarter of 2022, Chipotle increased delivery prices by 13% compared to the same period in 2021.
The Drawbacks of Third-Party Delivery Apps
Smaller independent restaurants find it difficult to survive in a model where they may lose revenue on every online order. Even delivery platforms aren’t making a profit. For example, DoorDash operates at a loss, with net losses amounting to more than $1.3 billion in 2022.
Additionally, while there’s a lower barrier to entry, restaurant operators also don’t have complete control over the customer experience. Will it arrive in a timely manner? Will the customer get their full order? Will it be handled correctly? And, in a business in which customer loyalty is key, using a third-party service results in less contact with the customer and less opportunity for developing a lifelong brand-loyal guest.
Which Delivery Service Leads the Pack
According to Bloomberg Second Measure, DoorDash and its subsidiary Caviar lead the third-party delivery services, raking in 65% of U.S. consumers’ meal delivery sales in March 2023. Uber Eats took second place with 23% of sales, and Grubhub and its subsidiaries came out with 9%.
A Delivery Alternative
Another option for restaurants is to sign up with third-party services to expose your restaurant to new customers. Then, you can start your service with a third-party delivery driver fleet until you’ve grown the delivery side of your service enough to hire in-house drivers. Third-party logistic services provide the delivery aspect of your growing enterprise. Make sure to let your customers know that ordering directly from you supports their local restaurant.
How do I partner with a delivery service?
Some restaurants choose one third-party delivery app to work with, while others work with multiple partners. Many offer numerous partnership plans with varying commission fees and benefits. Then, add a bank account, and you’re ready to go. Choosing a partner that integrates with your POS system can reduce operational backlogs.
What are the disadvantages of third-party delivery services?
Some of the main disadvantages of third-party delivery apps are the cost, loss of control, and possible impact on customer service.
What are the advantages of third-party delivery services?
Their main advantage is a turnkey approach to food delivery, reducing operational strain while providing your guests with an in-demand service. It’s also a good source of advertising.