Why Restaurants are Ditching Third Party Delivery Services
What would you do if you find a person taking advantage of your predicaments? Break your ties with them, right?
Restaurants seem to be doing the same. Not long ago, a few people recognized the gap in the market — the need for door-to-door food delivery service that can take the burden off of restaurant’s shoulders so they can focus on the things that matter the most — food and customer experience. The food delivery service providers were welcomed by the industry with open arms. The convenience factor these services brought to the table is something the restaurant industry could not overlook. Time passed by and these establishments flourished. They became profitable in a short span of time. In 2018, GrubHub reported a 34 percent increase in sales, totaling $5.1 billion, while Uber Eats delivered $10 billion worth of food in 36 countries in the same year.
But it didn’t take industry experts long to realize the potential threat. Restaurants realized that these services not only provide an additional stream of revenue but also expenses. Dominos, the pioneer of the in-house delivery, has argued the third-party services are “problematic” for restaurants. Restaurants pay the services 15% to 30% fees for each order which is a very large expense for any business to absorb. Thus, a lot of restaurants are now considering setting up their own delivery solution.
Sounds like a perfect plot for the rise and fall of third-party delivery services documentary. Eh? Well, it has been nothing short of a fairytale. In fact, a real-life fairytale where the end may or may not always be good. At least, it doesn’t look good for the service providers that have, far too long, encashed on the quandary(s) of the food industry and now might have to find new ways to retain their market or perhaps, pivot from their original strategies.
However they choose to deal with the fall, the truth is that the restaurant industry is gradually shifting from being a “third-party dependent” industry to a “self-sufficient” one, especially when it comes to online ordering and delivery. But why? Let’s find out.
It’s a margin killer
Anyone who owns a restaurant knows how difficult it is to make profits in today’s competitive world. There can be literally 15 pizza outlets running under the same facility. Loyalty is disappearing. Today, few customers stay loyal to one particular brand. Restaurants are forced to introduce discounts and offer to retain customers, which is already a hard-hitting verity. Fast-casual restaurants or a QSR can be running on a mere 15%-20% margin, and when third-party delivery services start keeping 20–30 percent of the sales, the restaurant owner is left with no other option but to look for alternatives. Questioned on whether they thought the commission fees they were being charged were fair; 84% of business owners said that the fees weren’t worth the result.
In short, Delivery services eat into their profits. Grubhub charges a commission of 12 to 18 percent per order, while the second most popular in the US market, UberEats charges as much as 30 percent.
The new emerging issue in this new landscape is no control of the data. Restaurants don’t own any of the customer data if it’s managed through the third-party platform. This interferes with the direct relationship between a restaurant and its customers. In addition, they risk damaging accuracy, reliability, and presentation. For instance, some delivery partners may have coolers to keep your food chilled, while others don’t.
Customer is paying more
Chicago college student Mathew Simmons has tried all platforms to order food from his favorite restaurants in the town. What he realized that ordering directly from the restaurant’s website was always more profitable compared to delivery services like UberEats. Brand’s website not only offers personalized promotions but with reward systems in place, one can expect to get additional benefits at the time of checkout. This may not be possible when ordering through food aggregators.
Familiarity, secure payment and delivery times are a few other important factors that greatly affect the customer experience. Third parties can take longer to deliver, averaging at 49 minutes. However, with direct orders, the average delivery time is reduced to 20 minutes.
Another point in consideration is that restaurants with in-house online ordering and delivery were able to provide enticing loyalty programs. With all the benefits combined, one can expect to save 10–15% per order by ordering directly from the brand’s website or an app.
And thus, the Market is Shifting
Experts are now seeing an apparent shift in consumer attitudes towards third party delivery services. More than 70% of online consumers have agreed that they’d rather order directly from the restaurant’s website, preferring that they spend their money on restaurants and not technology suppliers. They would like to support their favorite restaurants and see them flourish as a business.
Given this shift, some restaurants may use third parties to generate the demand for their food, but in the long run, they don’t want to be dependent on them. As a result, restaurateurs are starting to take ownership of their own delivery. Bharti Batra, Co-Founder of Restolabs, an online food ordering system for restaurants, expects that most brands will eventually transition from third-party delivery to in-house delivery programs. “I would absolutely love to see every restaurant to be able to build a strong and lasting relationship with its customers through the direct delivery model. This is a new way to think about delivery”, she adds.
There’s no doubt that delivery is growing rapidly, but the landscape is evolving. Perhaps it won’t be wrong to say that the third party delivery services will have to think of a different game plan if they want to survive and build a sustainable model because the economics that they are doing can’t be carried out for long.
What Restaurants Can Do Now
The final piece to consider is the culture. There are so many choices out there with thousands of restaurants trying to grab a piece of the pie. Delivery services are not going anywhere, but what restaurants need to find out is how to make the best use of available options. For starters, they can negotiate low fees with these services to prevent delivery orders from eating into margins.
The underlying concept is profitability and control. Restaurants will have to carefully analyze the potentials and threats of working with third-party delivery services. As I see it, early adopters of in-house online ordering and delivery services will give customers what they want, as well as build loyalty. Restaurants that would avoid in-house delivery completely may miss the bus and may not be able to survive the race.