What Must Restaurants Consider Before Opting into Third-Party Delivery?

Photo by Viktor Forgacs on Unsplash

Using third-party delivery services has become the new normal in the restaurant industry and beyond. From Uber Eats to DoorDash to Postmates or GrubHub, the options are endless and new niche services like Caviar or Seamless are popping up everyday. 

The data speaks for itself. A 2019 report from UBS suggests that the online food delivery industry will grow 20% each year, and could reach $365 billion globally by 2030 (from just $35 billion in 2018).  

However, amid COVID-19 and the economic downturn, many of these third-party services have hiked up fees, leaving restaurants to question whether the investment is even worthwhile.

Let’s take a look at the challenges behind third-party delivery. 

High Costs, Low Profit Margins

Packaging and delivery fees alike can take a large chunk out of profits, and let’s not forget that some delivery services fail to include items like drinks which have high profit margins for restaurants. 

Research and data from Pentallect and the Wall Street Journal found that when restaurants deliver through a third-party app they can make up to 30% less than they would via dine-in. A majority of customers also typically don’t want to pay more than $5 for delivery fees. 

Commission fees can also be costly for restaurants. Many cities nationwide have proposed bills to limit commission rates—which can reach up to 30%—during the pandemic. San Francisco, New York City and Washington, D.C. have all passed bills, but who’s to say this can’t change? 

Higher Customer Costs

Although convenience is definitely a component when choosing a third-party delivery service, meals can also cost more for customers. Because of high commission fees, restaurants will typically need to increase menu prices on third-party delivery apps in order to recoup losses. 

A New York Times study, which compared the cost of ordering several Subway items across Grubhub, DoorDash, Postmates, and Uber Eats, found that markups on food delivery can range between 7% to 91%  higher than restaurant prices. 

While simply advertising for delivery through third-party apps might help attract new business and reach millions of customers, high costs have the potential to prevent customers from choosing a restaurant altogether. 

Restaurants’ Reputations are on the Line

Although third-party delivery apps are independent by design, bad service can reflect poorly on restaurants. According to a 2016 study from Technomic, 76% of consumers will hold the restaurant responsible for errors within delivery, even if a third-party delivery app is to blame.

Ultimately, when it comes to opting into third-party delivery, high commission rates and costs for customers make third-party delivery not worth the premium for smaller restaurants. Although third-party delivery may open up opportunities for new customers, the cons seem to outweigh the benefits. Instead, businesses can focus on building their own delivery platform to better situate themselves in the long-run.

We’re Here to Help

At Hyperflyer, we’re building a cloud-based platform that provides white-labeled solutions for restaurants to establish, operate, and benefit from their own online ordering systems. Hyperflyer’s services include commission-free online ordering, flat-rate delivery, and powerful social marketing tools. Unlike many third-party delivery marketplaces, we want to empower restaurants to grow on their own. 

Learn more about our mission here!