Third-party Delivery Services: Pros/Cons & How They Work
With more than a decade of hospitality experience, Mary has worked in some of the most celebrated restaurants in the world. Her expertise is featured across Fit Small Business in restaurant, retail, and starting a business content.
Ray Delucci is a chef and restaurant manager with a degree from the Culinary Institute of America. His writing has appeared in Plate Magazine and he is the host of the restaurant industry podcast Line Cook Thoughts.
This article is part of a larger series on POS Systems.
Accelerated by the events of 2020, when dining rooms shut down overnight, the use of third-party delivery platforms such as Uber Eats and DoorDash has become ubiquitous in the food industry. In 2022, 75% of independent restaurants used third-party delivery.
Third-party delivery app: A platform that allows food business owners to sell their products online. It often works by charging commission fees on orders, helping execute sales and providing food delivery drivers. Third-party platforms can also provide consumer insight tracking, loyalty programs, and more.
These services offer convenience and improved customer satisfaction but can also challenge food business operators with higher costs and a lack of control. Let’s take a closer look at the pros and cons of third-party delivery platforms and how the major services work so that you can make an informed decision about their use in your restaurant.
Pros & Cons of Third-party Delivery Services
| PROS | CONS |
|---|---|
| Convenience: You post a menu and let the platform handle the logistics of sending orders and handling drivers. Automated systems make creating an online delivery menu easy and efficient. | Lack of control: The platforms handle customer dispute resolution and may refund large orders without your consent. You also don’t influence the quality of third-party drivers. |
| Exposure and authority: Your business is exposed to the tens of millions of monthly users of these third-party apps. Also, user reviews on these sites show new users that your products are worth the price. | Weekly payments: Credit card payments are deposited once per week rather than in 1–2 business days. |
| Labor savings: Using third-party drivers saves you the costs of wages and insurance for an in-house team, allowing a stress-free delivery experience for many food business operators. | High commissions: Independent restaurants may pay as much as 30% on each order. This cost can eat into the already thin margins of your menu dishes. |
| Meet customer demands: Customers love and expect the convenience of online ordering and local delivery. | No direct customer contact: The platforms do not share the ability to contact customers directly through email or other means. So, this takes away the ability to contact customers directly to drive marketing or loyalty campaigns. |
The three major benefits of expanding your business through third-party platforms revolve around exposure, administration/liability, and customer satisfaction.
First, you expand your customer base by introducing your brand to the platform’s users. Considering that DoorDash alone had 32 million monthly users at the end of 2022, the potential for growth on these platforms is obvious.
If you are a small mom-and-pop operation selling popular items like pizza or burgers, you’re pretty much guaranteed to see an immediate uptick in business volume. Additionally, user reviews make it easier for prospective customers to decide whether your products are worth the price. Platforms such as DoorDash also have in-depth online resources for ensuring your products are seen, such as this Merchant Portal Photos Guide.
The second advantage of using third-party platforms is that they handle staffing and liability issues. You don’t have to add the administrative work of holding and distributing their tips or worry about whether the drivers have the right insurance. You also don’t have the added cost of wages and gas reimbursements.
Outsourcing delivery frees up your attention and resources to concentrate on your in-house operations. If you prefer to spend your time training staff, developing new recipes, or working to make a memorable customer experience for your in-restaurant diners, working with third-party apps for delivery can be a good fit for you.
Lastly, third-party platforms also help you meet consumer expectations for convenience. Customer demand for online ordering has only continued to grow since the onset of the COVID-19 pandemic, with the global market for online delivery services expected to surpass $190 billion by 2025 (a compound annual growth rate of 11%). Working with a third-party platform is a convenient way to meet your customers where they are.
Although the benefits are significant, the third-party delivery picture is not all rosy. These platforms can create serious challenges for your business in cost/finances, lack of control, and access to customer data.
Cost, of course, is the first and generally most immediate concern. Third-party platforms can charge as much as 30% on every order they send to your restaurant. You can raise prices to offset this, but you can only raise prices so high before customers balk at paying them. That 30% can really add up.
Also related to your restaurant’s financial health, it will also take longer to access your money when using third-party delivery services. Your credit card processor generally deposits funds in your account every one to two business days. Third-party platforms process payments on their site and take out their commissions before depositing in your account once per week. If cash flow is an issue for your business, this lengthy turnaround time can add stress.
Did You Know?
The high fees charged by third-party delivery apps and other issues have created a stigma within the restaurant community and garnered the attention of some legislators. Even Super Bowl ads aren’t immune, as both Uber Eats and DoorDash were criticized for spending big bucks on ads while charging what many in the restaurant industry consider exorbitant fees.
The second major drawback to using delivery platforms is lack of control, which can literally eat into your profits. Customer disputes and refunds will be handled by the third party and not your restaurant. So, for example, if a customer calls Uber Eats to complain about a missing side order, and Uber Eats decides to refund the entire check, you have no say in the matter. You are simply out all the costs of the food and the labor it took to prepare the order.
You’ll also lack the ability to control the quality of delivery drivers and how they treat your food once it leaves your restaurant. An eye-opening (and perhaps stomach-turning) stat from a Circuit Route Planner poll found that 80% of drivers have admitted to eating some of their customer’s food.
Third-party platforms may also decide to run promotions that can impact your brand. In one recent case, Grubhub offered a free lunch promotion in New York City that ended with a lot of dissatisfied customers as delivery was logjammed for hours and some restaurants claimed to be unaware of the promotion. (Grubhub says it gave advance notice to all restaurants in its network.)
Lastly, when you use third-party platforms, you won’t have access to customer data that would enable you to address customer satisfaction issues or request feedback personally. You also won’t have the information to feed your own marketing and loyalty campaigns, which can be a huge business driver.
Typically, small business users discuss their experiences with third-party platforms in private industry groups. The consensus seems to be that they are pricey and only worth it to expand your restaurant’s visibility. Some comments we found include:
- “The mobile app (GrubHub) is easy to navigate for staff. Service increases traffic to our website and has increased our revenue.”
- “We’ve seen a near 30% bump in sales with Uber Eats. We onboarded two restaurants simultaneously.”
- “Customers will prefer a cheaper restaurant that competes with you since their prices might be parity with their normal menu.”
- “DoorDash took the credit card money and sent it to us weekly minus their 30% and any adjustments they decided on. If errors or changes needed to be corrected, we had to call DoorDash, and it was always too late.”
How Third-party Platforms Work
Third-party delivery services like Grubhub, Uber Eats, and DoorDash operate similarly. They provide an app that allows customers to order food from your restaurant or shop. The app sends these orders to you via a mobile device or a direct integration with your point-of-sale (POS), and then it connects you with local delivery drivers to deliver the orders.
The platforms make money by charging businesses a commission on each order. The commission can vary from 6% to 30% or higher depending on the order type and your marketing preferences. Typically, they also charge delivery fees to customers. So, both businesses and customers pay for the service.
When DoorDash, Uber Eats, and others were first introduced, small businesses were obligated to enroll in the full service, including online ordering and delivery with the platform’s drivers. Nowadays, however, platforms allow you to choose which services you need. DoorDash, for example, offers an online-ordering-only product called DoorDash Storefront that you can use to accept online orders for takeout or for delivery with your own drivers.
Third-party Platform Services & Pricing
Click through the tabs below for a quick overview of each major platform’s services:
Third-party Delivery Platform Alternatives
Online ordering and delivery can be a big opportunity for small businesses. However, using third-party online ordering and delivery services are not the only way to meet customer demand.
Most modern restaurant POS systems and retail POS systems include online ordering modules that send online orders directly to your POS orderstream. Some—like Revel Systems—even offer built-in options for managing a team of in-house drivers with maps-based dispatch and driver smartphone apps.
If you don’t use a POS and don’t have a business website, you can still add online ordering via free sites like Square Online or GloriaFood. You can even avoid the risk of accepting online payments by setting up your online ordering site to only accept pickup orders with in-person payments.
Retailers interested in expanding into third-party delivery can take some tips from the restaurant industry. Many independent restaurants use third-party platforms alongside in-house online ordering systems. They then add coupons or flyers to their third-party orders, offering customers discounts or freebies for placing future orders directly with the restaurant. Third-party platforms frown on this behavior, but the third-party drivers will never know if you place the coupons in sealed delivery bags (and 85% of consumers prefer sealed delivery bags that show if their order has been tampered with).
Alternatively, some restaurants use third-party platforms during slow days and turn off third-party orders during days—like weekend services—that are already busy.
Use a Third-party Platform When: | Use an Alternative When: |
|---|---|
You need to expand your marketing reach. | You have a long list of loyal customers. |
You are short-staffed or need to save on labor costs. | Staffing is not a challenge for you. |
You can afford commission fees of 6%–30% per order. | You operate on a tight budget. |
You trust non-staff drivers to provide good service. | Your products require sensitive handling. |
You don’t track customer data. | You use customer data to drive marketing and loyalty campaigns. |
Recent studies have shown that delivery isn’t a necessary part of the customer convenience package—55% of digital orders are actually for takeout. So, you reap the benefits of online ordering without adding the delivery cost. Studies also show that nearly 60% of consumers prefer to order directly from local restaurants rather than through third parties.
Bottom Line
Third-party online ordering and delivery platforms are a surefire way to introduce your restaurant to millions of users who place online orders every month. They also offer different competitive advantages tested by countless food businesses and ordering algorithms.
The lack of driver control and accountability can be a major pain point for operators though. The costs of using these services are also very high and can impact a business with thin margins. With credit card payments coming in weekly versus daily, there are also cash flow issues to consider. For help determining which platform, if any, is the right fit for your business, see our guides to the best delivery POS systems, best online ordering systems, and best food delivery software.
