With the emergence of COVID-19, customer demand for food delivery has increased rapidly. In fact, some restaurants have only survived by converting to a delivery model. Third-party delivery services have played an important role by providing independent delivery personnel and an online ordering platform for a fee. This saves restaurants from having to hire new employees, deal with vehicle maintenance and driver insurance, and purchase supplies specific to food delivery.
While some restaurants benefit by having an independent service handle deliveries, it’s not for everyone. Third-party food delivery services have setup fees of up to $400, charge a commission of 10% to 40% per order, and may not integrate with your point-of-sale system. We considered the pros and cons of incorporating third-party delivery services into your restaurant software plan, so you can make the best decision for your restaurant.
Pros of Using Third-Party Delivery Services
Third party delivery services like Grubhub, Uber Eats, and Doordash, all operate in a very similar way. They provide an app that allows customers to order food from your restaurant. The app sends these orders to your restaurant via a mobile device or a direct integration with your point-of-sale (POS) and connects you with local delivery drivers to deliver the orders. Though the cost of commissions and marketing promotions vary depending on the app, the benefits for restaurants are similar.
Marketing Opportunities
Third-party delivery services like Postmates and DoorDash have done an excellent job of marketing themselves with websites and apps that make it easy to order food, even if you aren’t sure which restaurant you want. Many services have loyal followers who default to the delivery service rather than seeking out the restaurant website.
Third-party delivery services let users search by restaurant name, cuisine, or specific foods. Thus, being part of the network may increase your visibility, attracting new customers who had not heard of you before but are interested in the type of food you prepare, or catching customers who simply default to the app for delivery. It can also help you increase your visibility among millennials, GenZ, and busy families, who are more likely to use the app.
In addition, you can pay extra to promote your restaurant with priority placement, promoted listings, and featured offerings. These cost extra. For example, Grubhub’s marketing commission, which determines your visibility on the app, can run as high as 20%.
You may also work with the third-party delivery service to expand your audience through changes in your menu. In Chicago, Uber Eats noticed that people in one of their areas were searching for chicken and not finding nearby options. They worked with a local pizzeria to expand its menu, using the Uber Eats algorithms to determine the most popular types of chicken (such as wings or nuggets). This let Uber Eats better serve its clients while giving the pizzeria more service.
Savings on Payroll and Liability
Choosing to provide delivery services yourself can be a costly endeavor. Working with a third-party app can alleviate these costs.
Depending the scope of your delivery ambitions, you may need to budget for:
- Wages: According to Glassdoor, the average base pay for a delivery person is $27,113 per year.
- Supplies: Insulated bags for storing the food cost $7 or more, depending on size.
- Vehicles: You may need to purchase vehicles ($15,000-$35,000), car wraps, and/or toppers for private vehicles that deliver for you ($1,500-$3,000).
- Insurance: If your delivery drivers drive company vehicles, you’ll need a comprehensive commercial auto policy. If they drive private vehicles, you will need to add a “hired not owned auto” policy.
You must consider liability, vehicle insurance, and maintenance if you provide the vehicles. If not, then you need rules in place to ensure your drivers have the correct commercial insurance and that they maintain their vehicles. In addition, you need to find good, reliable drivers who cannot only find their way around town but follow proper food handling procedures and promote your brand.
Non-Exclusive Contracts
You do not need to limit yourself to only one delivery service. You can even have a third-party service in addition to your own delivery or takeout options. Not only can you reach a greater audience and attract new customers, but you can also handle more deliveries during surge times.
Each service you add means adding more complexity to your ordering and accounting processes or adding more tablets to your service station. Depending on which POS you use, you may be able to integrate directly with third-party delivery services, so third-party orders appear directly in your order stream. This makes it easier to input, process, and track orders.
For example:
- Square for Restaurants integrates with middleman apps Chowly and Deliverect to feed several third-party platforms into their POS. These middleman apps also directly integrate with Caviar, which is a subsidiary of Square.
- TouchBistro integrates with middleman app ItsaCheckmate, which aggregates orders just like Chowly and Deliverect do.
- Toast integrates with Chowly and ItsaCheckmate.
- Revel integrates with Chowly and ItsaCheckmate.
Many more POS systems offer integrations with third-party delivery apps or middleman apps. If you decide to partner with third-party platforms, it is a good idea to check what integrations are available on your POS system.
More Time to Focus on Your Core Business
By outsourcing delivery, you free 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, then working with third-party apps for delivery can be a good fit for you.
Cons of Using Third-Party Delivery Services
Many restaurants have said third-party services have helped their business, especially during the shutdown. However, many restaurants are rejecting third-party delivery because they feel it hurts their brand and long-term profits. Here are some of the disadvantages of third-party delivery.
High Commission Fees and Other Expenses
Many restaurants say the advantages of a third-party delivery service do not make up for the high delivery fees such services charge. This is especially a problem right now, when deliveries comprise most of a restaurant’s business. After all, you’re paying someone else up to 30% of every ticket, including sales tax plus credit card processing fees, which is often higher than if you were handling them yourself.
In addition, your people are losing tips, which are now going to the third-party delivery person. If you depend on tips to augment employee salaries, such as for buspeople, you may need to increase salaries accordingly.
Several cities, like Portland, San Francisco, and New York, have imposed commission limits on delivery services. You can negotiate with many services for lower fees. This may depend on what you bring to them in terms of unique cuisine, customer volume, or location.
Vulnerable to Competition
While being listed with a delivery app like DoorDash increases your visibility, it does so for your competitors too. That means your restaurant may display next to your competitors, giving customers a choice which they may make based on location, price, rating on the app, and even the photos you use of your food.
Even when searching by your restaurant name, your competitors might show up in the results.
Lack of Control
Lack of control is the second biggest disadvantage of hiring a third-party delivery service. It’s important to consider especially when brand reputation is a vital part of your marketing, or when you are in an area with a lot of competition.
Once your food leaves your restaurant, it’s out of your hands. If the driver takes a wrong turn or does not secure a bag properly, food could end up cold or damaged. If the driver is rude or in this era does what the customer considers unsafe (like not wearing a mask), it reflects on you more than the delivery service. An estimated 80% of customers say they blame the restaurant. To combat this, you should have a system in place for handling complaints concerning third-party deliveries.
You also have less immediate control over things like your menu or pricing. If you have to make fast changes, they may not reflect in the app, resulting in dissatisfied customers who can’t get their order.
Lack of Customer Loyalty
As noted in the advantages, third-party delivery apps like Grubhub have a loyal following. While you can take advantage of this by reaching a bigger fan base, there’s no guarantee that those fans will transfer to you. Further, you could sacrifice the customer loyalty that comes from people getting to know your hostess, waitstaff, or specific chefs.
Many times, customers aren’t even looking at your restaurant name, but rather just a type of food. Thus, to stand out and promote loyalty, you have to consider adding a little something that makes you stand out, like a freebie or a coupon for an in-person visit.
You also lose communication opportunities with your customer for feedback, suggestions, or even kudos for the chefs and staff. It undermines loyalty programs and frequent diner programs as well.
Reputation and Brand
Some restaurants, especially high-ticket dining establishments, have worked hard to achieve a specific brand or ambiance. This relies heavily on the in-person experience and is hampered by delivery. Some restaurants are working around this by adding extras, such as higher-end containers or napkins or supplying a soundtrack for dining to. However, the impression your delivery person gives affects the impression your restaurant makes. That’s why some restaurants, even during the shutdowns, opted instead for takeout rather than third-party delivery.
“Tablet Hell”
Every third-party delivery service has its own platform that you must integrate into your POS or have a tablet or kiosk for. If you have multiple services, you could have your cashiers juggling several tablets with multiple systems, something restaurants call “tablet hell.”
Tablet hell can get confusing, with multiple tablets using independent systems vying for attention when new orders come in. Your staff needs to be trained in every system, may have to transcribe orders into your own POS in order for it to get to the kitchen display, and must have a place to organize and hold orders for the delivery people. It can get overwhelming in a rush as well.
More confusion can come when it’s time to track your third-party delivery sales and costs. You or your accountant will need the passwords for each system to check on your earnings and to keep track of payments coming in.
Recent Third Party Platform Controversies
Many third-party apps have been accused of shady practices, from overcharging to adding restaurants without permission. While they claim they are working in the best interests of their customers, it may not be in your best interest as a restaurant owner. Here are some of the most disputed practices by third-party delivery services.
Listing Restaurants Without Permission
Imagine getting a call from a disgruntled customer who ordered from an app that you are not a part of. Some third-party delivery services have been criticized for adding restaurants in their delivery areas without contracts or even notifying the eatery in question. In theory, the delivery person then makes the order and delivers it but restaurants have no control over the quality of food, delays, or even what menu the app displays.
Overcharging and Payment Delays
In San Francisco, restaurants were still being charged up to 30% commissions by DoorDash even after the city imposed a 15% limit. DoorDash says it was a mistake and is reimbursing those businesses. Meanwhile, other restaurants have complained about delays in getting payments from third-party services. While these things happen, the timing could not be worse, when so many restaurants depend on even the smallest income to survive.
“We Care” Promotions That Cost Restaurant Owners
It can be nice for customers to see third-party apps offering discounts, especially during a taxing economic time. This can also create promotional opportunities for participating restaurants. But these promotions come at a cost, and some third-party delivery services are passing that cost on to restaurants that are already paying enormous commission fees.
For example, Grubhub’s “Supper for Support” promotion offers deep discounts on dinner orders. It claims to be doing this to help boost business for restaurants. However, FSR Magazine reported that in order to participate in the promotion, restaurants must sign a contract agreeing to pay the total cost of the discount plus a pre-discount processing fee for orders.
Third-Party Delivery Alternatives
If venue and ambiance are vital to your brand, you could do more long-term harm by offering delivery, especially through a third-party service. Alternately, you might try to recreate the ambiance at home, with limited takeout menus and special touches. In these cases, having your own delivery service lets you control your brand.
If you value the on-premise dining experience, then you may want to limit takeout or delivery opportunities. If low prices are vital to your brand, then adding a 30% surcharge to compensate for delivery fees could be counterproductive.
You don’t have to hire a third-party delivery service to reach your stay-home customers. Here are some alternatives:
- Pool resources: Get together with neighboring restaurants to pool resources for delivery or hire a local network of drivers.
- Offer curbside: Offer curbside pickup service with a mobile app.
- Offer limited delivery: For orders above a certain amount or only at certain times of the day.
- Work with your POS: Reach out to your POS partner to ask what solutions they offer for creating an in-house delivery system. Brands like Toast and Revel frequently offer discounts on their online ordering and delivery modules to current customers.
If you are interested in creating an end-to-end in-house delivery solution, with or without also partnering with third-party platforms, take time to look into each company as well as your own POS software options. Check out our article 7 Best Online Ordering Systems for Restaurants for detailed guides.
Third-Party Delivery Services Frequently Asked Questions (FAQ)
What are third-party delivery services?
These are services that connect businesses with independent delivery drivers, usually for restaurants, but drivers may deliver groceries or other products as well. The business charges you a fee, often as a percentage of the order and supplies the equipment, drivers, and vehicles, as well as takes care of the salaries, insurance, liabilities, and other expenses. Some of the most common are Grubhub, Seamless, DoorDash, Postmates, Uber Eats, and Caviar.
How do I find the best third-party delivery service for restaurants?
When considering a third-party delivery service, consider the following:
- Do they serve your area? What’s its customer base near you (size, demographics)?
- What are their commissions? How are they calculated?
- Does it integrate with your POS?
- How easy is it to make changes in their system (menus, prices)?
- What is your competition like in that service?
How much do food delivery services charge restaurants?
Commissions run 10% to 40% plus credit card processing charges of around 3%. The percentage can vary, often with busier areas demanding higher commissions. Some cities have imposed commission limits, and some delivery services will negotiate on commission rates.
In addition, some food delivery services charge one-time setup fees, which include setting up your restaurant on the app and distributing the hardware and software to you. The fee can run up to $400, although a few do not charge for this.
Bottom Line
Restaurants see an average 20% increase in check sizes from online and delivery orders versus dine-in orders. Combined with greater visibility with a customer population that continues to be concerned with social distancing, adding a delivery option to your restaurant may be a good idea. The third-party services can take the logistics off your hands in return for a commission. However, you also pay in lack of control over the food, any negative impression the driver makes, and increased complexity for your cashiers, waitstaff, and managers.
