What restaurants need to know about third-party delivery

Third party delivery

During those cooped-up, shut-down months of peak pandemic, people leaned into food delivery like never before. It provided a vital revenue stream for many small businesses. And now, even with dining out at 2019 levels, the demand for restaurant meals delivered to people’s doors remains high. Revenue from restaurant delivery is expected to top $63 billion in 2022. Many places can’t afford to leave that money on the table, even if they didn’t offer delivery before the pandemic.

The question is no longer whether to deliver but how to make the delivery process work for your restaurant. The old-fashioned way required people to call the restaurant to place an order over the phone. Then a member of your team needed to drive their meal to them, taking time away from the restaurant and burning expensive gas on the way.

This was never an efficient approach to delivery, and it no longer works at all for many reasons. First of all, people don’t want to make a phone call and speak to another human for almost any reason. A full 76% of millennials have “phone anxiety.” Secondly, valid security concerns make them reluctant to recite credit card numbers over the phone. Finally, order errors can mean the food goes to the wrong address, a mistake that takes time and money to fix. Setting up your own digital platform would be an ideal solution in a perfect world, but it takes more resources to build and operate than many smaller restaurants have.

That leaves partnering with a third-party delivery service. You know the ones–Uber Eats and Grubhub are the biggest players, but there are many others. This is how a lot of restaurants sidestep the logistical problems of bringing delivery into the twenty-first century in a relatively easy way. But this solution is far from perfect.

Before diving into the nitty gritty issues of third-party delivery, let’s start with a high-level view of the basics:

What is third-party restaurant delivery service?

Third-party delivery service refers to hiring another business to handle restaurant food delivery on your behalf. You pay these companies a fee, typically a percentage of the sale, to ferry packaged orders to hungry customers. The driving (or biking) and hand-off of the order are the third party’s responsibility. The restaurant is still in charge of making and packaging the food.

How does third-party delivery work?

People place their food orders from restaurants online and through third-party apps, such as Uber Eats or Grubhub. The whole transaction, from ordering through payment, happens on the partner’s platform. The third-party delivery companies earn money by charging commission fees on every order, usually 15% or more. They process payments and then make payouts to the restaurant, typically on a weekly basis.

Currently, the biggest players in the third-party delivery game are Uber Eats, DoorDash, Grubhub, ChowNow, Postmates, Caviar, and Seamless. Restaurants choose one or more as delivery partners based on their budget, target customers, and needs. Sometimes a restaurant will work with several at once.

Though the majority of third-party delivery companies work in a similar way, as described above, there are small differences. Restaurants do their due diligence and research the fine print of terms offered by each platform to find out which will work best for them. This can minimize surprises.

Now that you’ve got the broad strokes of what third-party delivery is and how it works, it’s time to take a closer look at the pros and cons.

What are the advantages of third-party delivery?

There are many reasons why so many restaurants are partnering with third parties to deliver their meals to people. Here are the biggest ones:

  • Ease. Convenience is the biggest perk of partnering with a third-party delivery service. The partner handles the delivery so you can focus on running a restaurant.
  • Speed. Provided you choose a partner that integrates with your POS system, you can be up and running quickly.
  • Fewer upfront costs. This route also offers upfront savings over creating your own custom digital ordering system.
  • Staffing. And obviously, you don’t need to find employees to serve as your delivery drivers. During the current labor shortage, you likely need all hands on deck in the restaurant.
  • Visibility. These platforms can help you reach new diners and grow your business. Often people come to their ordering app with a craving for dumplings or meatballs and will search accordingly. It’s not uncommon for them to find new favorite restaurants this way.

What are the disadvantages of third-party delivery?

Some third-party delivery businesses have been in the news for their high fees and questionable business practices. Here are some reasons restaurants are seeking out alternative options for delivery:

  • High fees. This is the biggest con. Fees can account for 15% to 30% of sales by some estimates, cutting painfully into profit margins. Some local legislators have pushed back. San Francisco set a cap on third-party delivery fees in June 2021, though new legislation will once again open the door to higher fees.
  • Broken trust. There have also been reports of these companies taking unsavory actions, like setting up a fake version of a restaurant and obscuring the facts about their fee structures. In response, restaurants in some areas have banded together to create delivery co-ops owned by the restaurants themselves to bypass using these third-party partners.

The continued demand for takeout and delivery is a big opportunity for the places that can make delivery work efficiently and profitably. For many, third-party delivery companies are the right way to offer their food to at-home diners. Others may want to find or create another option. Understanding what’s out there is the first step to making the best choice for your restaurant.