The toxic relationship between restaurants and third-party delivery companies is something we have all heard about or experienced. The underlying issue between the two is centered solely around the 30% fee that restaurants are charged for each third-party order. The third-party delivery companies pitch the ability to grow your business by being on their platform, while restaurants are arguing that it’s difficult to make money when they are being charged the 30% fee.
When you peel back the layers and uncover the truths, you will find that restaurants can be incredibly successful and profitable on these platforms. However, neither the third-party companies nor the restaurants are doing their part to ensure this success. In this article we will answer the question of, “Can restaurants be profitable using third-party delivery?”.
The Goal of Third-Party Companies & Where They Go Wrong
First and foremost, it starts with understanding that UberEATS, DoorDash, and GrubHub are technology companies, not restaurant companies. Their main priority is driving users to their platform. They do this by having those users' favorite restaurants on the platform. This benefits the restaurants because when there are more users on the platform, it increases the potential number of customers for your restaurant.
Next, the salesperson or onboarding specialist does not do a sufficient job of educating the restaurant operator on the true benefits of adding third-party delivery. The focus is centered around signing up the restaurant. Because there is an unfortunate lack of restaurant operations knowledge, this causes the relationship between restaurants and third-party delivery companies to fail.
To say it frankly, third-party delivery is a delivery service for its users, not for restaurants. For restaurants, it’s a solution to their pain points by adding sales and new customers to their restaurant.
Lastly, each third-party company only has enough manpower to assist the top-performing restaurants, whereas every other restaurant that has signed up and is deserving of the same time and attention to ensure their success are falling through the cracks.
Where Restaurants Go Wrong
Based on the restaurants across the country that we manage on third-party delivery, we seem to find commonalities in the daily issues they face.
- They don’t have the time to manage their restaurant(s) on each platform, so they are typically only going on the merchant pages to make sure the weekly payment is correct.
- They lack the understanding of the capabilities of third-party delivery and are heavily focused on the 30% fee.
- They never check or update their menu from the time they sign up. Most menus are not priced properly, with either no price increases or 30%+ price increases, which out price their customers and scare the customer away when ordering. Additionally, their menus lack the modification and customizations that users are looking for when ordering food items from them. Lastly, their menu organization has users looking all over their page for popular items or other items to complete their meal.
These main factors have negative impacts on your restaurant and your customers. Forty percent of users base their choice on options, and if they cannot modify an item as they can at your restaurant, it turns them away from ordering.
Most importantly, these platforms are an extension of your brand, and restaurants must manage them as such when 67% of customers who order from you online are likely to visit your restaurant. When your brand or restaurant is managed correctly and orders are executed properly, we tend to see an increase in sales of 150-200%.
Why Your Bar or Restaurant Must be on Third-Party Delivery Platforms
When it comes to which platforms a restaurant should be active on, focus on the big three: Uber Eats, DoorDash, and GrubHub. Each platform has a different market share of each major market and specific demographics use certain platforms more often. By not having one, you are losing out on potential orders.
The average person orders delivery 4.5 times per month. It has become more and more normal for individuals to order food from their favorite restaurants to eat in the comfort of their own homes. The age group that uses third-party delivery the most is between 18–34 with Gen Z following in their footsteps. These age groups are your current and future customers for the next 20 years, making executing and creating a loyal following on third-party delivery crucial.
Ending the 30% Fee & Profitability Question
The answer to the question of whether restaurants be profitable using third-party delivery is yes, restaurants can be profitable when using third-party delivery provided you do things right.
- The first step to success is increasing your pricing by 15-20% on your third-party menu. This not only helps offset the fees but lowers your food costs/COGS (Cost of Goods Sold).
- Statistics show that people on average order 20% more online than they do inside the restaurant. Right away, your average order has a 35% increase (15% increase + 20% higher average order).
- Labor cost should not be included when calculating the costs and profits on a third-party order. You are reducing labor cost because you are getting more production out of your staff. Whether you have 10 orders or 50 orders in a one-hour period, the rate you pay an employee remains the same. See table below:
Conclusion
At the end of the day, third-party delivery is here to stay. In the US alone, it’s an industry currently at $85 billion, and by 2027, it is projected to grow to almost $110 billion. It is time for both sides—restaurants and third-party delivery companies—to understand that they need to do a better job on their end.
The third-party delivery companies need to better educate and set restaurants up for success. Restaurants need to manage their establishments more thoroughly on these platforms and understand their true capabilities.
It's like buying a car from a dealership—the dealership needs to provide you with the working vehicle in good condition, and the buyer needs to maintain the vehicle for it to be reliable every day. If restaurant owners and operators don’t have the time to properly manage their restaurant(s) on third-party platforms, then it would be beneficial to their success for them to find a company that can do it on their behalf.
Spiro Douvris is a seasoned professional with two decades of experience in the restaurant industry. Before transitioning into consulting, he successfully developed and sold his restaurant concept to a national franchise company. Currently, he heads Trophi Hospitality, a company that specializes in enhancing revenue and profit for restaurants by focusing on operational efficiency, growth marketing strategies, and optimizing the utilization of third-party delivery services.
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