Third-party delivery apps, which had been growing at exponential rates in recent years, appear to have cooled off.
According to a new report by Apptopia, monthly active users of DoorDash, Caviar, Uber Eats, Grubhub, Seamless and Postmates have dropped 13.3% since last May.
The study does not cover revenue, nor does it include web ordering, which is where a lot of corporate orders come from. Yet it suggests the burgeoning business, so hot one year ago, may be losing favor with consumers.
One reason why: It’s expensive. As we noted before, consumers pay a substantial premium to order delivery from a third party, a cost even the providers themselves question.
Consumers might be using one of the aggressive deals the apps are pushing to generate new users and then falling back due to price, which might be causing the user decline. We spoke with one customer today, in fact, who said she typically only uses third-party delivery in groups so they can all share in the cost of the service.
Indeed, Domino’s Pizza said last month that promotional activity from the third parties leveled off toward the end of last year, and customers apparently turned to the pizza chain. “Certainly, we still saw a lot of aggregator promotion and advertising activity,” he said. “We felt like that leveled off a bit relative to the third quarter, but that pressure is still there and quite intense.”
Third-party delivery is expensive for a reason. It is an inefficient service, using multiple drivers who deliver to multiple sites from multiple restaurants—in contrast to a pizza chain that self-delivers using a typical hub-and-spoke model with multiple drivers to a single region from a single location.
As such, services have to charge the operator as well as the diner. But the restaurant, which needs to recover the charges for the service, frequently increases the menu prices for the delivered items. The result can be a substantial premium for the customer for using a third-party service.
That’s fine, of course, if customers are willing to pay the price. After all, if a customer is willing to pay a certain price for a service, then why not charge that?
Yet the high cost can reduce the number of customers willing to use the service, thereby reducing the potential occasions in which they are used. That limits a market that needs to gain a certain number of visits to generate the efficiency required to make it profitable.
While the impact of the coronavirus could push more demand for third-party delivery as consumers stay home but still want their restaurant meals, that is a temporary issue. An economic recession, which appears more likely by the day, is a long-term negative for delivery given that financially strapped consumers can’t afford to pay those types of premiums.
There remain major concerns about the state of the business itself. Third-party delivery providers are struggling to generate profits—Uber Eats, for instance, had an adjusted EBITDA loss of $1.4 billion last year.
The better long-term strategy for restaurants is to push more delivery through their own mobile apps and websites, where the economics are better. Whether that works for the services remain to be seen.
Regardless, the decline in active users only adds to the continuing uncertainty surrounding third-party delivery and its potential impact on the restaurant business.