Delivery isn’t just for pizza and Chinese food anymore. With services like UberEats, Caviar, GrubHub, Postmates, DoorDash and more, consumers use third-party food delivery apps more than ever. Recent data from NPD Group Market Research reveals that over half of restaurant takeout orders occur online. Restaurants are directly experiencing revenue growth from these services — up to a 20% increase across the entire industry, according to The NPD Group.
It’s tempting to begin a partnership with one of these services. The competition most likely uses one, and in a tight restaurant market, operators don’t want to lose customers because they can’t order online. But before signing a delivery contract, consider these three areas of concern.
1) The fees
Delivery services aren’t free. Each service charges customers a fee to pick up their order from a restaurant, and they also charge restaurants to deliver food to customers. Depending upon the service, the fee can range from 10 to 35% for every single order. Yes, some of that fee could go toward ensuring your restaurant shows up higher on the list of available restaurants, but it could also mean paying the delivery service up to $3.50 for every $10 a customer pays you.
Those fees add up quickly, and they directly impact the next issue: margins.
2) The margins
Even in the biggest and best restaurants, margins have tightened in recent years from increases in food costs, labor and rent. If operators want to keep prime costs around the industry average of 65%, those delivery services could become a considerable problem.
This is especially true as customers opt for delivery over dine-in. A recent Morgan Stanley survey reported that nearly 50% of consumers use delivery apps to directly replace visiting the actual restaurant. While this could lead to increased revenues, a restaurant’s margins could start to shrink since delivery customers don’t want to or can’t order traditionally high-margin items like soft drinks and liquor.
And when people don’t patronize a restaurant, operators lose out on relationships with them—the third issue to consider.
3) The relationships
Building a strong group of regulars compensates for the marketing dollars spent gaining just one new customer. Operators risk losing loyal customers with a delivery service, because with increased customer options, your restaurant isn’t top of mind anymore.
Current research from The Manifest reveals that customers are focused exclusively on convenience, not loyalty. In other words, they simply choose the delivery app with the most restaurant choices for their area. And according to data from McKinsey&Company, they also tend to stick with the first app they download and only switch when they learn that choice increases with a different app.
Delivery services provide several perks to the restaurant industry, as they help people get food when they want it, even when they can’t get to a brick-and-mortar establishment. But before signing a contract, consider all possible angles and details of the proposed partnership and weigh in on what will be most beneficial to a restaurant’s specific needs.
This post is sponsored by Tabulate