Third-party delivery contracts are a lot more complicated than they used to be.
In the early, pre-pandemic days of delivery, agreements between restaurants and delivery service providers (DSPs) were typically just a few pages, with the key term being the restaurant’s per-order commission rate.
Now, it’s not unusual for contracts to stretch to 30 pages, packed with legal jargon and a litany of negotiable terms.
That’s according to Jodi Bernhard, CEO of Figure 8, a company that helps restaurant chains with their off-premise businesses, including their third-party delivery channels.
This month, New York-based Figure 8 launched a new service devoted to helping restaurants negotiate contracts with their third-party delivery providers. The company was already doing this as part of its day-to-day advisory work with restaurant brands, but decided to break it out as a stand-alone product after seeing a need for it in the market, Bernhard said.
It's an unusual service. Bernhard said Figure 8 is not aware of any other companies offering such a thing.
And it comes as third-party delivery providers like DoorDash and Uber Eats have established themselves as a crucial revenue channel for many restaurants. Just look at the fast-food pizza segment, where all of the big pizza delivery chains are now also available on third-party marketplaces.
As these services have grown, they have also become more sophisticated. Initially, they were mainly focused on facilitating delivery from restaurants. But they have now become bonafide marketing platforms with subscription services and large advertising divisions.
All of these additional products and services have naturally made contracts more complex. For instance, today, restaurants typically agree to both a per-order commission rate as well as a commitment to spend a certain amount on marketing on the platform, Bernhard said.
DSPs will also offer different rates for orders placed on their marketplaces versus those that flow in through restaurants' first-party channels. Orders that come from paid subscribers of services like DashPass or Uber One will carry yet another rate.
There are also decisions to be made based on the number of locations a restaurant has and the pace at which it is opening new ones.
All of these additional moving parts can be confusing for restaurants to navigate, which is where Figure 8 believes it can help.
“The [DSP] might be offering you to drop [your commission], and that looks appealing,” Bernhard said. “At the end of the day, we’ve come in and looked at proposals for new contracts where we’re able to show the brand that, in the aggregate, you’re coming out even, or maybe you’re paying a little bit more.”
She noted that restaurants all have different goals for what they want to get out of third-party delivery, and that most of the time, they just need help understanding their options when they get to the negotiating table.
In general, she said, restaurants should be renegotiating their third-party delivery contracts every year if possible. Contracts come with various lengths, but “our best practice there is to have it as compact as possible,” she said.
Such negotiations have been in the spotlight recently after Uber sued DoorDash, alleging that it uses bullying tactics to get restaurants to sign exclusive contracts for first-party delivery. DoorDash has denied the claims. But the lawsuit showed just how competitive these negotiations can be, especially when it comes to exclusive agreements.
In Bernhard’s experience, deal-making between restaurants and DSPs is usually amicable, even though Figure 8 might be helping restaurants come away with a more favorable rate.
“It tends to be a good working relationship,” she said. “I think [the DSPs] perceive us as support for basically their brand partner.”
And while the relationship between restaurants and delivery providers can be fraught, she said that delivery is something that restaurants can’t really afford to ignore these days.
“The DSPs and orders and transactions coming through their marketplaces is a reality that is a certain percentage of every brand that we work with,” she said. “There is a healthy answer to making that work.”
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