A Quick Refresher on In-House vs Third PartyThe Good and

The Not-So-Good

Foodservice delivery platforms like Uber Eats, DoorDash, and Grubhub have historically used a variety of strategies to incentivize restaurants to partner with them, even though the associated fees can be high. Here are some of the key approaches. (3 min read)

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The Good

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1. Increased Visibility and Reach

• Marketing Boost: Platforms often feature restaurants in promotions, "featured" sections, or as part of campaigns for new customers. This can result in significantly increased exposure.

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• Access to New Customers: By partnering with delivery services, restaurants gain access to a broader audience they might not have otherwise reached, including those who prioritize convenience and digital ordering.

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2. Operational Convenience

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• Logistics Support: These services handle the entire delivery process, allowing restaurants to avoid investing in their own drivers and infrastructure.

• Technology Solutions: Delivery platforms provide order management tools that integrate with point-of-sale (POS) systems, simplifying operations.

• Data Analytics: Restaurants can use insights provided by the platforms, such as sales trends and customer preferences, to improve menu offerings and pricing strategies.

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3. Revenue Growth Opportunities

• Incremental Sales: Partnering with delivery services often brings incremental sales from customers who wouldn't have dined in.

• Special Promotions: Delivery apps sometimes fund special deals (e.g., "$10 off your first order") that benefit the restaurant without requiring upfront investment.

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4. Flexible Fee Structures

• Tiered Commission Plans: Some platforms now offer flexible fee tiers, allowing restaurants to choose lower commission rates in exchange for reduced services like less prominent placement.

• Revenue-Sharing Incentives: Restaurants may negotiate discounts or rebates on commissions based on sales volume or performance metrics.

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5. Branding and Marketing

• Co-Branding Opportunities: Platforms offer branding opportunities, such as custom landing pages and joint marketing campaigns.

• Social Media Integration: Delivery services often amplify restaurant promotions on their social channels.

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6. Operational and Financial Relief

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• Equipment Grants or Discounts: Some platforms offer equipment or setup assistance to encourage onboarding.

• Reduced Onboarding Fees: Platforms sometimes waive setup fees for new restaurant partners or provide initial financial incentives.

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7. Partnership for White-Label Solutions

• Direct Ordering Tools: Some platforms now provide white-label solutions allowing restaurants to take orders directly through their own websites while still relying on the platform for delivery.

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8. Exclusive Opportunities

• Exclusivity Deals: Some platforms offer reduced fees or premium positioning in exchange for exclusivity agreements.

• Priority Access: Restaurants agreeing to certain terms might be highlighted during high-demand times, such as lunch or dinner rush.

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While these incentives can make partnering attractive, the high commission fees and potential loss of customer data often lead restaurants to carefully weigh the benefits against the costs.

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The Not-So-Good

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The costs of partnering with foodservice delivery platforms like Uber Eats, DoorDash, or Grubhub can be substantial, both in direct financial terms and in other impacts on a restaurant's operations and brand. Here’s a breakdown:

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Financial Costs

1. Commissions

   • Typical Rates: Platforms often charge commissions ranging from 15% to 30% per order, depending on the service level (e.g., delivery vs. pickup, promotional placement).

   • Impact on Profit Margins: Restaurants with thin profit margins (typically 5-10% in the industry) may see little to no profit from delivery orders after commission fees.

2. Setup Fees

   • Some platforms charge initial setup fees for onboarding, menu digitization, or technology integration.

3. Transaction Fees

   • A percentage of the total order value or flat fees for processing payments through the platform.

4. Marketing Costs

   • Promotions and Discounts: Restaurants often pay for participation in promotional campaigns or special discounts to boost visibility.

   • Preferred Listings: Additional fees for better positioning on the app (e.g., featured or sponsored listings).

5. Loss of Revenue

   • Cannibalization of Dine-In Sales: Customers who would have dined in at a lower cost to the restaurant may instead order delivery.

   • High-Volume Orders: Even when sales increase, profits may not scale due to the commission fees.

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Operational Costs

Increased Complexity

1. Packaging and Delivery Costs

   • Restaurants must invest in quality packaging to ensure food arrives in good condition, which can be expensive.

   • Additional staffing or kitchen space may be needed to handle the influx of delivery orders.

2. Reduced Control

   • The restaurant has limited oversight over delivery quality, speed, and customer service provided by the platform, which can lead to dissatisfaction and complaints.

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Brand and Customer Relationship Costs

1. Loss of Direct Customer Connection

   • Restaurants lose access to valuable customer data (e.g., names, preferences, contact info) that platforms retain for their own use.

   • The intermediary platform becomes the face of the customer relationship, diluting the restaurant’s brand identity.

2. Potential Brand Damage

   • Poor delivery experiences, such as delays or incorrect orders, can harm the restaurant’s reputation, even if the issues are the platform’s fault.

3. Dependency

   • Heavy reliance on third-party platforms can make a restaurant vulnerable to changes in fee structures or policies. Restaurants may feel compelled to stay on platforms to avoid losing customers.

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Regulatory and Legal Costs

1. Compliance Issues

   • Restaurants may face new regulatory requirements, such as ensuring delivery personnel comply with local food handling laws.

   • Legal disputes or liabilities arising from third-party delivery drivers (e.g., accidents) can add risk.

2. Exclusivity Agreements

   • Entering into exclusive partnerships can limit a restaurant’s ability to diversify its delivery options, reducing flexibility.

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Social and Ethical Costs​

1. Impact on Employees

   • Delivery orders often demand more from the kitchen staff, potentially leading to burnout or dissatisfaction if workloads aren’t balanced with compensation.

   • Front-of-house staff may lose tips due to reduced dine-in traffic.

2. Community Perception

   • Some consumers and industry professionals criticize platforms for their impact on small businesses. Partnering with these services can create tensions with customers who prioritize supporting independent businesses directly.

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Strategies to Mitigate Costs

Many restaurants are attempting to offset these costs by:

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• Offering direct online ordering with in-house delivery to avoid high commissions.

• Negotiating lower fees with platforms based on sales volume.

• Diversifying marketing efforts to maintain direct customer engagement.

Balancing the costs and benefits is critical, particularly for smaller operations.

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FFM