Does 3rd Party Delivery Make Sense for Your Restaurant?

October 4, 2019
Jeremy Wells

An increasing number of companies are thriving through the rising of 3rd party delivery services. Like many other trends in the hospitality industry, the development of this one has been driven by changing customer expectations.

In this case, the demand comes not only from the younger generations (ages between 18 to 34), but surprisingly older generations are showing interest. Being able to respond efficiently to the needs of your customers is vital to increase profitability and customer retention.

Being able to respond efficiently to the needs of your customers is vital to increase profitability and customer retention.

However, investing in this trend can be an intimidating step due to its cost and high competition. The main questions to ask are: Is this trend going to last? Does 3rd party delivery make sense to your restaurant? Should you avoid or master this tool? I hope this article will help you make that decision.

Is This Service Trend Going to Last?

This is always a difficult question to ask, especially in the hospitality industry There are a few pieces of evidence and statistics that can suggest an answer.

The outsourced delivery service trend can potentially be one of the greatest modern disruptors in the restaurant sector.

To understand if it will last, it is important to analyze what kind of customers are driving the changes that the industry has been undertaking.

Millennials’ Expectations Are Different

Millennials are the main demographic responsible for the current changes in the food delivery industry.

A survey has found that 21% of customers are preferring third party delivery services, a number that increases to 30% when considering only ages between 18 to 34. While the rise of casual dining has so far been a blessing for restaurants and chains, millennials are now preferring to savor their favorite dishes from the comfort of their homes.

The Decision Process

A study suggests that potential customers won’t be looking specifically for your restaurants on third party delivery platforms. Moreover, the choice is often driven by the reviews of other consumers rather than the actual offer.

So, it is important to create an effective relationship management strategy, especially as there is no physical interaction with your customers.

What Is the Market Like?

Dining patterns have been developing and changing over the past few years. Today the delivery service industry is worth $90 billion globally.

Depending on the type of product your restaurant is offering, trying to get a share of this market can be vital. For instance, for franchise restaurants, it is a must today to rely on a third-party service for a large portion of their profit.

The Companies

Globally, an increasing number of 3rd party delivery service companies are thriving thanks to this trend. The scene is dominated by famous names like Deliveroo, DoorDash, and GrubHub.

However, private transport companies are also expanding in this area (Uber Eats or Grab Food). This makes it easy to find a delivery services vendor that fits your needs, but don’t forget that they do charge high fees for each delivery!

The Industry’s Reaction to The Trend

While restaurants have been able to serve takeaway food for a long time, there has been a resistance in accepting this new trend.

It is understandably difficult for mature restaurants to let go of the direct and personal interaction with the customer. Moreover, hospitality trends come and go quickly and a little hesitation in investing in this one is expected.

Hospitality trends come and go quickly

The Future of Third-Party Delivery

While the whole food delivery industry has bloomed in only a few years, this is only the beginning of it. Figures are rising constantly. Not investing in this trend could lead to a great loss of income and customers.

While there are other viable options, 3rd party delivery services are the modern answer to increased market share and visibility that doesn’t require a major initial investment to see results.

Should Your Restaurant Use A Third-Party Delivery System?

The decision of investing capital in the services of a third-party delivery system can be extremely rewarding.

However, it is important to have a deep understanding of your business’ identity and customer base to predict whether the expenditure will be beneficial. In case you decide that the investment is right for you, this analysis will help you pick the right platform.

What’s Your Business Identity?

Are you the owner of a small family-run restaurant, specializing in particular dietary requirements or part of a larger chain? The size of your business matters in this case, as you would have to balance the investment with the potential profit deriving from it.

The size of your business matters

Also, statistics suggest that for specific types of businesses, such as late-night food vendors or pizzerias, it is vital to be included in one or more third-party systems.

What Is Your Customer Base?

By including your restaurants in a third-party delivery service platform, you are likely targeting a market share made up by Millennials and younger generations.

They are often tech-savvy and will base the decision to order from a specific place on reviews and scores. So, for instance, if yours is not a casual dining restaurant marketing to Millennials, you might neither see any positive result nor target the customers you wish to attract.

Promoting Your Restaurants

If you have just opened a new restaurant or outlet, while it is a considerable investment, could be beneficial to affiliate yourself with a third-party delivery service to improve your business’ visibility.

These platforms will let you enhance your marketing strategy, create promotions and offers. This is great to create an initial customer base and spread the word about your new business in no time!

Are You Looking to Expand?

Third-party delivery systems can be extremely beneficial if you are looking at expanding your customer base and fill in the gap between demand and supply.

With an in-house delivery system, it is possible to meet the needs and expectations of only a limited number of customers, depending on your resources. Oppositely, third-party platforms can deliver your food to a larger number of consumers and increase your revenue.

Should Your Restaurant Avoid Using Third-Party Delivery Platforms?

While many franchises and chains are affiliated with third-party delivery vendors, it doesn’t mean that this is the right decision for you!

It is important to consider the risks associated with this investment, to avoid overlooking other essential factors of your business, such as customer loyalty.

The Price

An analysis of the costs associated with third-party delivery systems has found that it can be a significant investment to undertake for a restaurant.

Often the platforms are charging between 15 to 30% commissions for their services, in addition to a delivery fee for the customer. This can limit the budget of daily operations and be a burden for smaller companies.

Limited Control Over Your Customer Service

If you are using an outsourced delivery service, the only personal interaction a customer would have when buying from your restaurant is with the provider’s personnel.

This can limit your control over the customer service you are wishing to offer and affect your customer loyalty. Outsourced delivery systems are convenient for the customers but, providing a fast-paced service, often don’t meet consumers’ expectations.

Difficulty in Retaining Customers

If you are looking at retaining your clients and improving your restaurant’s customer loyalty, an external delivery service might not be the best option for your business.

Oppositely, with in-house promotions, offers, and contests it is easy to gather customer data, through which hospitality businesses are able to create personalized services. Moreover, often the data that could help you retain your best customers is passed over to the third party, which will use it in their favor.

Often the data that could help you retain your best customers is passed over to the third party, which will use it in their favor.

In-House Delivery Systems

This is a great option if you are hesitant about buying a third-party delivery service. While this could mean an initial large investment, your business would be able to maintain direct interaction with current and potential customers.

Moreover, the guests that have already been visiting your restaurants will see in your delivery staff a point of reference for constructive feedback.

Few Things to Consider

The initial investment would be greater than the one required for an outsourced delivery service, but your business will have lower ongoing commission fees to cover.

The initial costs will have to cover the cost of vehicles, insurance, packaging, dedicated personnel, and food storage and transportation facilities. However, through budgeting an analysis, this has been proven to be more rewarding!

Bottom Line

The delivery service industry is continuously growing and offering unmissable opportunities for anybody in the hospitality sector. However, it is important to understand if using a 3rd party service makes sense to your restaurant.

While this is can be a major investment, it could lead to increased visibility and profitability, as well as being able to offer your product to a larger customer base. But, if you are looking at retaining your returning clients and better your customer service, an in-house personalized delivery system could be a better solution.

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Jeremy Wells

Partner at Longitude°

Jeremy is the author of Future Hospitality and Brand Strategist at Longitude°. As a member of the Education Committee for The Boutique & Lifestyle Leaders Association (BLLA) and a content contributor to Cornell University’s Hospitality Vision and Concept Design graduate program, he is a committed thought leader in hotel branding, concepting, and experience strategy.