Does 3rd Party Delivery Make Sense for Your Restaurant?

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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What is a Ghost Kitchen?

A ghost kitchen, also known as a ghost restaurant, a virtual restaurant, or a cloud restaurant, is a food business that exists solely to provide delivery. In these restaurants, food is intended for off-premise dining only.

In a typical ghost restaurant model, the food is made in a rented kitchen, while being ordered and delivered through a third-party delivery service.

Ghost kitchens are often found in high-rent areas, like college towns. Instead of drawing in foot traffic, virtual restaurants work well anywhere as long as their delivery service can easily access customers.

Ghost kitchens are a fairly new concept, although some pizza places have already had carry-out and delivery-only options for years, however, they still maintain a brick-and-mortar location, which ghost restaurants do not.

Why are Ghost Kitchens Gaining Popularity?

In most cities, the restaurant business is already incredibly cutthroat, meaning there is very little room for new players. Delivery is also increasing in popularity because customers want convenience.

In fact, in many areas, restaurants that don’t offer delivery are closing down.

Many traditional restaurants, start-ups, chains, and third-party delivery services are looking into ghost kitchens as a way to manage the demand for delivery while increasing market share.

How Do Ghost Kitchens Work?

Ghost restaurants typically operate through a third-party delivery platform.

From the customer’s perspective, he or she finds a restaurant to order from after browsing through a favorite third-party delivery app, such as GrubHub, UberEats, or DoorDash.

The customer places an order and receives the delivered food from the third-party vendor.

From the restaurant’s perspective, the restaurant receives the order and fulfills it in a kitchen that does not offer a storefront. It then hands the order off to the delivery partner.

The Pros of a Ghost Kitchen

There are many pros to the ghost kitchen model. The first is that the ghost kitchen model reduces the need for start-up costs and resources. This allows new players to enter the restaurant scene in a given location without as much of a barrier to entry.

For example, if one is attempting to open a food truck, there is a cost to secure a truck and procure the right kitchen equipment for the truck.

This also opens up more opportunities to experiment. If one model fails, it is fairly inexpensive to switch gears and try something different.

Ghost kitchens also do not require new restaurants to compete over high-traffic locations, since customers do not visit the location itself. This also means that these restaurants aren’t renting dining space that isn’t being utilized.

Another benefit is that the ghost kitchen model does not require an existing customer base. Your restaurant will find hungry customers through a third-party platform.

Ghost kitchens also have fewer overhead costs because the kitchen is rented. There can also be reduced labor costs because the only staff required is the kitchen staff.

Unlike a food truck or a traditional restaurant, there is also less variability based on the weather. A restaurant with a separated parking lot or a food truck may experience a decrease in sales if the weather is poor.

The Cons of a Ghost Kitchen

The biggest problem with a ghost kitchen is that these restaurants often have to pay a high fee to third-party delivery services, sometimes as high as 30%. There can also be additional costs associated with premium placements on the third-party vendor’s site or app.

Another factor against ghost kitchens is that they don’t have that brick-and-mortar or truck for visibility and brand recognition. This is why digital branding even more important for Ghost Kitchens.

It can also be a bit more challenging for these types of restaurants to receive licensing, especially if your business is the first of its kind in the area. Inspectors may not be used to this type of business model and maybe more reluctant to license the business.

Location can be a negative factor for kitchen staff and business owners because rentable kitchens are not always in the most easily-accessed locations.

Lastly, because it is such a new model, it is a major risk.

Getting Started with a Ghost Kitchen

If a ghost kitchen sounds like a venture you’re interested in trying, there are a few key steps you’ll need to take. There’s a lot that needs to be considered when opening a new restaurant, even a ghost kitchen.

Gain access to rentable commercial kitchen space

What many new-to-restaurant-owning entrepreneurs fail to realize is that food that is sold to consumers must be produced in a licensed commercial kitchen. This isn’t the major hurdle it once was as there are now many shared-use kitchens or commercial kitchens you can rent by the hour, day, or month. Think of this as a coworking space for chefs, caterers, food trucks, and other food producers without traditional kitchen spaces.

You’ll need to gain access to a rentable commercial kitchen in your area before you begin. Prepare for a somewhat lengthy process when it comes to starting out, as the kitchen will want to vet you and your business before agreeing to rent to you.

Apply for inspection

Once you’ve locked down your kitchen, you’ll need to apply for your inspection with the health department. Many health departments will need to visit you in the commercial kitchen space before you start selling your food.

When the health inspector comes for the inspection, they will want to see your production methods, food storage areas, and general flows. You will also need to have these written out for your final inspection and to receive your license, so it is best if you can provide that to the health inspector when they visit as well.

The most important thing to communicate with your inspector during your inspection is that you are producing food safely and legally. Walk them through your menu, your production process, how you plan to hold time and temperature, and what third-party service providers you plan to use. This includes any national or local food distributors and suppliers, as well as your delivery service.

Select your third-party service provider

There are many third-party service providers to choose from. Tech-enabled ordering platforms will charge you a fee in exchange for providing one of the most critical aspects of your business – so you need to choose wisely.

When looking at providers, you should find out what your options are and evaluate them based on the average delivery times, reliability, and customer service. Look at their customer reviews and interview your top contenders. This should be a partnership, and it will be an incredibly painful process if you select the wrong vendor.

Sometimes these delivery services charge a painful commission fee – as much as 30% of the order. However, it is still going to be considerably less cost than trying to deliver yourself, and your customers will be able to find you through their platform, instead of you having to find all of your customers through your own marketing efforts.

Plan for delivery

One of the biggest cons for chain restaurants who are starting to offer delivery is that their food is not made for that type of distribution. It doesn’t hold up well to being transported.

As you plan out your menu, make sure your food is temperature-controlled and holds up well to travel. You don’t want your food to arrive cold, soggy, or overly messy. If it does, you’re almost guaranteed to lose customers quickly.

As you think about your menu, keep it simple – especially to start. Consider reusing the same ingredients in different ways to keep costs down.

You’ll also want to train your staff to make sure quality is consistent.

Have a loyalty plan in place

Loyalty is critical for the success of any local operation – especially food service. Check with your third-party delivery provider for the ability to add a loyalty program or coupon codes. Then you can distribute these codes to your customers when their orders are delivered.

Loyalty is critical for the success of any local operation – especially food service.

You can also build up loyalty on your social platforms. Perhaps run a contest for customers who post pictures of your food where they can earn a discount on their next order. Contest or not, be sure to reward customers for formally reviewing your business or even sharing it on social media. Word of mouth and referrals are just as critical to your ghost restaurant’s success as loyal customers are, if not more so.

Identify your niche

Again, this applies to nearly any type of restaurant, not just ghost kitchens. You need to have a niche – whether that means you are appealing to an underrepresented demographic in your area (like working parents or the elderly) or filling a void for a specific type of food (Thai in a city that does not have many Thai restaurants, for example.)

If you’re feeling stuck, have conversations. Chances are, your friends, neighbors, and relatives have ideas for what they “wish they could have” in your area. Once you come up with a concept, test it conversationally as well. One person’s opinion may not mesh with the overall landscape.

Digital branding is king

Since you don’t have a brick and mortar or a truck for customers to immediately identify with, you will need a strong online brand. You might even consider hiring a marketing consultant or firm to help you get started if this isn’t something you are already familiar with.

Since you don’t have a brick and mortar or a truck for customers to immediately identify with, you will need a strong online brand.

One of the most important brand components is a strong name. Make sure it isn’t too similar to another restaurant in your area, and it should also align with your menu and the type of cuisine you offer. If “Buckey’s Burger Palace” only sells tacos, that is probably not a model that will be set up for success.

You’ll also need a solid website. Make sure your site looks professional, and functions well. Include a lot of pictures of your food, and a unique logo that is clear to read.

A strong social media presence is also critical. Facebook, Instagram, and Snapchat are the most common platforms for food companies and restaurants to connect directly with customers. Again, make sure your social media accounts have a lot of high-quality pictures of your food so that these channels showcase what you have to offer.

Make sure your website and your social media channels direct your potential customers to order from your chosen third-party vendor, so your potential customers can easily locate you. Because ghost kitchens are a relatively new concept, this may be a new process for your customers too, so walking them through it can set you up for success.

You should also include your menu on your website and your social media channels. This will entice customers to order from you, even if they are unfamiliar with ghost restaurants or your chosen third-party vendor.

In closing

Ghost restaurants are certainly worth considering if you’ve been interested in getting into the restaurant business but start-up costs and capital have been a barrier for you. However, you should know that as a new concept, these types of businesses are still risky and may not be immediately successful. It may also be too new in your area, and therefore you may not have access to a rentable kitchen space in your area at this time.

Be sure to choose a great name and focus a lot on your restaurant’s branding

However, if you do decide to give it a try, be sure to choose a great name and focus a lot on your restaurant’s branding. It is also critical to choose an excellent third-party ordering and delivery service.

By taking these steps, it is possible to see success through this new restaurant business model. To help ensure your new business venture is successful, it may be worth hiring a restaurant marketing agency. These types of professionals will have a much better idea for how to appeal to your target audience as well as what will be successful and what may not be.

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