Delivery apps: Restaurant friend or foe?

If you want to start a fight between restaurant operators, defending or championing the delivery app business is a good place to start. The proliferation of these apps, fueled by hundreds of millions in venture capital dollars is impossible to miss. But some of the benefits and costs may be harder to see.

Benefits

Incremental Business

No doubt, the #1 benefit of delivery apps to restaurants is incremental business (getting an order that you would never have gotten unless you were on the app). 

Because these apps have significant reach with diners and huge marketing budgets, getting listed can definitely increase the visibility of your restaurant. In fact, Door Dash claims that their app “reaches 80% of consumers in America.” Do they explain what “reaches” means?Of course not! But still, it sounds good.

Remember, it is incredibly important to measure the value of higher orders from delivery apps against the fees these apps charge. You don’t want to fool yourself into thinking that a 10% increase in orders from a food delivery app is going to change your life if you make significantly less money on those orders (more about this in the “Costs and Question Marks” section below.

According to industry survey data, 60% of operators say they receive incremental sales from food delivery app orders. Sounds good, right? Of course that means that 40%, don’t receive incremental sales, or at best, aren’t sure.

Marketing and content support

Some food delivery app providers offer additional services that can be a nice benefit (although they also often come with a set up fee). For example, Uber Eats will take professional pictures of your food for their site, which you can use in other parts of your operation.

Costs and Question Marks

Fees

Every restaurant delivery app service comes with fees. For example Uber Eats has a setup fee and a transaction fee for every order made. The transaction fee is the big business here. Some providers of food delivery apps are very clear about their pricing. Door Dash says they “ask for 30% revenue sharing.” Other apps are less explicit about their pricing, but online forums will state that most charge between 25 and 30%.

Under the right conditions you may be able to negotiate these fees with the delivery app company. Gigantic brands like McDonald’s have negotiated rates as little as 15%, but even a 10-unit chain or restaurant group can get concessions on fees of a few percentage points.

The fees have become so egregious that some cities have put caps on the commissions app companies are allowed to charge. New York City, Seattle, and Washington DC have all capped fees in some way. Check your local area and make sure any fees you get charged are within your city's rules.

Companies like Toast and Chow Now are creating alternative fee structures to compete with the market leader, Door Dash, but know that if at least initially this may mean a smaller reach against potential customers.

Tip: Some restaurants are combating the fee problem by charging higher prices on the listings they post on delivery site apps then they do on their own website or if you call in. This is a good way to maintain margin, but might reduce orders and in some cases may violate the delivery app's terms of service.

Another good way to combat fees is to find ways to encourage diners to order directly from you the next time they order. For example include a card in your delivery bag or box that offers diners a discount when they order direct.

Cannibalization

The Hannibal Lector of business problems. Cannibalization is when a new product or sales channel starts to eat into sales of your existing channels. This is the exact opposite of the “incremental” sales that food delivery apps hope you focus on.


Imagine you sign up for a service like Postmates, or Uber Eats and you start to get tons of orders. This can be great if these are all new customers. But if those are just customers who used to call you up, or order on your website, the amount of money your restaurant gets to keep just went down 30% on every order.

Complexity and siloed data

Walk into a restaurant that has a decent take-out or delivery business and frequently you’ll see a wall of tablets at the front register. Taking in orders in an organized and timely fashion is difficult enough. Now you might have to take orders by phone, on your website, from walk-ins, AND from 3 or 4 different delivery apps.


If those apps don’t integrate with your main POS system, that could mean more manual entry (and as a result, more risk of order errors), and a complete mess when you’re trying to analyze your business.

As you can imagine, solving that complexity is an important issue for restaurants operating out of cloud kitchens so many cloud kitchen providers will pull all the orders from different delivery companies into one interface and make that service an explicit selling point.

Inconsistent service

When you outsource delivery to a 3rd party delivery app, the experience the diner gets is going to reflect on your business. What if the food doesn’t show up? What if it shows up cold? What if the driver decides to take an entree for himself on the way to the delivery? What if the driver doesn’t check the order when he picks it up and takes one of your other customer’s orders?


The internet is smattered with restaurant operator complaints about how these issues and more. If your food travels well and you’re not reliant on special packaging to keep the food the right temperature, you might be okay. At least to date, the 3rd party delivery apps have been reasonably good about reimbursing customers for issues. But keep in mind, when you outsource any part of your operation, you lose some control over the experience.

Tips

The drivers for these services are almost always independent contracts who are struggling to make ends meet as much as anyone. When they come to pick up the food, don’t expect a tip for your staff.

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