Delivery isn’t just for pizza and Chinese food anymore. With services like UberEats, Caviar, GrubHub, Postmates, DoorDash and more, consumers use third-party food delivery apps more than ever. Recent data from NPD Group Market Research reveals that over half of restaurant takeout orders occur online. Restaurants are directly experiencing revenue growth from these services — up to a 20% increase across the entire industry, according to The NPD Group.
It’s tempting to begin a partnership with one of these services. The competition most likely uses one, and in a tight restaurant market, operators don’t want to lose customers because they can’t order online. But before signing a delivery contract, consider these three areas of concern.
1) The fees
Delivery services aren’t free. Each service charges customers a fee to pick up their order from a restaurant, and they also charge restaurants to deliver food to customers. Depending upon the service, the fee can range from 10 to 35% for every single order. Yes, some of that fee could go toward ensuring your restaurant shows up higher on the list of available restaurants, but it could also mean paying the delivery service up to $3.50 for every $10 a customer pays you.
Those fees add up quickly, and they directly impact the next issue: margins.
2) The Margins
Even in the biggest and best restaurants, margins have tightened in recent years from increases in food costs, labor, and rent. If operators want to keep prime costs around the industry average of 65%, those delivery services could become a considerable problem.
This is especially true as customers opt for delivery over dine-in. A recent Morgan Stanley survey reported that nearly 50% of consumers use delivery apps to directly replace visiting the actual restaurant. While this could lead to increased revenues, a restaurant’s margins could start to shrink since delivery customers don’t want to or can’t order traditionally high-margin items like soft drinks and liquor.
And when people don’t patronize a restaurant, operators lose out on relationships with them—the third issue to consider.
Related Read: Restaurants Thrive on Digital Ordering