Food Delivery Apps: Helpful Service or a Restaurant’s Worst Nightmare?

What’s worse–a sandwich delivered 45 minutes late, or a cold burger delivered on time? For restaurants, it may not matter  because both outcomes lead customers to complain to the restaurant instead of what restaurant managers blame as the true culprits–UberEats and GrubHub.

In a connected world seeking instant gratification with minimal effort, consumers find themselves increasingly relying on app-based food delivery services. Subsequently, according to Bloomberg, “the rush to bring everything from groceries to gourmet meals to customers’ doorsteps has sparked such a demand that job postings for delivery drivers have tripled nationwide on Indeed.com in the past three years.” However, increased sales via UberEats, GrubHub, and other third-party food delivery services could ultimately hurt a restaurant’s ability to stay in business.

Each time restaurants make a sale on a delivery provider, they must pay 15 percent to 30 percent to the platform. However, customers are less likely to order higher margin items that they might buy were they dining in, such as soda and alcohol, when they order delivery. It’s not clear whether this issue is worse now due to e-ordering, or whether it was a concern during the days of calling in to place a delivery or takeout order. When asked, restaurant manager Mike Dickey said “those fees hurt in a low-margin business.” Despite having fielded customer complaints of late or cold food, Dickey still urged of the need for offering delivery to remain competitive:

“With food couriers so pervasive that many restaurants have four or five stickers on their doors advertising different delivery services, Dickey risks losing sales to competitors if he doesn’t offer the same convenience. ‘The problem with our business,’ he said, ‘is you can’t afford not to use them.’”

In offering their menu online, restaurants risk limiting their highly profitable dine-in sales. Restaurants typically prefer dine-in since parties are typically larger and there aren’t third-party app fees. Additionally, when dining in-person the restaurant has direct control in ensuring the food arrives in a timely manner and at the proper temperature. Often, restaurants worry mistakes by third party delivery services will tarnish the restaurant’s reputation and deter sales.

Restaurant managers may be grappling with the question of whether the third party sale is encouraging customers to stay at home, or if the sale wouldn’t have occurred at all if it wasn’t for the delivery option. McDonald’s has reported around 70 percent of orders on UberEats wouldn’t have occurred in person. Operators of fast food restaurants such as McDonald’s are thankful since “delivery has created new occasions and different times of day, especially late at night, for people to eat [their products].”

Like McDonald’s, Sara Senatore of Bernstein Investment Managing saw third party delivery as potentially beneficial to restaurants. Senatore noted “third-party platforms were a cheaper form of marketing and a great way to acquire first-time customers.”  However, restaurants could see diminished returns when new sales become repeat orders through the same mobile platform. Senatore said, “It would be much kinder of you to just pick up the phone and call the restaurant so the operator can avoid paying a commission.”

Photo by Edward Castro from Pexels.

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