Should I Use a Third-Party Delivery Service or Create My Own?
The demand for food delivery has skyrocketed. Here's how to decide whether a third-party or in-house delivery service is best for your restaurant.
The demand for food delivery from restaurant guests was steadily climbing even before the COVID-19 pandemic skyrocketed the need. Many restaurants faced, and continue to face, a tough decision when it comes to accommodating this guest preference: Is it a better idea to sign up with a third-party delivery service or invest in developing a delivery channel in-house for my restaurant?
While folks are back to on-premise dining again, the pandemic revolutionized what convenience looks like to the typical restaurant guest. After all, so many restaurants that hadn’t previously offered delivery and takeout options were forced to adapt in 2020.
As a result, many guests — especially those among the younger generations — have stuck to off-premise options. A recent study by The NPD Group found that Gen Z diners made fewer visits to restaurants last year compared to visits made by Millennial and Gen X generational cohorts when they were the same age (18-24).
Jeremy Seaver, owner of Tios Mexican Cafe in Michigan, is a veteran of the restaurant delivery game and knows the positive impact delivery can have on a restaurant’s bottom line.
We’ve been doing delivery since 1986. Delivery has been a big part of our business forever since we’re in a college town and open late nights.
Due to the harsh Michigan winter, roughly 40% of Tios’ business is delivery for almost half of the year.
When it comes to choosing how to incorporate delivery into your restaurant operations, restaurateurs have two core options: build your own delivery system through your website or phone, or sign up with a third-party delivery vendor to facilitate the delivery process in your restaurant. But how do you decide whether a third-party delivery service or in-house solution is best for your restaurant?
10 Best Third-Party Delivery Services
- Toast Delivery Services
- Uber Eats
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Everything you need to know about using third-party food delivery services
Although there are many benefits to starting an in-house delivery system for your restaurant — we’ll get into those in the next section — using a third-party delivery model has serious perks. According to eMarketer, food delivery smartphone apps in the US grew by 32.7% in 2020, leaving a large market for local restaurants that want a slice of the pie — no pun intended.
Using a third-party delivery service is great for restaurants just starting out, seeking new customers, or restaurants that can’t shoulder the cost of starting their own delivery service. These apps also serve as a great marketing tool because they expand your reach to customers you might never have reached otherwise.
Google has also partnered with third-party delivery companies and online food ordering platforms to allow diners to order delivery directly through Google, expanding your restaurant’s reach even further. For example, to order from a participating restaurant, consumers can hit the “order online” button directly through a Google search and get their food delivered through companies like DoorDash and Postmates, without downloading the third-party app.
Some of the biggest players in the third-party food delivery space are Uber Eats, DoorDash, GrubHub, ChowNow, Postmates, Caviar, and Seamless.
According to insights from Insider Intelligence, DoorDash was the most downloaded US food and drink app in 2021 racking up 37 million downloads with Uber Eats following closely behind with 21 million downloads. This means that when your restaurant is listed on these third-party delivery apps, you have the potential to reach a large pool of hungry diners.
So, how does third-party service delivery actually work? These companies have consumer smartphone apps that aggregate an endless stream of restaurant options for hungry diners to choose from. As a restaurant owner, you are tasked with uploading your menu and crucial information. Then, guests place orders directly from their phones to your in-house tablet, where an expediter calls out their order to the kitchen or, if you choose a POS system that directly integrates with third-party delivery platforms, they are sent directly to your kitchen printers or kitchen display system (KDS).
As you can see, setting up a third-party delivery platform is no small feat. In some cases, restaurants have had to hire an extra person to focus specifically on inputting third-party orders into the POS, packing up delivery orders, and getting them ready for a driver to pick them up.
If you’re outsourcing a third-party delivery vendor, it’s important to know that it will cost you. It’s standard for a third-party delivery platform to take a percentage of every order they send your way for delivery fees. UberEats, for example, charges restaurants a commission of 15% to 30% on each delivery and 6% on pickup orders. This can be an intolerable cost for restaurants that operate on razor-thin margins.
It’s also important to note that these third-party delivery apps often drive up the cost of an order for the guest. A New York Times article from 2020 outlined how what would have been a $13.21 order placed directly at a Subway restaurant cost $19.26 when placed through DoorDash and $25.25 through Uber Eats, a whopping 46% and 91% markup, respectively. While these fees and markups are often set by the delivery app itself, and not the restaurant, they can leave a bad taste in the guest’s mouth. This may prevent them from ordering delivery from your restaurant in the future if they feel they have been blindsided by extra costs, which may hurt small businesses.
Additionally, the major players in the food delivery apps scene have historically come under fire for questionable and deceptive business practices and high fees that contribute to restaurant closures across the country. Not to mention the frequent driver strikes and cases related to delivery price monopolization. In short, working with a third-party delivery service comes with some concerns and risks amid ongoing controversy.
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Everything you need to know about creating a food delivery service for your restaurant
In an article aimed at uncovering what restaurant guests want in their off-premise experience, Restaurant Business found that, in 2019, 78% of delivery orders were placed through the restaurant itself, while only 22% of orders were placed through third-party delivery companies.
By this point, you probably recognize just how important offering online ordering options for your restaurant is. But, to really hammer it home, a Deloitte study using customer data showed that frictionless digital experiences continue to be vital in a post-pandemic world, with 57% of consumers preferring to use a digital app to order food for off-premise dining. And did we mention that guests who order directly from your delivery app tend to spend more? If you’re offering a loyalty program for your restaurant, you’re even more likely to keep guests coming back time and time again.
So, if you’re interested in keeping delivery in-house rather than signing up with a third-party delivery service, that data is encouraging.
Creating and operating your own delivery and online ordering system gives you greater control over the guest experience, ensuring that at-home diners can enjoy the same high-quality offerings from their delivery experience as dine-in. After all, a study by Service Management Group found that 35% of at-home diners who had a problem with a third-party delivery service ultimately blamed the restaurant.
Choosing to develop an in-house delivery system for your restaurant involves some careful analysis, budgeting, and planning. Here are some considerations and questions to consider if you’re interested in developing your own delivery service rather than relying on a third-party delivery company:
1. Delivery vehicles and staff
In order to deliver meals to your customers, you’ll need to pay for delivery cars, or pay your delivery drivers to use their personal cars. If you don't have a parking lot or street parking readily available for your restaurant, this could also pose a problem.
2. Gas money
Regardless of whose car is being used — the company's or the courier’s — you'll need to set up a system to track gas use and reimburse couriers for filling up the tank. And, with gas prices surging to an all-time high in June 2022, many third-party delivery services are stepping up to cover gas prices for their drivers as well. In other words, providing a stipend or reimbursement for your delivery drivers is a must.
3. Hiring dedicated delivery prep staff
As soon as your restaurant processes 30+ delivery orders per day, you’ll need to hire an employee dedicated to delivery. This person would be in charge of receiving orders, making sure the food is prepared correctly, getting to-go bags ready with any promotional materials, and double-checking orders before they leave the restaurant.
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4. Choosing a POS platform that directly integrates with your delivery system
Admittedly, no matter whether you choose to go with an in-house delivery service or a third-party platform, ensuring your POS platform can keep up with off-prem orders is crucial. A cloud-based POS, like Toast, allows you to easily keep track of orders no matter where they are placed. And when you directly integrate your third-party delivery platforms you will avoid double entry, input errors, or the dreaded order that slips through the cracks.
How will you insure your delivery drivers, and your business, in the case of an accident? Will they need to pay for their own insurance or will your restaurant cover the cost? There are delivery insurance plans that cover car insurance, business owners’ policies that cover general liabilities, and workers’ compensation in case the driver gets injured.
6. Your packaging
It’s important to make sure your customers have a good experience that aligns with your restaurant brand, whether they are in your restaurant or in their homes. No one likes soggy food or mushed entrees. If your fries can’t withstand the drive from your restaurant to the guest’s front door, you may want to rethink your packaging (and maybe your to-go menu!)
Ensure that your packaging and menu items pass the delivery test. Otherwise, guests may never want to eat the restaurant's food again — especially not via delivery. And don’t forget to factor packaging costs into an adjusted plate cost calculation. This will give you a truer read on menu item profitability across sales channels.
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7. Designate space for high-volume deliveries
Have a tight kitchen? You’ll need room to store each order after they’re prepared. Shelves make it easier for couriers to gather orders together by making them easily visible. Bonus points if you can alphabetize the orders to make it easier for drivers to find. The more you can do upfront, the fewer delivery errors you’re likely to have.
8. Food storage and transportation process
Prepared foods need to stay at a certain temperature before being consumed. You will need to invest in insulated bags, coolers, and boxes to transport food without it becoming too warm or too cold en route to the guest. Health codes and food safety are certainly not areas to cut corners. This is just as true for your dine-in operations as it is on the go.
It’s critical that you define a process for how you manage items that are ready for delivery. You’ll want to keep track of which items go to which address. And you’ll want to prepare dishes appropriately. For example, if you get an order for three large pizzas and a caesar salad, you’re not going to make and dress the salad immediately. It takes no time at all compared to the pizzas, and having it sit and dressed would destroy the quality.
9. A reliable delivery tracking system
You’ll need to come up with a way to see where your drivers are in the delivery process, whether that’s on the way to a customer, dropping off the food, or returning. Knowing when your drivers are ready to deliver the next batch of orders will play a huge part in determining when the next orders get fired. If left unmanaged, an untracked delivery system could lead to long wait times, theft, or unruly delivery overhead.
10. Establish a payment process
When will the customer submit payment: when their food is ordered or once it’s delivered? Will you accept cash, card, and smart payment like Apple Pay? How will they receive a receipt? All of these questions must be considered when deciding on payment processes.
11. Choose a communication method
When a driver goes on dispatch, they need to be able to communicate with you if something goes wrong. Should you give delivery couriers a dedicated phone? Or should they use their own phone?
All of these considerations cost money, but in the long run, it can be well worth the investment — instead of ceding a large percentage of your profits to third-party delivery companies.
The impact delivery has on restaurants across the country
Clearly, off-premise options such as takeout and delivery are here to stay.
The North American online food delivery market reached a value of $26.2 billion in 2021. According to an April 2022 report, the market is projected to reach $53.5 billion by 2027. And, as previously mentioned, the booming food delivery industry is mainly driven by young people. If you haven’t already, your restaurant needs to figure out your delivery plan — stat.
With so many delivery options out there for restaurant owners and operators, it can be hard to navigate which option is the best for you. If you decide to use a third-party delivery service (or even multiple), check which services are operating in your area, what percentage of each check the service absorbs, and whether diners in your region are using third-party delivery services or they prefer to order straight from you.
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