Is Third-Party Delivery Smart for Your Business?

Is third-party delivery right for your restaurant

In today’s delivery-driven environment, your restaurant can offer delivery without having to do it on your own.  And in a fast-paced industry where offering such conveniences is essential, third-party delivery systems provide a huge relief for restaurants.

The only caveat is that these services can come at a high price, especially when margins are already tight, causing restaurant owners to think twice before adopting a third-party delivery system. In this post, we explore the pros and cons of third-party delivery so you can decipher whether it’s right for your restaurant.

What is Third-Party Delivery?

Third-party delivery companies allow you to outsource your food ordering and delivery for a certain percentage of the cost of each order that goes through the delivery platform. GrubHub and Uber Eats are currently two of the biggest third-party food delivery giants. GrubHub alone earned over $200 million in the fourth quarter of 2018, which is a 49% revenue growth compared to $137 million earned in the fourth quarter of 2016.

The Pros of Third-Party Delivery

In a consumer atmosphere where it can be beneficial for restaurants to offer delivery, third-party delivery systems allow restaurant operators to do it with relative ease.

By simply adopting a third-party delivery system for your restaurant, you increase operational efficiency by reducing the time spent to build a delivery system and app from the ground up. In most cases, you’re even spared from having to hire someone to complete delivery transactions.

When it comes down to it, third-party delivery systems offer a convenient, hands-off solution to providing delivery services, which may provide the perfect answer depending on the scope of your business.

For chains like McDonalds and Pizza Hut, it was a no-brainer.

In fact, third-party food delivery has become a $3 billion business within the past two years across McDonald’s global operations. That substantial growth isn’t expected to slow down any time soon, as over 19,000 McDonald’s locations are now set up for delivery. Currently, over 68 percent of McDonald’s locations offer delivery services globally.

This past July, McDonald’s CEO Steven Easterbrook mentioned that the growth provided by adopting delivery services was “unprecedented.” So much so that the chain is looking to explore new markets where delivery for their offerings will thrive.

Pizza Hut, a popular pizza chain with locations across the U.S., has picked up on the potential of hiring third-party delivery systems enough to partner with GrubHub as their complete delivery system.

“We have been working with the Pizza Hut team and recently began piloting some Pizza Hut locations on our marketplace…We are planning on expanding to several hundred stores in the coming months,” stated GrubHub CEO Matt Maloney.

Cons of Third-Party Delivery

While third-party delivery systems certainly take a lot of hassle out of providing delivery services for your customers, they do so at a price premium that’s not lucrative for all restaurant and food service establishments.

For example, if you’re a quick-serve or fast-paced restaurant, third-party delivery systems threaten your profitability by dulling your competitive edge. Where every restaurant or local eatery offers the convenience of quick, easy, delivery, that long-held key selling point no longer stays rooted.

If you’re a typical brick-and-mortar restaurant, your third-party delivery commission fees could eat up between 10-30% of each order. When it adds up, this causes real profitability issues for restaurants. That’s not the only risk of profitability loss. Because restaurants have no control over quality or the customer experience after the food leaves the restaurant, any damage or issues sustained to the order during transport could be the liability of the restaurant. Often, this results in having to offer replacements, refunds, freebies, or voided orders.

Wrap up

Ultimately, adopting a third-party delivery system is smart for your business if:

  • You need to offer delivery to remain competitive in your respective location
  • Your food service business model is built around fast fulfillment
  • You’ve analyzed third-party delivery fees and have concluded that based on the volume of take-out orders, it’s a lucrative service for you to invest in
  • You’re looking to scale your business and have analyzed the ROI of third-party delivery services