Third Party Delivery Life or Death for the Restaurant Operator

The conversation surrounding food delivery continues to be a major concern for today’s restaurant operators as they wade through a number of new technologies providing third-party delivery solutions.

GrubHub is up by over 38 percent in sales. The online delivery marketplace has also acquired Tapingo, Eat24, and LevelUp, and recently partnered with Dunkin’. However, not far behind, DoorDash just overtook GrubHub in U.S. monthly food delivery sales. The ever-popular Uber maintains a steady 91 million monthly active users in over 20 countries and provides food delivery for 50 percent of the U.S. population.

Nevertheless, our research here at Foodable Labs shows that there are some beginning signs of fatigue in both the operator and the consumer in terms of sentiment toward third-party delivery. An analysis of over one million conversations about third-party delivery reveals a few key areas that consistently problematize the companies’ claims to convenience.

Top 10 Third-Party By Sentiment Rating

Source: Foodable Labs

The Fees hit both the operator and the consumer. Operators typically pay third-party companies 20 to 30 percent of the base cost of the ordered food. Depending on the delivery service, consumers may pay a yearly fee or pay fees for delivery from certain restaurants. In just this past quarter, there has been a sentiment drop of 3.6 points on the consumer side across the top ten delivery services. On the operator side, the drop is even direr: sentiment fell by 5.8 points.

The Data represents a constant battle between the operator and the delivery service: who owns a guest’s information, order habits, items, and frequency of purchase? The restaurants believe the guests’ data belongs to them because the customer is their guest eating their food, whereas delivery services want to leverage the data to the max with deals, app notifications, and constant marketing.

The Brand is a key area that hits home for every restaurant business. Because the restaurant loses control of the delivery, brand continuity often comes into question. Food safety and new packaging is a constant concern for restaurants to ensure they maintain each customer’s business and overall enjoyment of the restaurant.

The Jimmy John’s sandwich chain, one of the first restaurants to embrace delivery services, has refused since its beginnings to deal with third-party companies due to these issues. “We’ve been researching … what is best for our customers and our brand,” says Jimmy John’s Chief Marketing Officer John Shea. “In our exploration, we came to the conclusion that we do it better.”

The question still remains whether food delivery companies like GrubHub and UberEats can come up with a program to solve these issues. My take is that the industry is incredibly complex: businesses range from independent to franchises to emerging chains to Titans of QSR, and each business has different needs and complaints regarding the current model of third-party food delivery.

Some members of the industry are seeking the bottom line of profit, while others are looking for top-line sales and incremental lift. The brand also comes into play, and profit is always a factor. The guest connection could also change the entire landscape of food delivery over the course of the next few years.

A few brands are taking matters into their own hands. Third party delivery can deeply cut profits, so fast-casual restaurants like Modern Market and Panera Bread are investing in their own ordering and delivery platforms. This move is risky, as it could limit the company’s competitive potential. But the choice ensures that the restaurant can maintain brand continuity and better address customer concerns regarding the food delivery process.

Third party delivery providers have a fiduciary responsibility to grow the business and create stockholder value. And history shows that pushback from the community can be a deterrence to the growth of these companies. The real difference here is that the dynamics of the restaurant industry does not fare well for third-party deliverers. The real future for the third-party delivery companies lies in the development of their own foodservice brands —whether they are cloud and virtual kitchens, or full on commissary systems that can meet massive demand. In my video report from last November, I break down the idea of how third-party restaurant brand development is the real gold rush for likes of Uber and GrubHub.

3 Tech Companies Revolutionizing the Restaurant Industry

Modern consumers expect restaurant operators to use and fully integrate cutting-edge technology into their business model. However, most restaurant operators in the industry find themselves unable to keep up with today’s constantly evolving tech trends.

On the latest episode of The Barron Report, host Paul Barron chats with three emerging companies that are handling the necessary tech shifts for operators so that the restaurant industry can focus on doing what it does best: making delicious food.

Sterling Douglass is the co-founder and CEO of Chowly, a first-of-its-kind company that helps restaurants lower the cost of labor and improve margins by fully integrating a restaurant’s third-party online orders into its point-of-sale system. Simon Bocca, the COO of Fourth, has helped his company grow into a comprehensive provider for practical restaurant and hospitality management solutions. As the founder and CEO of next-generation software platform Harri, Luke Fryer is dedicated to finding employee-facing solutions for labor-related challenges in the hospitality industry.

Douglass notes that third party delivery companies are beginning to consolidate and become more amenable to restaurants. “Third parties are moving away from the growth-at-all-cost phase. Tech companies have tried to get into the virtual kitchen space and fail—they have much more success helping restaurants and using technology. You need a marriage of both.”

“Restaurants need to differentiate themselves by making the customer experience right for that business,” says Bocca. His company, Fourth, provides data dashboards for restaurant operators so that anyone at any level in the company can examine the data, troubleshoot problems, and plan accordingly. “Everyone is fighting for the same customer.”

“All of us, regardless of age, have been incorporating these trends and behaviors into our daily lives,” says Fryer. He contends that operators need to start treating employees as consumers to help stabilize the industry-wide retention problem. “The issue is that if we’re not putting technology in front of our employees that engages them and satisfies them, then that has a direct correlation to retention. It’s the industry’s biggest challenge by far.”

Learn more about these three breakthrough companies and how restaurant operators can address today’s tech challenges in the above episode of The Barron Report. And if you would like to keep listening, check out The Barron Report on iTunes Now!

Produced by:

Paul Barron

Paul Barron

Editor-in-Chief/Executive Producer