Since Dominos launched its famous “30-minute or less” delivery guarantee in 1984, the pizzeria has dominated the world of food delivery. A pizza restaurant’s delivery value proposition was unrivaled because:
- Pizzas are easy to transport.
- Pizzerias hired staff specifically for delivery.
- Delivery drivers used an insulated carrier to keep the pizzas hot.
- Pizza restaurants limited delivery to specific areas.
However, in recent years, customers have demanded more variety with their food delivery options. As a result, delivery service companies like Postmates, DoorDash, Uber Eats, and GrubHub have started to pop up in cities across the world.
These companies have streamlined delivery logistics, leveraged peer-to-peer networking, developed integrated delivery technology, and found ways to increase the portability of many types of food. The advancements these brands have made in food delivery have helped them become household names.
Food delivery services have lowered the barrier of entry for local restaurants to start delivering food to their surrounding areas. If you’re a restaurant owner, you may be wondering if you should partner with these meal delivery services.
What sort of profits can you expect? How much labor and internal cost will you accrue? We’re answering all of your questions below so you can decide for yourself—and prepare your staff for changes in demand.
Customer Demand for Meal Delivery Keeps Rising
When you take a step back and look at the statistics, it’s shocking how many people take advantage of services like GrubHub and DoorDash. In a survey of nearly 3,000 people by research group Zion & Zion, 40% report using a meal delivery service at least once in the past 90 days. The main demographics of people using these services are young (63% of respondents were between the ages of 18 and 29) and from lower-income brackets.
Outside of multi-restaurant meal delivery services like Uber Eats, some restaurants are starting to introduce their own delivery services. Outback Steakhouse, Chipotle, and Panera are 3 such brands that have launched internal delivery in the past 2 years, with many other restaurants following in their footsteps.
These trends mean the average restaurant owner has 3 choices:
- Partner with an existing service (or multiple services) like DoorDash or GrubHub.
- Hire delivery drivers and promote your own internal delivery system.
- Ignore the delivery trend and continue asking customers to come to you.
Unfortunately, there is no easy answer. GrubHub works with all kinds of food styles and costs, from deliveries off the McDonald’s Dollar Menu to high-end steak dinners. It’s up to your business to decide.
Option 1: Partnering with DoorDash and Other Delivery Services
One of the main benefits of working with a multi-restaurant food delivery service is marketing. Your restaurant can get in front of new customers who might not have heard of you or would otherwise not drive past your storefront.
Customers search these platforms based on food type, location, price, ratings, and other variables that can help you land on their radar. If you meet their search criteria, you stand a good chance of landing their business.
This accessibility means you can use delivery services like DoorDash, Uber Eats, or Postmates to access new customers like never before.
However, you need to prepare for the fees that come with these partnerships. While each app has its own service fees, restaurateurs report that they lose an average of 30% of the meal costs when working with a delivery service. While larger chains can negotiate better fees because of the sheer volume of orders they bring in, small businesses should expect a hit on their profit margins.
“We put up with drivers and fees because delivery brings in a lot of new tickets and customers, and it also helps spread the word about us,” Joel Dooley, general manager at Munchiez, a sandwich shop based in Florida, tells Skift Table.
In this way, you may treat meal delivery services with the same care and expectations of a Groupon promotion. At best, you may break even, but the service provided to your customers and marketing opportunities can help brand loyalty and increase the customer lifetime value.
Option 2: Developing Your Own Delivery System
If the idea of working with an unpredictable third party and cutting out 30% of your profits for each order sounds unappealing, then you may want to consider setting up your own delivery system. This approach also comes with benefits and drawbacks.
While you won’t have to pay the fee, you will need to hire staff members to run orders across town. These positions will require an hourly wage, along with stipends for mileage if your drivers use their own cars. You may even need to invest in fleet insurance to protect your drivers in the event of an accident.
Juggling the supply and demand of your own system can become taxing. You can lose money if you hire more drivers than you need to deliver food. Alternatively, with only 1 or 2 drivers, you could create a bottleneck while waiting for your drivers to return from a delivery. Finally, with your own delivery solution, you’re responsible for all the marketing and promotions associated with your delivery.
While there can certainly be financial incentives with creating your own delivery system, the risks and investments might make it more than you want to handle.
Option 3: Staying Away from Delivery (for Now)
With the rising customer demand for food delivery options and the increasing number of restaurants offering delivery, you might feel pressure to join the food delivery trend. However, as we’ve outlined above, there are substantial risks when choosing either option. Therefore, it’s completely reasonable for restaurant owners to avoid offering food delivery at all—for now.
If you’re not sure whether you want to invest in delivery or partner with Uber Eats or another delivery provider, you may have some leeway to see how local restaurateurs and state regulators work with these companies over the new few years.
In an article for Chicago Business, Joe Cahill explained how 800 Chicago restaurant owners are pressing for new food-handling and cleanliness rules on food delivery services. In California, labor disputes are heating up as worker advocates say food delivery companies need to treat their drivers like employees, not independent contractors.
Similar problems exist across various states and cities regarding this industry and how to treat both restaurant owners and drivers fairly.
The industry of multi-restaurant delivery services could look significantly different within a few years, depending on where you live. You may want to see how regulations pan out in your area before choosing the best brand to partner with or deciding to create your own delivery system.
Make the Right Choice for Your Restaurant
Look at your restaurant’s gross margin and the estimated costs of partnering with a delivery service or hiring an internal delivery driver. How much can you afford to cut into your bottom line? How many deliveries could you afford to make before you started losing money? Are the new sales worth it?
These are just a few questions to guide your discussion with your general manager and accountant as you consider whether to start offering food delivery.