Should I Use A Third-Party Delivery Service or Create My Own?

By: Xilian Sansoucy

11 Minute Read

Jan 29, 2020

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The demand for food delivery from restaurant customers has steadily climbed in the past three years, and restaurants are facing 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 just for my restaurant? 

Why's it important to adapt to this chance? According to Technomic, revenue generated by off-premise dining makes up 44% of all restaurant sales, with 25% of those orders accounting for delivery. 

Restaurant Business says that 21% of consumers are increasingly replacing carryout orders with delivery orders, and for those between the ages of 18 to 34, that percentage goes up to 30%. 

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,” Jeremy says. 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 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.  

Everything You Need to Know About Using Third-Party Delivery

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 its serious perks. Most importantly, 63% of young adults use third-party delivery apps, according to a study conducted by Zion & Zion

Using a third-party delivery service is great for restaurants just starting out, 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 some third-party delivery companies, which expands your 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 even downloading the third-party app. 

Some of the biggest players in the third-party food delivery space are Uber Eats, DoorDash, GrubHub, Postmates, Caviar, Seamless, Deliveroo, FoodPanda and BiteSquad.

A nationwide survey of almost 3,000 U.S. consumers found that roughly 38% of respondents selected GrubHub as their top choice. Following GrubHub, UberEats came in second place with 36%, and DoorDash at approximately 20%. 

The below chart, created by Restaurant Business Online, is a great visual representation of the biggest companies in the third-party delivery space, showing by average spend per transaction. The average amount consumers spend with third-party delivery is $34, though it’s worth noting that different third-party delivery platforms attract different types of spenders. For example, those using Caviar or DoorDash tend to spend more than those using Uber Eats or Postmates. 

So how does third-party delivery actually work? These companies have consumer smartphone apps that aggregate an endless stream of restaurant options for hungry diners to choose from. You upload your menu and crucial information, and guests order directly from their phones to your in-house tablet, where an expediter calls out their order to the kitchen. In some cases, restaurants have had to hire an extra person to spend a lot of their time packing up delivery orders and getting them ready for a driver to pick them up. 

If you choose to work with a third-party delivery vendor, it’s standard for them to take a percentage of every order they send your way. Uber Eats, for example, charges a fee of approximately 30% of every check that came to the restaurant via Uber Eats. This can be an intolerable cost for restaurants who operate on razor-thin margins. 

Additionally, in recent months, the major players in the third-party scene have come under fire for questionable business practices and high fees that contribute to restaurant closures across the country.

Grubhub/Seamless was hit with a class-action lawsuit this May by restaurants who were charged fees when a customer would call or interact with a restaurant via Grubhub but not place an order.

Restaurants have begun to fight back against third-party delivery vendors’ fees and business practices: On June 27th, New York City hosted a public hearing where restaurant owners, operators, managers, and customers were invited to share their experiences and grievances with third-party delivery vendors in front of city officials. As New York City Councilman Reginald Johnson told Nation’s Restaurant News in an interview about the hearing, “Restaurants and eateries are a critical part of our private sector. We feel it’s the committees’ responsibility to understand what they’re going through.” 

The demand for delivery isn’t going anywhere, and both restaurants and third-party delivery vendors are still trying to get it right: Uber reported $1 billion in losses this past quarter, mainly attributed to their delivery arm. 

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 78% of delivery orders are placed through the restaurant itself, while only 22% of orders are placed through third-party delivery companies. 

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 system gives you greater control over the guest experience, ensuring that at-home diners can enjoy the same high-quality experience they would also have had they chosen to dine on site. 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.

“Right now, restaurants think they’re generating a lot of business through using third-party delivery services, but in three years, they're going to realize that they gave away 30% of their business paying commission for these services,” says Jeremy Seaver. “We have our own delivery drivers. We do it ourselves. We do not have third-party delivery drivers.”

“Restaurants substantially underestimate the financial benefits of having their own online ordering system,” says Vishal Agarwal, the Founder & CEO of Checkmate, a company that integrates third-party online orders into a restaurant’s point of sale. 

“Almost 80% of the operators believe having a website is important, but we have passed the stage where their consumers visit their websites for information purposes only. If they like what they see, they will order directly,” says Vishal. 

Choosing to develop an in-house delivery system for your restaurant involves some careful analysis, budgeting, and planning. Here are some considerations and questions worth addressing if you’re interested in developing your own delivery service rather than leaning 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 couriers to use their 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.

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.

4. Insurance

How will you insure your delivery drivers? 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 which cover general liabilities, and workers compensation in case the driver gets injured.

5. Your Packaging

Make sure the experience your customer is delivered when opening up the package or bag aligns with your restaurant brand. If your fries are soggy by the time your driver gets to someone’s front door, they may never want to eat the restaurant's food again — especially not via delivery.

6. Designate Space for High-Volume Deliveries

Have a tight kitchen? You still 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 couriers to find.

7. Food Storage and Transportation

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.

8. A Reliable Delivery Tracking System

You will 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 un-tracked delivery system could lead to long wait times, theft, or unruly delivery overhead. Find a delivery tracking system that's right for your business.

9. Establish a Payment Process

You will need to determine when the customer submits 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?

10. 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? Should they use their own phone, and you’ll then reimburse them for minutes used while at work? 

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. If you're in need of funding to create a delivery arm for your restaurant, Toast Capital offers restaurants access to fast, flexible funding for any restaurant need. Toast restaurants may be eligible for financing from $5K to $250K. Toast Capital Loans have one fixed cost - with no compounding interest and no personal guarantees. Better yet: Once approved, you can receive your funds as soon as the next business day.*

The Impact Delivery Has on Restaurants Across the Country

Cowen & Co. predicts that the U.S. delivery market will grow from $43 billion to $76 billion by 2022. It should come as no surprise that the booming food delivery industry is mainly driven by young people. In fact, half of consumers ages 55 and older don’t have much of an interest in food delivery and prefer dining in.

According to a study by Mintel, 87% of Americans who have used third-party delivery services say it has made their lives easier, with roughly a third of these Americans using services like these at least two times a week. 

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 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.  

*Toast Capital Loans are issued by WebBank, Member FDIC. Loans are subject to credit approval and may not be available in certain jurisdictions. WebBank reserves the right to change or discontinue this program without notice.

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