Why Restaurants Pay Ultimate Price in Online Delivery Marketplace

When COVID-19 erupted earlier this year, scores of restaurants relied on online delivery marketplaces to deliver meals to their customers. The role these marketplaces have played during the pandemic, delivering restaurant orders right to people’s front doors, has become invaluable to many consumers. But is it invaluable to restaurants?

While restaurants may increasingly rely on online delivery marketplaces, they can hinder a restaurant’s overall profitability – commission fees are sometimes as high as 30 percent of the basket. Pre-COVID-19, paying expensive delivery fees was not an issue as food delivery was not a large part of a restaurant’s revenue stream. 

Fast-forward to today, in the middle of a global pandemic, delivery orders now make up 60, 70 or 80 percent of business revenue for restaurants. Suddenly, paying a 30 percent commission to an online delivery marketplace cuts into profitability in a significant way. It is a hard reality to swallow considering COVID-19 already obliterated profits for many restaurants, restaurants that continue to face in-person dining bans or strict capacity limits. As contradictory as it sounds, delivery services pose a real threat to the restaurant industry. And not just in terms of profitability.

Giving Up Customer Data

Dependence on delivery marketplaces results in restaurants losing control over their customer data. Restaurants lose their customers to the marketplace by essentially handing over data on them. When the data sits with a marketplace, they could then start sending a restaurant’s customers coupons to different restaurants…the competition. For example, if a delivery company knows restaurant A’s customers like ordering delivery from restaurant A on Taco Tuesdays, they might start sharing more options with that customer, like lower priced Taco Tuesday specials at restaurant B. In that scenario, restaurant A’s customer data essentially then helps power their direct competitor.

Helping the competition is just the tip of the iceberg when it comes to giving up control of customers to the marketplace. Restaurants also lose their brand control once they opt into a marketplace. If the food arrives a mess, cold or late, while that may not be the restaurant’s fault, and it might be the fault of the company delivering the food, the customer on the receiving end will likely blame the restaurant and decide not to order from there again. Restaurants would have no visibility into that situation – they would lose complete brand control in the delivery process, as well as lose a customer relationship as a result. 

Another surprising result of giving the marketplace access to customers is that there is no stopping companies who play in that space from creating their own “dark kitchens.” They know what a restaurant’s customer base likes and when they like it, so what is stopping them from producing the same food or meals and selling them directly to that customer? 

Diversifying Away from the Marketplace

Even in a post-COVID-19 world, we will still be navigating a new normal, and people will still want to order delivery. Behaviors learned are often behaviors people stick with in the long run. The mere convenience of restaurant delivery is not something many people will be willing to part with, even once it becomes safer to be out in public. Therefore, it is critical that restaurants diversify away from delivery marketplaces to avoid losing customers and data to it. 

The first option would be to take delivery completely in-house. Before going in this direction, it is important for restaurants to determine if they have the volume of deliveries or demand to justify an in-house delivery team, so it may make more sense for larger chain restaurants over local, small restaurants. Repurposing employees, who may have worked as servers or hosts pre-COVID-19, to in-house delivery drivers for a restaurant helps restaurants avoid laying off or furloughing them, keeping them busy enough to continue to be on the payroll. 

Repurposing employees through in-house delivery programs is a great way to pivot during these uncertain times, and cutting-edge delivery orchestration technology can support it. Innovative technologies, which can orchestrate every, single element of the delivery and fulfillment process, can help power the in-house delivery model for restaurants, essentially giving restaurants the ability to optimize and scale their capacity, efficiency, and speed in deliveries. The technology improves every aspect of internal fleet management in a way that a human might not be able to do. With apps that improve and give more real-time visibility into different elements of the delivery cycle, restaurants can be assured that their delivery workflows are on point and top-notch.

However, bringing delivery fully in-house is an extreme measure – it is difficult to manage and has many liability and operational issues to consider. While it is best left to bigger players in the restaurant space, smaller players can diversify away from the marketplace, too, with an alternative option that is also powered by the same technology. Restaurants can drive orders through their own ecommerce and find someone else to do the deliveries for them.

Some marketplaces act as delivery-as-a-service companies, and will deliver restaurant orders for a flat fee, not a percentage of the basket, which benefits restaurants because they retain more of their profits and don’t give up customer data to do it. Technology helps to power the process by taking orders and deciding which delivery service is available and can deliver in the best time and most speed to the customer. The technology will then automatically dispatch out to third-parties who meet that criteria.

These are two excellent options to avoid reliance on the marketplace and giving up valuable data. Keeping customer data also has the added value of enabling restaurants to offer customers coupons to entice them to order, upsell to customers and even use the relationship with the customer expand into a network of other consumers.  Data is everything. Restaurants need to be very weary of offering up all their valuable customer data to the marketplace. There is a high price to pay for it.