In recent years, the restaurant industry has witnessed a seismic shift towards online food delivery. This trend, which began well before the COVID-19 pandemic, has seen online food delivery grow at an astonishing rate. Between 2014 and 2016, it expanded 300% faster than traditional dine-in services. Experts even projected that online deliveries might soon constitute up to 40% of a restaurant's total revenue.
The pandemic, with its restrictions on indoor dining, only accelerated this trend. Restaurants, in a bid to stay afloat, rapidly adopted online food delivery, often relying on third-party apps to manage and fulfill customer orders. Current projections suggest that by 2026, the online food delivery market could be worth a whopping $96,372 million.
The Double-Edged Sword of Third Party Delivery Apps
While these apps provide a platform for restaurants to reach a broader audience and offer the convenience of home delivery, they come with a catch - hefty fees. These fees can significantly eat into a restaurant's profit margins. Before jumping onto the third-party platform bandwagon, it's crucial for restaurant owners to be fully aware of the costs involved.
Today's tech-savvy customers expect a seamless digital experience when ordering food. A survey by Hospitality Technology revealed some telling figures:
55% of participants valued an easy online ordering process.
53% emphasized the ability to place food orders online.
46% preferred ordering from their mobile devices.
45% expected the restaurant to offer food delivery.
Given these expectations, many restaurant owners feel compelled to use third-party apps like PostMates, Uber Eats, and Grubhub. These platforms promise a quick setup, a vast network of delivery drivers, marketing opportunities, and access to a large customer base. However, the reality is often less rosy. These apps are notorious for their high delivery fees and hidden costs, which can significantly reduce restaurant profits.
Interestingly, the same survey by Hospitality Technology found that 75% of customers would rather order food directly from the restaurant than through a third-party app. This preference is understandable, given that orders through these apps can be 25-91% more expensive than direct orders, as reported by the New York Times in 2020.
A Comparative Look at Delivery App Fees
Third-party delivery platforms have a myriad of fees that they charge restaurants. From delivery fees to marketing and onboarding fees, the costs can quickly add up. For instance:
Custom Branded App: While costs can vary, creating a custom app for your restaurant can eliminate delivery commission fees and offer complete branding control.
DoorDash: Charges between 15-30% depending on the membership plan.
Grubhub: Also charges between 15-30%, but the exact commission fees are not publicly listed and can vary based on several factors.
Uber Eats: Charges between 20-30% based on the chosen pricing plan.
Postmates: Typically charges around 30%.
Caviar: Charges between 20-30%.
The Changing Landscape
The high fees charged by third-party apps have not gone unnoticed. In response to the pandemic, some of these platforms temporarily waived certain fees. However, as the pandemic dragged on, these fees were gradually reintroduced, putting additional financial strain on restaurants.
Recognizing the challenges faced by restaurants, several cities in the U.S. have introduced regulations to cap delivery app fees. For instance, both San Francisco and New York City have implemented a 15% cap on such commissions.
The Way Forward
While online ordering and delivery app fees can be a significant drain on a restaurant's profits, there's a silver lining. The best way to circumvent these fees and boost profit margins is to encourage first-party orders through a branded app or website.
While third-party delivery apps offer convenience and a broader reach, they come with significant costs. As the restaurant industry continues to evolve in the digital age, it's crucial for restaurant owners to weigh the pros and cons and make informed decisions that best serve their business and customers.
