Delivery Apps and Restaurants—A Sustainable Relationship?
Photo Souce: PxFuel
During the Covid-19 pandemic, one of the hardest-hit industries was the foodservice industries. With the fear of infection and state ordinances limiting capacity (if they were allowed to open at all), restaurants struggled with the sudden lack of revenue. In fact, as of December 1st, 2020, over 110,000 stores had to close for good because they couldn’t weather the storm (National Restaurant Association). To stay afloat, restaurants had to adapt to the new landscape. One of these ways was the shift towards take-out and delivery.
In the era of the app-driven lifestyle, online food ordering is rising meteorically. In fact, digital ordering has grown 300% faster than dine-in ordering (Upserve). There doesn’t seem to be an available statistic that fully tracks online ordering trends in the pandemic across all platforms, but when it comes to restaurants being tracked by restaurant software Upserve, there was a 169% increase in restaurants opting to make an online ordering option available, and those that did saw an extremely high rise in sales. To stay afloat, restaurants have had to switch to online ordering.
As some restaurants adapted to the new landscape of online ordering, some had turned to online apps. There aren’t very cutting edge, robust statistics about the issue, but according to a 2018 survey, 52% of online orders were done through the restaurant and not through a third-party app like Grubhub, Doordash, or Uber Eats (Restaurant Dive). That would mean just under half of the online take-out orders were done through third-party apps. This statistic could have changed since the start of the pandemic and as restaurants have had some time to set up their own online ordering infrastructure, but it cannot be stated either way for sure.
Third-party apps can provide a lot of value to restaurants looking to start their online presence. The app already has the online storefront in place and the logistic network to make sure that the food gets to the right place instead of having to hire extra delivery drivers or having someone set up online ordering for you. Also, if you have a listing on third-party apps, you are sure to reach hungry browsers. Third-party delivery apps are especially popular among millennials. In fact, 41% of them use take-out apps to order online. So, it seems like an easy decision on paper. However, the biggest hurdle is the fees. While the commission structure varies by app, third parties tend to take 15-30% of revenues (LAist). Restaurants tend to have very slim profit margins, about 6% on average, so restaurants could even stand to lose money on every order.
Different apps have had some promotions during the pandemic that have aimed to alleviate some of the struggle or promote small businesses. For instance, some apps waived or halved commission fees for a period of time or set up discounts to incentivize customers into supporting restaurants, but these promotions were short-lived. Some states, such as Massachusetts, set up a 15% commission cap for a couple of months. However, this was temporary, and one app is currently being sued for not adhering to the guidelines (Eater Boston). On some level, this might seem ironic, since many of these apps’ marketing material during this time postured how they were here for small businesses during the pandemic, including enticing customers to support their favorite restaurant through their apps and services.
Now, of course, this isn’t to say that apps shouldn’t charge commissions for their services or the commission fees are evil on their own merit at all. Third-party apps are providing a service to restaurants. However, given the current framework, it seems unsustainable. If the restaurants can’t make money off of third-party app commissions, then they won’t be able to stay afloat. The solution for them would have to be to make their own online platform and promote on their own. There is definitely a market for it too. 70% in a consumer survey said that they would rather order directly from the restaurant than go through a middleman. Surely, there can exist a world where food delivery platforms and restaurants can prosper together since as it stands, restaurants are more incentivized to start their own platforms and cut the commission fees out. If restaurants keep leaving third-party platforms, then the platforms have to change to stay afloat themselves. In the meantime, if you plan to order and you want to make sure that the maximum amount of money goes to the actual restaurant, check to see if there is an online ordering platform of their own or a number you can use. With dining out still not at its former capacity, restaurants are struggling more than ever, and hopefully they’ll be able to find innovative solutions to keep their doors open.
Rose Smith is the blog editor of Twenty-two Twenty-eight. When she isn’t writing about the world around her, she is often found listening to music, watching movies, and going on walks with her dogs.