The restaurant industry has experienced a massive shift. Customers can now quickly and easily order their food online and have it delivered to their homes faster than ever. In the last five years alone, online food ordering and restaurant delivery has grown over 20%. And it’s not stopping any time soon. Online food delivery is estimated to grow to more than $220 billion by the year 2025, which equates to about 40% of total restaurant sales.
From these statistics we can conclude that online ordering is no longer just the way of the future—it is happening now. How restaurants should offer online ordering however, is still up for debate. Restaurants have the option of either setting up their own internal online ordering system through a website or app, or they can choose to use popular third-party services such as GrubHub, DoorDash, UberEats or Postmates. These third-party services offer a platform for customers to order delivery from a list of restaurants in their area.
Each third-party company is slightly different when it comes to process, but overall the exercise is the same. When a customer goes to the third-party website or app to place an order from the restaurant of their choice, the order is sent directly to that restaurant. A driver who works for the third party then picks up the order from the restaurant, and delivers it to the customer’s location.
Third-party services such as DoorDash are simple, effective, and have been around for over 20 years, but have only recently taken the industry by storm. This is because technology and digital marketing has now advanced, and a younger audience now has access to this convenient food ordering option—63% of young adults use third-party delivery services. However, there are also significant drawbacks that come with outsourcing online ordering and delivery, so choosing between launching an internal online ordering service or utilizing a third party depends on your restaurant’s circumstances. To help you make the best decision, consider the following pros and cons with your restaurant in mind.
Using a Third Party Service (Pros & Cons):
✔ Marketing: Using a third party for online orders can bring in new business and significantly expand your restaurant’s exposure. To put things into perspective, GrubHub had over 22 million users in 2019, with DoorDash not far behind at over 19 million users. Since each of these platforms comes with its own loyal user base, getting in front of new, hungry customers can help generate business—an especially valuable benefit for small restaurants and startups.
✔ Increase in Sales: The restaurant industry has experienced a 20% increase in revenue from third party delivery platforms, with many restaurateurs publicly reporting an increase in revenue between 5-30%. As these platforms increase in popularity, restaurants can expect an even bigger increase in sales.
✔ Expertise: Third-party platforms provide expertise and resources that your restaurant may not yet have. You’ll benefit from a network of delivery drivers, packaging materials, delivery tracking, secure payment methods, and more.
✔ Convenience: Not only do food delivery platforms provide convenience to the customer, it also is convenient for you as a restaurant operator. By signing up with a third-party service, you don’t have to worry about setting up and managing your own online ordering site, hiring in-house drivers, or all the associated costs such as driver insurance, car maintenance, and fuel.
✔ Time: Outsourcing delivery allows you to focus on making great pizza.
✘ High Commission Fees: Commission fees can be high, with restaurants paying 15%- 30% for each order placed through third-party platforms according to CNN Business reports. The profit margin in the restaurant industry sits at around 5%, so unless they raise prices, some restaurants may find themselves delivering food at a loss.
✘ POS Integration: Most POS systems weren’t designed to receive orders from third party delivery platforms. In some cases, restaurants have to resort to using a tablet to run the delivery apps, and staff then need to re-enter all the orders individually into the POS system. A solution to this can be finding a POS system that can funnel third party orders directly into the POS.
✘ Giving Up Control: Hiring a third-party service means giving up control of your delivery experience, and trusting another company to treat your customers as well as you would. Since 80% of customers say they’ll blame the restaurant rather than the delivery service if anything goes wrong, restaurant owners have good reason to feel concerned. You will also lose an avenue of communication with your customer, and may miss out on receiving essential feedback.
✘ Delivery Flaws: Your food might be hot and ready for pickup, but sits on the counter for a long time waiting for a late delivery driver. If the food arrives to the customer cold, spilled, or late, the restaurant will likely get the blame and will have to shoulder a bad review. As mentioned previously, customers are quick to blame the restaurant before the delivery service. You can mitigate to an extent ensuring you use proper packaging.
✘ No Tips: On most third-party delivery platforms, users are given the choice to leave tips, but only to the drivers. There's no option for tipping the restaurant establishment.
✘ Kitchen Backlog: Delivery orders can easily overwhelm your kitchen, especially if a large group of customers unexpectedly walks into your restaurant. Although you do have the ability to turn delivery options off during peak hours, you can never predict when your off-premise customers will clash with your on-premise customers.
Internal Online Ordering Website (Pros & Cons):
Many restaurants opt to host their own online ordering website, where customers can place orders directly. This also means that delivery services are provided by your own drivers.
✔ Customers Prefer Ordering From You: A jaw-dropping 78% of US delivery orders are placed through the restaurant itself, while only 22% of orders are made through third-party delivery services. That means that if your restaurant was to set up an online ordering and delivery service of its own, you could potentially reach a large number of customers who want to directly order from you.
✔ Keep Control: By running online ordering and delivery services in-house, your restaurant has complete control over the entire ordering and delivery experience. For example, you could choose to implement upselling features on your site, to increase your margins even more. Since most profits come from the beverages, appetizers, and desserts that are upsold with the main meal, this can be a great way to increase your revenue and provide helpful options to your customers.
✔ Open Communication: Third-party deliveries come with communication barriers that keep distance between you and your customers. By offering the entire experience from beginning to end, you stay in close contact with them and will likely find it easier to obtain valuable feedback.
✔ Long-Term Cost Savings: Although setting up an online ordering and delivery operation of your own does require a serious investment, not having to pay commission fees can make it worthwhile long term.
✔ POS Integration: Updating your online pricing and meal options is much easier and faster to do if you operate your own ordering site. If your online ordering is integrated with your POS, your pricing and out of stock items can even be updated automatically!
✘ Time and Cost Investment: Setting up your own online ordering site and delivery service requires an investment of time and money. Delivery drivers need to be managed, vehicle maintenance, insurance, and gas costs need to be budgeted for, and an online ordering site has to be set up and maintained properly.
✘ Accountability: If something goes awry at any point of the ordering process, you can’t blame a third-party company for the mistake. You have to take full accountability and make sure it doesn’t happen again.
✘ Popularity: In spite of the high number of orders through restaurant apps or websites, not signing up with delivery partners may result in less visibility and fewer potential customers.
Both third-party and in-house online ordering and delivery options come with advantages and drawbacks, so making a decision that is best for you depends on your business model. Regardless of whether your restaurant is just getting started, or if it's been in business for years, it’s important to weigh out all your options. A last piece of advice would be to think about how your POS system will handle incoming online orders in general. Finding a POS system that integrates with both third-party orders and orders coming from your own website can save you a lot of time and stress in the future.
Losing orders online? Take this online ordering site audit to find your weak spots.
Posted on Wed, Jun 03, 2020 @ 07:06 AM.
Updated on December 2, 2020 @ 10:37 PM PST.
Miriam is the Marketing Content Specialist for SpeedLine Solutions and is always on the hunt for the next great topic to share with restaurant entrepreneurs all over the world. Whether it comes to writing a blog post or being a mother to her newborn, Miriam always leaves everything on the field.