Third-party delivery services have been a blessing and a curse for restaurants. They bring equal parts opportunity and challenge to the industry as it navigates its comeback from COVID while also battling high labor costs, worker shortages, and inflation.
The strength of a third-party delivery service lies in its ability to allow customers to browse multiple menus and food options from a single, user-friendly platform. As a result, restaurants lacking better options have flocked to these services, and for many of them, it has been predominantly a win-win situation. These services can help increase sales and decrease labor costs especially when limited resources hold back restaurants from launching their own delivery. They have also birthed the concept of the ghost kitchen, which can be as simple as a delivery-only restaurant or as complicated as a multi-concept shared kitchen that fulfills orders for multiple virtual brands existing purely on third-party service apps.
The problem with third-party delivery services is that they end up hurting the same industry they depend on for their success. Exuberant fees eat upward of 25 percent of the restaurant’s sales, forcing them to raise prices in order to compensate and eliminating their ability to stand out from similar restaurants in their area. From the third-party marketplace perspective, it doesn’t make a difference whether restaurants succeed or go out of business, just as long as customers continue to place orders through their app with the restaurants that are able to survive on their platform. All the while, in order to make ends meet, restaurants must do all the legwork, pay for infrastructure and facilities, while giving up about a fourth of their revenue to have a “partner” in their business.
Aside from the high costs, third-party delivery services are stripping restaurants of something far more valuable: the ownership of their guest relationship. Every business depends on knowing its customer in order to grow, but third-party delivery services purposefully cut off the customer from the restaurants so that they own the relationship with these guests instead. This is a considerable challenge as it takes away restaurants’ ability to achieve long-term success by knowing who their customers are, how their needs are evolving and how to adjust their menu to serve them better in the future.
As if that wasn’t enough, third-party platforms are launching their own ghost kitchen brands stirring the customers straight to them, which makes them direct competitors to the restaurants they purport to serve. This trend is powered by the incredible amount of data third-party services are gathering from orders placed through their platforms including information about when customers order, along with demographic and psychographic data coming from other sources. They truly know more about each guest than any restaurant will ever know by aggregating and gatekeeping huge amounts of data. This uneven playing field is really turning this relationship from cooperative to predatory.
To bring balance to a relationship with a third-party vendor, restaurant owners and operators can start by putting their needs first and taking control of their technology. It begins with assessing their ability to launch their own pickup, dine-in and delivery services and choosing a technology-based solution that allows for seamless guest service. Solutions like this exist in the market today and cater to restaurants’ needs at a fraction of the cost of a third-party delivery platform while offering far more lasting value. If the technology is easy for guests to use, frictionless and streamlined, it will be easy to wean customers away from third-party platforms and convert them to the restaurant’s personalized platform.
Next, restaurants must view each third-party interaction as an opportunity to convert that customer to placing their next order with the restaurant directly. Customers want to support their local businesses and they would rather see the money they’re spending stay in their community. By adding fliers or discounts into the bags of the orders placed through third-party services, restaurants can entice their customers with incentives to order directly from the restaurant next time. It’s imperative for restaurants to build a strong customer contact system and use it to stay in constant communication with guests. This makes guests feel valued and in turn, will encourage them to drift from third parties. This is what grows businesses and builds long-term value, but to do those things, restaurants first need to own their customer data.
Finally, it’s time to compete on price—again! Third-party services have created the false expectation that guests don’t care how much they spend on food if it can be delivered to them when they want it. That is not always true and much of the third-party vendor’s success has been powered by skewed incentives funded by hordes of investor cash. In the real world, price matters, especially in these times of high inflation. To combat inflation, restaurants need to think about how to minimize third-party costs and pass those savings to customers and team members. In the long run, that will help their business go further.
These steps and practices might seem like new skills that restaurants have not had the time to think about, let alone be ready to implement, but it’s worth the effort. The right technology is out there to help restaurants take control of their business and build up their first-party ordering capabilities so they can stand on their own feet. Doing anything else really puts their future in the hands of others. Does that mean the end of third-party services? No, but it should help bring more balance to the marketplace and allow restaurants to protect their interests. After all, in the relationship with third parties, the restaurants are taking the biggest risk.
Bob Vergidis serves as the chief visionary officer of pointofsale.cloud and sits on the advisory board of the Interactive Customer Experience Association. He developed one of the first food mobile ordering solutions in 2000 and one of the first cloud point of sale systems. With his mobile ordering solution, Vergidis has assisted several restaurants and retail businesses adopt leading-edge technology to move their companies forward.