Last month, DoorDash launched it’s own in-app advertising network, in effect selling consumers’ hunger to the highest bidder. For the third-party delivery conglomerate—now larger than every restaurant other than McDonald’s according to public market capitalization—the new way to drive revenue from restaurants is a no-brainer. In fact, outside of restaurants, many leading retailers are expanding into the advertising space; delivery competitor Instacart launched a similar platform earlier this year.
But while DoorDash positions the feature as a benefit for “mom-and-pop shops”—positioning they’ve been riding since their Sesame Street Super Bowl ad earlier this year—these are the very businesses who will suffer the most. What chance does a local burger joint have against McDonald’s “super-sized” marketing budget?
I experienced this personally last week. Searching for one of my favorite delivery brands (Starbird, based in San Francisco), I found a rival chicken concept stealing the top spot in the search results AND offering $5 off an initial order (in some cases, paid for by DoorDash). It’s hard enough for restaurants to make money on third-party marketplaces and to earn repeat purchases from those very promiscuous customers; that becomes nearly impossible if competitors can snipe those same customers.
All this makes first-party digital ordering and loyalty programs—the primary tools restaurants have to fight back and lock in direct relationships with their customers—more critical than ever. This is why we have been prognosticating the rise of Loyalty 3.0.
Mega brands can make competitors of any size irrelevant in the search queue by outbidding and layering in steep discounts and free delivery. These additional discounts are a much easier pill to swallow for the behemoth brands that are able to negotiate more favorable commission rates and afford bigger promotional budgets—in fact, DoorDash often subsidizes these promotions to win the preferential business of the largest restaurants.
“Virtual restaurants” and “ghost brands”—those whose cost structure and margin are built for delivery marketplaces—will accelerate their market share gains with these new ad tools. But traditional restaurants already struggle to make money from the marketplaces. Nonetheless, many restaurants claim they simply cannot afford to shut off 3PD it now makes up too much of their revenue. For these brands, their survival just got even more tenuous. Their revenue from 3PD could drop to zero overnight if they refuse to pay for new advertising or simply get outbid. There are countless stories of “overnight successes” built on Instagram or Google algorithms who crumbled with the flip of a switch from the behemoth. Restaurants are now facing a similarly precarious fate.
Why put money in DoorDash’s pockets when you can keep more money in yours?
Focusing on getting your guests to order directly is the only way to compete against this type of predatory pay-for-play advertising on third party platforms.
Here are a few ways restaurants of any size can drive first-party sales.
Make sure your owned digital channels are easy-to-use: Gone are the days where it is enough to simply check-the-box by offering online ordering. Customers desire convenience which is why cart abandonment is a problem not unique to eCommerce. Convenience and availability is the No. 1 reason they use third-party platforms to begin with. Digital ordering should be optimized for any channel whether via app, online, or mobile. Menus should feature bold images and responsive touchpoints. Above all the checkout process should be frictionless and get your customer from menu to order confirmation in as few clicks as possible.
Incentivize direct ordering with a unique loyalty program: Sure, DoorDash tools allow restaurants to give coupon-like discounts and dollar-offs but those types of offers only devalue the brand while sacrificing long term customer relationships for short term gains. The third-party marketplace is noisy and cut-throat—nearly everyone is giving something away on top of already miniscule profit margins. It takes more than rote rewards to build customer loyalty. Offering unique and experiential rewards differentiates while allowing customers to build an emotional connection. Perks like secret menus, VIP events, and swag give customers ample reason to order directly without giving away unnecessary discounts.
Personalization is key: Customer data is invaluable, which is why third parties are fighting so hard to keep it from you. It enables personalized 1:1 marketing so you can deliver relevant messaging to your customers on their preferred channels. Every time an order is lost to a third party, an opportunity is lost to use that data to paint a more complete picture of your customers’ habits and behaviors. If you know what your customers order, how much they spend, when they come in, and through what channel they want to be messaged to, you can deliver hyper-targeted personalized marketing that resonates and ultimately delivers revenue-driving results.
Zach Goldstein is the CEO and Founder of Thanx. Founded in 2011, Thanx is a leading guest engagement and retention platform helping restaurants and retailers become more digitally agile to maximize customer lifetime value. Prior to earning his MBA from Stanford, Goldstein honed his experience in the customer loyalty space at Bain & Company, helping companies perfect their retention and reward strategies as early as 2005. Goldstein has earned a reputation as a vocal thought leader in the restaurant-tech space through his Food Fighters podcast and authorship such as the widely-revered Four Horsemen of the Restaurant Apocalypse?