The rise of third-party delivery has brought more than just convenience. It’s brought a financial puzzle for restaurants. Fees for delivery and marketing are stacking up alongside commissions of up to 30 percent and making profitability an uphill battle, especially amid elevated food and labor costs.
“Economic theory would have it that as a company increases their market share, they’re able to reduce the fees they charge, but that hasn’t happened,” says Andrew Rigie, executive director of the New York City Hospitality Alliance. “There’s a lot of frustration with the way the market evolved. Restaurants feel like they can’t afford to be on the platforms. They also can’t afford to not be on these apps. So, they end up increasing their delivery menu prices to offset all of those fees.”
A 2023 study from Gordon Haskett Research Advisors found the average menu pricing premium across the industry was approximately 20 percent higher than the cost of dine-in, with quick-service brands running a 26 percent premium and casual-dining brands running an 11 percent premium.
Consumers have shown an enduring willingness to pay more for convenience. And while aggregators have struggled to prove they can earn a consistent profit, their sales have continued growing at an impressive clip, even in the face of high inflation and a challenging economic climate. Still, companies like DoorDash, Grubhub, and Uber Eats say some restaurants are deterring customers by charging significantly higher prices for the food they deliver, and all stakeholders could reap the rewards of reduced food markups.
Delivery companies have been trying to incentivize operators to rethink higher delivery prices without changing their approach to fees. Uber Eats alerts customers in some cities when there’s a significant premium. DoorDash has experimented with making restaurants that mark up prices less visible to customers and giving priority to those with price parity.
An internal study of more than 4,500 restaurants on DoorDash found those that mark up their menu prices can see up to 37 percent fewer sales and up to 78 percent lower reorder rates. For restaurants that mark up items by more than 20 percent, decreasing those prices by 10 percent can result in volume increases of up to 15 percent in one month and up to 21 percent in 12 months, according to the company.
VP of enterprise partnerships Vishwa Chandra says DoorDash doesn’t require restaurants to match in-store prices on its app, but it recommends they price delivery menus as close to their in-store menu as possible.
“Every restaurant can choose how they want to think about pricing, what works for them, and what’s right for them,” he says.
The company has updated its messaging to restaurants to clarify that they aren’t downgraded based on prices alone, he adds. It’s just one of many metrics the company uses when determining how prominently restaurants appear on its app.
“There are a lot of different factors that go into that, but at the end of the day, it is always around customer preferences,” Vishwa says. “So, things like popularity, speed, accuracy—all of that goes into making sure the guest is finding what fits their needs at that moment.”
Aggregators say bringing what restaurants charge for delivery items closer to what they charge in-house will keep consumers hitting the order button and amp up sales. Many restaurants say passing on fees to consumers is the only way to make delivery profitable.
“What restaurants are saying is accurate,” says Liz Bosone, VP of restaurant success at Grubhub. “This is a very slim margin industry, so we understand there’s some work they may need to do on the pricing that’s offered to consumers. That being said, it can’t be too aggressive, because we also know there’s an inflection point when a burger gets too expensive or the fees become too much for a diner.”
Some operators mistakenly assume customers will just close the app and drive to the restaurant themselves when they reach that inflection point, she adds.
“I don’t think that’s always the case. They may just move to the next restaurant when the pricing seems too far out of whack from what they’re expecting or what they usually see, so it’s something we really want to partner with the restaurant on figuring out,” Bosone says.
Rigie says there are a couple of things delivery providers could do to improve their relationships with operators, like sharing data and providing more transparency around fees and commissions. Introducing different fees for new and repeat orders is at the top of that list.
“There’s no issue if they want to charge a higher fee when they secure a new customer for the restaurant. That’s an incremental sale. It’s worth paying a higher fee for,” he says. “But if it’s a repeat customer, why are we paying them a higher marketing fee, if they didn’t generate that customer by paying more?”
Grubhub has heard similar feedback, and while it isn’t committing to making that change, Bosone says it’s a topic of conversation both internally and with operators.
“That’s the type of thing that we bring up when we do roundtables with restaurants,” she says. “We’re very active in listening to pain points and using feedback to continue improving that relationship.”
To that end, Grubhub has enhanced its analytics tools and opened up more customer data to restaurants in response to demands for deeper insights. It also has bolstered its web ordering tool with commission-free options and integrations for targeted marketing. Similarly, DoorDash has rolled out a host of new tools recently, like personalized AI-driven growth suggestions, rewards features for customer loyalty, and updates to its online ordering software that help restaurants grow their first-party channels.
Both companies say they’re continually innovating to further support merchants. Yet, for many operators, the pricing struggle persists.
“Third-party delivery platforms shouldn’t be the enemy,” Rigie says. “There’s still an opportunity for these companies to really help restaurants by creating better relationships that are profitable for all parties, where everyone pays a little bit, everyone gets a little bit, and the consumer gets a great meal delivered to their door.”
