With third-party aggregators charging hefty commissions and consumers pushing back on higher prices for delivered food, restaurants are looking to steer customers to their own ordering channels. That’s particularly evident in the pizza segment.
The category has a complicated relationship with aggregators. With their long-standing in-house delivery capabilities, many pizza brands initially resisted third-party delivery, until post-COVID staffing challenges pushed them to rethink that hardline stance.
“It’s been proven that the answer is yes, you have to play with third-party,” says Zach Goldstein, founder and CEO of Thanx, a loyalty and guest engagement platform. “It’s part of how diners expect to get food from restaurants.”
It isn’t just about higher prices and lower margins. Restaurants are missing out on valuable data and the ability to establish direct relationships with guests when orders come from third-party channels.
“It’s a battle for the lifetime value of the customer,” Goldstein says. “It’s very difficult to drive repeat purchasing from customers on third-party when you don’t really have a way to influence them.”
Variety is a key attribute driving behavior for many guests, he adds, and restaurants will never be able to compete on that front. There are other battles restaurants can win to close the gap, though. Third-party marketplaces have created digital experiences that are easy to use and reuse. They’ve made the process of selecting and buying foods simple and intuitive. Goldstein says that’s not an advantage that restaurants have the luxury of ceding to aggregators. They need to be equally if not more convenient.
Loyalty programs are table stakes for driving first-party delivery orders and encouraging repeat business. But it isn’t enough to rely solely on routine discounts.
“Recognizing your top guests with a special experience, giving loyalty members early access or extended access to LTOs, offering exclusive merch—there are a number of things we’re seeing brands lean into that are more experiential,” Goldstein says. “Using data from the loyalty program to drive personalized recommendations really works, too. Innovating and using that data to recognize that not every guest is the same is what makes a modern loyalty program successful.”
A key metric for predicting future traffic growth is third purchase activation, which measures how effectively a brand brings back a first-time guest for two additional orders. The best way to get someone to come back for the third time is to have great food. There’s no getting around that. It’s also about making it convenient for them to make their purchases.
“Breaking through the noise of all the brands trying to talk to consumers is quite hard,” Goldstein says. “Have you learned from that first or second purchase so that the message you send them is relevant and personalized? And as you get more data, are you getting more personalized and segmented? You have to keep working at the program. You can’t just set it and forget it. That’s one of the things we emphasize as a key element of Thanx. We want to make it easier to dynamically evolve your program so that you don’t need a gigantic team of marketers and data analysts.”
The pizza segment has been a pioneer in both delivery and loyalty innovations, he adds. Transparency in order status, for example, has become an investment in loyalty for many pizza brands.
“It goes back to making your first-party channel differentiated to drive loyalty beyond just using discounts,” Goldstein says. “That said, we’re seeing some really interesting stuff around price differences and the ability to get special promos for first-party. It’s about communicating to consumers why they should come direct.”
Frictionless digital experiences, personalized rewards, and other incentives for choosing first-party channels are only part of the equation. Pizza companies looking to drive more direct orders also need to focus on the delivery experience.
“It’s important to differentiate between third-party ordering and third-party delivery as to where the problems are,” says Meredith Sandland, CEO of Empower Delivery, a software-as-a-service company that powers off-premises-centric kitchens. “A lot of resources have gone into developing wonderful first-party ordering platforms and loyalty programs, which is very important, but now we have a whole bunch of restaurants that have invested on the front end while the back end remains broken. It’s still disjointed because they’re driving first-party orders and then fulfilling them with third-party drivers.”
A few factors are driving that uptick in second-party delivery models. Restaurants are getting rid of W-2 drivers and outsourcing to third-party couriers because they can pay per delivery instead of per hour. That’s only becoming more common as labor costs continue climbing and efforts to eliminate the tip credit ramp up across the country.
Sandland says drivers increasingly prefer the flexibility that comes with 1099 contractor relationships, too. Combined with the increasing minimum wages, that’s making it harder to find and retain W-2 drivers at a cost that makes sense. And while outsourcing those operations offloads the hassle of managing your own delivery fleet, it also compounds other challenges.
“The restaurant loses control of that delivery,” she says. “They lose the ability to do the win-back. They start having all of this disjointedness between pizza readiness and driver availability. They’re subject to batching that they can’t control. And if they forget the salad dressing or something like that, there’s no way for them to fix it, because they’ve used a third-party to deliver the product.”
Empower Delivery created a product to help restaurants harness the benefits of both third-party and in-house fleets through dedicated, on-demand 1099 delivery drivers. The tool facilitates order-to-driver matching, routes delivery drivers, gives restaurants a view to courier locations, and provides customers with real-time order tracking. Pizza companies only pay for completed deliveries on a contract basis, which eliminates the need to forecast sales, schedule drivers, and put workers on payroll. It also avoids issues with callouts, no-shows, and overstaffing.
“It feels like the easy button to not have delivery drivers anymore, to just outsource it to a third party, and to let your consumer pay for it,” Sandland says. “Ultimately, though, you’re just adding complexity to your operations and adding costs to your consumer, and consumers are clearly telling us that things have gotten too expensive.”
That’s why delivery volume growth has plateaued lately and could decline slightly in the short term, even if it’s expected to continue growing in the medium to long term, she adds. Eventually, Sandland expects it will increase tenfold from its current size.
“What happens between here and there, if we’re in a flat to declining delivery world that someday is going to be 10 times the size of what it is today? Well, the model has to become more efficient,” she says. “People are working on drones, self-driving cars, underground delivery tubes, and all sorts of cool things. But if you add CapEx to an inefficient system, you’re only going to have a more expensive system that is still inefficient. So, the first thing that we need to do is get rid of the slack. I think that actually looks a lot more like the original pizza model, which was first-party ordering and first-party delivery, although updated for this modern gig working world.”
