The Biggest Threat To Restaurants Is Third-Party Delivery Apps. Here’s Why.

It’s a fact that for most restaurant owners, often already thin margins are generally made even thinner when partnering with delivery service apps. The likes of Caviar, Postmates, DoorDash, and others get by thanks to perpetual fees, with some businesses reporting their profitability has actually decreased as their delivery business has increased.

Delivery fees can range from 10 to 35 percent, meaning you could be forking over $3.50 of every $10 you make. “I think it’s a far bigger problem than a lot of operators realize,” restaurateur Michelle Gauthier told the New Yorker. “I think we are losing money on delivery orders, or best-case scenario, breaking even.”

Partnering with delivery apps can seem like a simple and even alluring decision to make, an opportunity to broaden the audience for your food or pick up so-called “incremental” income by activating a previously unreached group of customers. But in an increasingly data-driven world, you’re actually giving up control--not only of your would-be delivery business--but of the future strength of your whole digital effort. Are your customers still really yours when you choose to go this route? When you’re not learning anything about the people buying your product and you’re paying for the privilege, are these services really working for you, or are you working for them?

What’s in it for you?

In a sense, entrusting such an important part of the business to third-party apps such as these prevents you from being able to capture or understand important information about your customers, like their tastes, how often and when they order, what kinds of food they like, where they live, what they spend. They’re your customers, but now the app knows all about them, and you don’t know anything about them other than that they bought your food once. Could they be tempted when it comes to say, someone else’s food, or food they’re managing to get made by someone else that’s only for sale through their service? The delivery apps are banking on it.

As opposed to depending on these external ecosystems then potentially being left with very little residual or remaining knowledge or benefit of the venture when you’re done, it makes sense to invest strongly in your own digital presence, applying the knowledge of the digital economy to your physical business. These need to be real considerations as we all lean increasingly into habitual digital behavior and become more accustomed to the fact that we’re all almost always just pulling out the phone to make a dining decision.

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Don’t make the mistake these retailers made by outsourcing their delivery operations.

That’s not to say that services like this are entirely bad. They might initially even get some exposure for your brand. But they shouldn’t be your predominant digital solution, and they certainly shouldn’t be your only one. Driving your own customers to account creation leads to loyalty and rewards programs, and the ability to connect with that user, incentivizing that user to connect with and order with you. And that’s in addition to understanding their purchase frequency, their tastes, their buying habits, and using their network to drive yours--things you just don’t get when you’re dealing with a third party service. Perhaps most importantly, you don’t lose ground when it comes to your own internal growth along the way.

History can teach us some lessons when it comes to situations very similar to this. In 2000, Toys “R” Us famously paid $50 million per year for the privilege of “farming out” online ordering and delivery of their products to Amazon, allowing the then-quaint online merchant to fully control their entire Internet presence and harvest an entire company’s customer data. They ultimately missed out on nearly a decade of innovation by the time the deal ended, filing for bankruptcy in 2017. You might also recall brick and mortar bookstore slash coffee shop Borders, which fell victim to the same alluring trap, inking a deal to let Amazon handle inventory, shipment, content, customer service, and pretty much everything else related to the Internet in 2001. They declared bankruptcy in 2011. “That move finished them off because they gave away the future,” said retail expert Howard Davidowitz to Yahoo! Finance.

If you’re in the food and beverage industry, the need to control and harness your business’s own data has to be real for you. Because you deal with more than just getting your food into the hands of whoever placed an order--you are establishing a brand and a presence outside of being a vendor for a third party food delivery mechanism, outside of growing someone else’s business with your product. The science says that this approach, understanding better who’s using your business and being able to nudge them into action yourself, works.

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Next steps: understand the power of owning your own data.

So what do you do about the situation, recognizing that the shift to digital ordering is occurring rapidly, with digital delivery orders expected to grow at more than three times the rate of in-house sales by 2023? Where do you get your data now? Are you capturing any data about your customers at all? What are the right action steps--build your own app? Is it really worth it to invest in digital when you need all the time you can get just to run your business? Three key points of understanding will help guide you.

  1. Fully understand what data can do for your business growth and customer retention.
  2. Consider strongly the long term implications of ceding your delivery business and customer data to another company.
  3. Accept that consumer habits are changing and adaptation is critical.

Struggling to get your head around the value of better data? At Vokal, we build solutions that help business owners understand what advantages data analysis and a private ecosystem can provide over the next two years, five years, ten years, in a way that makes sense.

Let us show you how you can bridge your success from physical to digital.