Which model is most effective for Your Bottom Line?
This is a good time for every restaurant to debate the question: Should a restaurant looking for its own online delivery and pick- up platform use a third party delivery service or look for a hybrid delivery party – where their online orders are processed by a contract company with less commission and will help them keep their restaurant identity.
It’s an important question to answer, even though smaller food businesses get initial exposure and orders through third party service providers, they come with higher commission costs, up to 30 percent per order.
As per labour management platform, 7shifts recently released a study on the state of restaurant labour regarding third-party delivery. It found the average fee paid to aggregator services in 2020 was 18.4 percent. However, 30 percent of restaurants said they paid 30 percent or higher.
There are advantages and disadvantages for each type of service: In-house vs third party vs the new hybrid delivery. It all depends on your target audience, existing customers and demographic.
Pros – Third Party Delivery
- Outsources delivery – Third-party companies will manage all technology infrastructure like tracking drivers and other factors such as insurance, licensing, verification of driver and customer services, etc. This is a huge benefit for any organization with online payment gateways.
- Increased exposure – With the younger generation inclined towards technology, reaching out is easy. Third-party platforms have big funding to provide discounts and coupons to their customers in the app which might put your restaurant in front of bigger audiences.
Cons – Third Party Delivery
- Commission– Third party delivery services take a commission as high as 30%, per order. This reduces restaurant profit margins. In order to keep the restaurant profitable they have had to increase their prices, which can impact a customer’s decision to select your food as well.
- Less control – A common facet of most restaurants is the experience a guest has coming into the restaurant to eat, anything from the ambiance, service, branding, etc. With your restaurant being marketed through a third party application, this can all be lost, primarily your branding. There is no control on the delivery. The food may be delivered with damaged packaging or cold, with little ability to rectify the situation with the customer, which may result in the consumer going elsewhere in the future.
- Other issues may be that the consumer has longer wait times, higher costs, and less customization.
Pros – Native Restaurant Delivery Service: Application or Website
- Magnifies your brand loyalty and recognition – You remain in control about your restaurant aesthetic: your own logos, graphics, fonts, menu organization, etc. All of this will then help your brand recognition grow. You will be able to stand on your own, not drowning on a third party platform filled with other restaurants. You can then build and grow on your own application by adding a food blog or reward points for repeat customers, to name a couple.
- Avoid third-party commission costs – Having your own delivery system in place, you can avoid third party delivery fees and commissions. With already slim margins on food, this would help you keep your profit margins. You would have the cost of the initial software development, as well as any upkeep, along with paying drivers, setting up insurance, and payment hardware. However, these can have a high ROI, if set up correctly.
- More control – Having your own online platform gives you the ability to adjust menu items and pricing whenever you need. Developing your own platform gives you endless options to grow your business.
Cons – Native Restaurant Delivery Service: Application or Website
- Upfront costs – You will need to be mindful of the initial costs of developing and setting up your online platform, including a POS system. You will also have the added costs of hiring and managing your delivery drivers.
With all that said, there are benefits to both solutions. Depending on your industry, demographics, target market, and other factors, you may want to consider a hybrid approach or consider the use of white label third party food delivery aggregators.
What is a hybrid delivery model? A hybrid model combines the best of both worlds. It takes the pros of both an in-house model and a third party model to create a user-friendly online ordering platform. A hybrid system integrates into your already existing website. Enabling you to streamline all online orders, take-out or delivery, through your own website, while still providing you the needed delivery drivers. Of course with any platform there are pros and cons. You must decide what works best for you and your business. Below we have outlined the pros and cons for a hybrid system.
Pros – Hybrid Delivery
- Platform is ready to go – The online ordering platform will already be developed and ready for use. You wouldn’t have to worry about the cost of setting up an online system, as well hiring drivers, setting up their insurance, paying for gas, etc.
- Streamlined/Integrated into your website – The hybrid system would be integrated into your existing website. Allowing you to streamline all of your online orders. Increasing your website traffic and exposure, without having to pay high commission to a third party service.
- Keeping your restaurant identity – With an integration to your existing system, you are able to keep your own customers, while attracting new ones, as well as logos, graphics, fonts, etc. Which would enable you to keep what makes your business its own entity. You wouldn’t be just one of the many in a third party app. It would leave you the freedom to grow within your own system as well.