Last week saw some major movement in the third-party delivery world. First, the New York Times pointed out how much delivery truly costs the consumer, noting in a headline that delivery charges can often nearly double the cost of the order itself. Then DoorDash, the industry leader with at least a third of the delivery market, announced that it plans to IPO. DoorDash last raised money at a staggering $13 billion valuation, which is equivalent to the market cap of Domino’s Pizza, the seventh-largest restaurant chain.
The contrast between these two headlines strike at the debate about whether third-party marketplaces are a disruptive trend or simply a passing fad for niche opportunities. At Paytronix, we are always focused on what is best for our restaurant clients. We think this issue comes down to a basic question: How does third-party delivery impact brand value?
When our clients turn to third-party aggregators for delivery, it’s often because they are testing a service model outside of their four walls at a very low cost. Conversely, in-house fulfillment has fixed costs for recruiting and training, and during the early stages, it’s not obvious that enough orders will come in to cover it all.
Delivery’s Cost to the Consumer
An article in the New York Times suggests that what’s truly happening here is that the costs are shifting to the consumer, which is just making meals more expensive. “Up to 91% More Expensive: How Delivery Apps Eat Up Your Budget” found that orders placed with the top four delivery companies– Grubhub, DoorDash, Postmates, and Uber Eats – came with a markup of between 7% and 91%. On top of that, there were some truly crazy charges, such as a $3 “small order” fee from Uber Eats.
Some brands hike their menu prices for delivery orders, while others list higher prices within the app to compensate for increased delivery costs. Yet consumers may be willing to pay these incremental costs to enjoy the benefits of ordering and eating without ever having to leave their couch.
Delivery’s Cost to the Brand
Restaurants need to ask themselves how delivery impacts their individual brand. It’s no small question in light of a massive shift that is shaking the restaurant world to its very core. The guest experience used to be defined by how people felt when they visited a restaurant. Owners mostly focused on choosing a good location, how the restaurant looks, what smells greet people when they come in, and of course, how the food tastes. While those things are still important, a change in how consumers operate is emerging.
The ability to order from home is, in most cases, a positive. But restaurants need to consider pricing as it applies to the total costs for their guests. If people feel that they’re being gouged or not receiving value, it can negatively affect the brand.
Mobile phones enable consumers to create their own interaction point. Whether it be via Google, Yelp, third-party delivery apps, or a branded app, the interaction ends up driving their decisions, bringing in factors like speed and convenience. Meanwhile, the emergence of subscriptions has the potential to completely remake the market. Panera Bread recently received a lot of attention for its $8.99 monthly coffee subscription, and DoorDash is offering unlimited deliveries for $9.99 a month with its DashPass.
These changes in consumer expectations drive changes in how restaurants evaluate everything from where they’re located to how people receive and eat their food. The ultimate costs for meals also need to be taken into consideration, since studies show that consumers are more likely to blame issues on the brand than the delivery company.
As for the DoorDash IPO, investors are clearly betting that the company will be a chief beneficiary of this evolution in how consumers choose to interact with restaurants. The demand for ordering items and having them delivered isn’t decreasing anytime soon, which is why we here at Paytronix invested in our own Order & Delivery solution. We also work with all the major delivery brands to ensure that our clients’ guests have consistently favorable experiences.
Because no matter how consumers receive their food, they still expect a great brand experience.