Many restaurants go in guns blazing when it comes to adding on delivery partners. However, restaurants may not realize there are many shortcomings to not doing proper due diligence before going live. They also may not realize all the different value they’re getting from adding on these Third-party Online Ordering Solutions (TOOS). Often times it’s more than just increased revenue.
Think about which platforms make sense for your restaurant. It may be a situation where any-and-all platforms are welcome, or it might make more sense to only add one or two. Sometimes the kitchen or floor plan at a restaurant won’t allow for the any-and-all solution. There could be limited counter space or minimal room for drivers to pick up food.
How are the orders going to be fulfilled? Some TOOS offer the option for their own drivers to fulfill the order, others have it mandatory, and some rely on the restaurant to figure it out. In the case of the latter, the restaurant has two options: hire or outsource. There are companies in most markets that simply provide the fulfillment piece of the order (outsource). They act as your own in-house delivery drivers without the W2 status and can be a great option for restaurants just entering the delivery space. Thinking hard about how the order gets to the customer is a significant part of the due diligence process.
The diligence doesn’t stop at a customer. It goes all the way to the back of house reporting. How is a restaurant going to be able to tell how well their different platforms are doing? Ensuring the TOOS data seamlessly integrates into the point-of-sale (POS) will be key if restaurants want to avoid looking at five different reports/statements from five different TOOS.
Typically, a TOOS will set a restaurant up with some kind of tablet. Finding room for each tablet and managing their unique functionalities can be daunting, however there are solutions that consolidate them and save employees countless headaches and frustration. Be sure to use technology to simplify and improve restaurant operations instead of complicating them. Sometimes the desire to “come into the 21st century” can get in the way of common sense.
Before adding on a new TOOS, it’s important to understand all of the costs associated with them. Some charge set-up fees and most come with a commission fee that ranges from 10% to 35%. TOOS will tell the restaurant that a 30% commission is a fair price because the TOOS will fill unmet capacity in the kitchen resulting in only the cost of the food to the restaurant. TOOS don’t believe overhead costs should be included when doing a cost comparison. There are strong opinions on this debate, but the fact of the matter is that it depends on the restaurant. Some restaurants will add 100+ orders a day through TOOS without bringing on any additional labor. In this case, the only increased cost is food cost. Other times, they must bring on more staff to handle the increased volume, in which case the overhead does increase.
That surge in orders can actually result in a more modest growth of online orders and in-store pickup too. Some of these new customers do in-fact convert to traditional ordering channels. In this situation, TOOS are considered marketing costs because they are putting a restaurant and its brand in-front of more customers. These conversion rates are not sky high, but still significant.
Additionally, a 30% commission isn’t something to immediately over-react to. It can be hard to quantify how much a delivery fulfillment is worth in terms of a percentage, but let’s give this a shot. For example, let’s say a restaurant has a $32 order from a TOOS that charges a 17.5% fee. The 17.5% relies on the restaurant delivering the food themselves. If the restaurant uses a delivery fulfillment company, that will typically cost about $4 an order to fulfill the delivery. In this case the restaurant has paid $4 + $5.60 (17.5% of $32) totaling $9.60 in fees. Now let’s do the case of the TOOS that charges 30% but includes the delivery fulfillment. It is worth noting the total fees also add up to $9.60 (30% of $32).
Truly understanding the value this commission is generating is paramount to how to effectively use the TOOS and delivery partners.
A common misnomer in the restaurant world is that customers are loyal to their preferred brands. In actuality, customers ordering in the restaurant delivery space have a more dedicated loyalty to the TOOS. This is important to understand while working on online strategy. White labeled online ordering is great, but according to a McKinsey study done earlier this year, 80% of customers rarely, if ever, change to a different ordering app. For example, if a customer is an habitual UberEATS customer, this customer isn’t leaving that app to order food.
A couple key questions for restaurants to ask TOOS when evaluating them:
- How many orders are they generating for other restaurants in the area?
- How many similar restaurants are currently on the platform?
Learning about how a TOOS is currently doing in a specific area and its uniqueness on the platform are great indicators on what kind of volume a restaurant can expect to see.
The key to maximizing Third-party delivery is to do your research, truly understand what you’re paying for, and to use technology to simplify the process, not convolute it.
Sterling Douglass is a Co-Founder and CEO at Chowly, a first of its kind restaurant technology company. Chowly integrates orders from companies like UberEats, Grubhub, and many others into the restaurant’s POS system. Chowly seeks to simplify technology for restaurants by connecting software to the restaurant’s POS.