The weird dichotomy of third-party delivery

Pie Five owner Rave Restaurant Group is ditching Uber Eats. | Photo: Shutterstock.

My colleague Joe Guszkowski told you about Uber Eats, which is raising its charges for operators. And then he spoke with Brandon Solano, the CEO of Rave Restaurant Group, which is ditching the service and going exclusive with DoorDash.

It remains to be seen how much of an impact that will have on Uber Eats, not to mention the restaurant companies that use the service. But it also highlights one of the industry’s biggest dichotomies right now: Third-party delivery.

Nine years after McDonald’s announced its deal with Uber Eats, marking the beginning of the explosion in such services, restaurants’ relationship with the apps is as dysfunctional as ever. Restaurants don’t like the service. Many are trying to reduce it. But they probably need it.

Demand for the service continues to grow, despite the industry’s various challenges. 

The reason is simple: Consumers love it. They’re apparently willing to pay higher prices to have food delivered to their home, which makes sense given that it is saving them time. Guszkowski has been talking about this for some time. 

Convenience is traditionally a winner in the industry. Consumers are willing to pay for it. And it can drive sales. Many restaurant chains continue to say that delivery is a strong and growing business. 

That doesn’t mean restaurants necessarily like it. Our own survey on third-party delivery, released earlier this year, shows more than half of operators want to reduce their use of the service. By comparison, 32% said they are not trying to reduce their use of delivery. 

That’s hardly surprising. Delivery costs restaurants money. These sales are less incremental—no matter what any executive tells you—which means that a service that costs restaurants more money is replacing their primary ordering channels, probably the drive-thru. 

And because these apps are marketplaces, they frequently require offers and discounts to attract orders. Discounts are common on those apps.

On top of that, delivery services add new levels of headache, such as theft of product and who will pay when a customer doesn’t get their order. Customers may or may not blame the delivery service if something goes wrong. So restaurants don’t have full control over the service provided for a growing segment of their consumers. 

To be sure, a lot of restaurants have adjusted to presence of delivery as a business. Major chains in particular, which tend to have better deals, have been pushing into this market hard. 

This service is almost certainly creating major problems for the restaurant industry business model. Restaurant traffic is down, but delivery traffic is up, and often considerably so. That cannot be good for store-level profitability. 

I would expect restaurants’ love-hate relationship with delivery to continue.