Pros and Cons of Offering Food Delivery Service
Before COVID-19, the on-demand economy sparked by Uber, Netflix, and Amazon Prime had already started its spread to the restaurant industry. Consumers wanted convenience in all aspects of their lives, including food.
In the new post-COVID world, that demand for food convenience has increased – both by necessity (i.e. shelter-in-place orders) and because so many brands are jumping on the food delivery service bandwagon.
To make this service available to customers, restaurants are either relying on third-party delivery providers or creating their own with an online ordering system.
As more and more dining rooms are allowed to reopen across North America, it’s likely that the demand for delivery will be affected. But by how much? How many people will still prefer to order takeout and get it delivered versus dining in? Does that mean offering a delivery service is still worth the investment of time and resources?
Since all restaurants are different and serve different customers, there’s no one-size-fits-all answer.
We’re laying out all the factors for you, so you can decide whether or not becoming a restaurant with delivery service is the right decision for your business.
In this food delivery guide, you’ll learn:
- The latest food delivery trends
- The pros and cons of offering food delivery service
- What to consider before making the decision, including location, venue type, and customers
- How to decide whether to take delivery in house or use a third-party service
- What you’ll need to implement a restaurant delivery service, including logistics and tools
By the end of this article, you’ll be able to make an informed decision about the best food delivery service for your restaurant, even in today’s climate.
Food Delivery Trends
According to the New Yorker, food delivery orders made up 7% of restaurant sales in the U.S. in 2016. Over the next few years, we saw the number of diners ordering delivery and takeout steadily increase. And, with people forced to stay home due to COVID-19, those numbers jumped again. Axios reported that Americans ordering takeout went from 19% in February to 22% in March and April. As a result, delivery app drivers have been busier than ever, trying to keep up with increased orders.
Our State of Full Service Restaurants report – released in early 2020 before the pandemic – showed restaurants that offered online ordering conducted between 11% and 30% of their business this way and had seen an 11% to 20% increase in sales on average. This means that even as the economy normalizes, it’s likely a large portion of your restaurant’s business could still come from online ordering, a revenue stream that does provide opportunities for increased check sizes and sales – as long as you can keep the volume up.
Now of course, not every restaurant online ordering system is the same. While some restaurants are relying on third-party apps for both takeout and delivery (high volume and higher fees), others are opting for an in-house or direct online ordering system (potentially lower volume but low or no fees). If you’re not doing either, you’re missing out on a growing revenue stream – one that’s showing no signs of slowing down. Your first step is to look into your options and figure out what works best for your business.
The Rise of Ghost Restaurants
Food delivery has already made a major impact on the restaurant industry. In fact, it’s even inspired a whole new category of restaurant: ghost restaurants.
Ghost restaurants are restaurants that only offer food via delivery. Unlike traditional restaurants, they don’t have brick-and-mortar locations where you can dine-in or sometimes even pick up. They typically run out of commercial kitchens, so the focus is on food preparation and order fulfillment, rather than an experience.
Since most dining rooms have been forced to close at some point in the past few months, ghost restaurants have really had their time to shine, helping diners get their favorite dishes safely and lowering operational costs for restaurant owners in the following areas:
- Rent: They need less space and therefore have lower rent.
- Labor: They don’t require front-of-house staff so they save on labor.
- Space & Decor: They don’t offer a dine-in experience so they save on furniture, place settings, and decor.
Experts predict that the pandemic is going to accelerate the creation of ghost kitchens across the country, in order to give restaurants a more sustainable business model and meet the high demand for takeout and delivery from consumers.
That being said, you don’t have to run a ghost restaurant to profit from the benefits of food delivery.
The Pros and Cons of Implementing a Food Delivery Service
So is offering food delivery service at your restaurant worth it?
Let’s dive into the pros and cons of restaurant delivery services.
5 Advantages of Food Delivery Service
These are some compelling benefits of food delivery services.
- Increased check sizes. Restaurants see a 20% increase in check sizes from online and delivery orders versus dine-in orders.
- Make up for reduced foot traffic. Most states and provinces have started some level of reopening for restaurants, but they face pretty strict restrictions that limit the number of guests allowed to dine-in at any time. Offering delivery can help offset the income lost from closed or half-empty dining rooms while reaching new customers who are either practicing shelter-in-place or still uncomfortable going out, even as restrictions lessen.
- More business opportunities. Sometimes customers want your food paired with the comfort of their own home. By offering delivery, you’re able to serve a wider range of customers.
- Less overhead. If delivery becomes the bulk of your business or if you shift to a ghost kitchen model, you could look at downsizing your space to save on rent or front-of-house staff to save on labor.
- Exposure to new customers. Delivery can help you reach new customers outside of the regulars, locals, and other customers from surrounding neighborhoods, which is especially important when restaurants are operating at reduced capacity or people are still wary about dining out. Plus, it’s even more important in urban locations, where potential customers may not have access to a car. Third-party apps can help amplify this reach, since they double as marketing platforms. When you sign up for Caviar, DoorDash, or Ritual, you’re putting your restaurant in front of their collective millions of customers. You’ll get your menu in front of diners who are outside normal walking distance – hello to new regulars!
Cons of Offering Food Delivery Service at Your Restaurant
What are the disadvantages of food delivery services?
- Less control. Whether you’re using an in-house or third-party fleet, you have less control over a customer’s experience with delivery. Customers could have a bad impression of your restaurant due to traffic or road conditions or a wrong turn – delays that have nothing to do with you or your food. If food arrives cold or poorly presented after the trip, it could negatively impact a customer’s opinion of your restaurant. You also have fewer opportunities to turn a bad experience around because you aren’t there when customers eat your food.
- More work to implement. If you choose to fulfill deliveries in-house, you have to deal with the hassle of looking for new staff and vehicles while creating a process for a successful service.
- Smaller profit margins. If you’re using your own delivery fleet, you have to pay for the drivers, their insurance, their gas, etc. All these costs eat into your profit margin. If you’re using third-party delivery services, again there are costs. Even the best food delivery app companies will take deep cuts of each meal delivered, which means you have to have a high volume of orders to see any real profit. For example, New York-based healthy fast casual restaurant Mulberry & Vine spends between 20% and 40% of their revenue per order on delivery and couriers. Yikes. Third-party delivery apps have been widely criticized for their high fees – both before but especially during the pandemic. Some cities have implemented fee caps, while elsewhere restaurant owners are calling on diners to order directly from them to help keep more money in the restaurant’s pocket.
- More points of contact. When working with a food delivery service, there will be more points of contact between the order being prepared and the food ending up in the hands of the customer. And, you won’t be there to ensure the driver is meeting the standards you’ve set for your restaurant. Food safety is a top priority right now, which means customers want to feel comfortable ordering from your restaurant and any extra points of contact could make them feel less safe.