third-party delivery

The dichotomy of third-party delivery services

The debate around third-party delivery apps is intensifying amid the economic impacts of COVID-19

By Tom Nightingale

For the foodservice businesses and restaurants that have been able to survive the last 12 months of COVID-19 pandemic, keeping up with the fast rate of change has been vital. In particular, operators across the country have had to lean into bolstering their off-premises options; some have been pushed into providing delivery for the very first time.

Delivering food as a restaurateur is something of a quandary. As an owner/operator running a business in an industry that historically saw slim profit margins even before the pandemic, do you utilize the services of a third-party app or try to forge your own route with an in-house exclusive service?

“A de facto monopoly”

For the majority, the answer has largely been to go down the third-party path.

Apps like SkipTheDishes, DoorDash, and UberEats have dominated the food delivery market for several years now. The advantages they offer are clear. Perhaps primarily, they give restaurants wide exposure to databases of millions of consumers with no need to spend time and money to build out your own digital subscription service. There’s a reason these apps are so prominent in the industry, after all.

Laurent May, head of Canadian restaurant technology company Ready, describes the dominance of third-party apps as a “de facto monopoly” that has been difficult to avoid.

“People outside the industry are quite shocked about just how low the margins are in this business,” he tells RestoBiz. “That’s why I think when you have big companies aggressively marketing to restaurants and consumers, you have no choice. It’s almost a de facto monopoly of consumer demand. It’s a channel you cannot ignore. They provide you two things: a marketplace to deliver you customers that you may not be addressing, and delivery services. That’s the value proposition.”

In recent weeks, though, amid the rubble and ruin left by COVID-19 in the industry, a fierce debate has been burning about these services. In particular, the major topic of discussion has been the commission fees they charge to restaurants during a time of such economic uncertainty.

High economic cost

The main argument against them has been that, with indoor dining closed or at least drastically reduced for so many establishments nationwide, charging the same level of commissions on third-party delivery is unfair.

May notes their impact has definitely been magnified by the situation. “There are many restaurants out there running third-party delivery that are making a loss on every single sale,” he tells RestoBiz. “It’s easy to ask ‘why do that?’ but the reality is that many operators’ perspective is that it’s better to lose a little bit on every sale than simply go out of business.

“The actual delivery is already quite expensive if you’re trying to run a delivery service in-house, but through a third-party service those fees pretty much double. So the economic impact is significant and, when in-restaurant revenue vanished, these fees that people weren’t aware of began to become very obvious. People talk about them being 25 per cent but it’s actually a lot higher in many cases; up to 35 per cent of your actual deposits after accounting for service charges from credit card payments, promotions, etc.”

Provinces taking action

In response to the foodservice crisis and the debate, the high-population provinces of Ontario and British Columbia have taken the drastic, unprecedented step of capping these third-party delivery commissions. On December 19, Ontario was the first to blink, limiting fees for third-party delivery apps to 15 per cent in regions like Toronto where indoor dining has been prohibited due to the pandemic. On December 27, B.C. followed that lead, implementing its own 15-per-cent cap on third-party deliveries as well as an additional 5-per-cent cap for all other related services provided to restaurants for the use of these platforms.

In both cases, the measures tabled have been advertised as temporary. Similar bills have already passed in major U.S. cities such as San Francisco, New York, and Chicago.

In Canada, it seems to have added more fuel to the fire. It was understandable that this may not have been warmly received by these third-party delivery services.

It should be noted that some of these delivery services have attempted, at least at face value, to lessen the financial burden on struggling restaurants. However, there have been high-profile cases of apparent dissent, too. Canadian delivery giant SkipTheDishes made headlines recently by introducing a controversial new $0.99 surcharge on orders in B.C. in response to the province’s cap.

The B.C. government has spoken out in vociferous criticism of that mood, and the west-coast province is not the only one to see such animosity.

Quebec restaurants and advocates, particularly those focused on Montreal, have called on the province’s government to follow Ontario and B.C.’s measures. In one particularly notable case, Montreal restaurant Deli Boyz has launched a class-action lawsuit against food delivery companies for continuing to charge allegedly “exorbitant and abusive” commissions during the pandemic.

The situation in Quebec has been complicated by a curfew from 8 p.m. to 5 a.m. which has been pushing many restaurants to rely on third-party delivery apps perhaps more than ever before. Montreal Mayor Valérie Plante has joined the calls for caps on the third-party commission fees which can reach up to 30 per cent. The Association Restauration Québec (ARQ) has made similar pleas.

All in all, it’s a veritable hotbed of an issue across the country. And economic strife is not the only major factor at play.

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Owning your own customer base

May notes that another side of things, as impactful as the economic costs to restaurants but generally less discussed, is customer ownership. The ability for operators to know who’s ordering from you through third-party delivery services is not something that these companies generally provide, he explains

“Delivery services are great, but what happens when you’re not able to own the customer or have full customer data at your disposal? You’re really acquiring customers on behalf of the third-party service and you’re paying them to take your customers. You’re basically transferring ownership of your customer to a third-party delivery company and paying quite a bit for it.”

Companies like May’s Ready aim to empower restaurateurs to take over that off-premise e-commerce platform and channel and be able to tie it into a customer ownership platform. “You spend so much time on your reputation, your menu, your food that you should be able to have that customer ownership and be able to market to them outside of your four walls,” emphasises May.

Weaning yourself off third-party

The kind of technology solutions available within foodservice in 2021 allows operators to retain all sorts of customer data via promotions, loyalty programs, and other tools. That, in turn, allows restaurants to leverage their own brand and offerings. In that climate, the reliance on third-party services to market can diminish.

May urges operators to set themselves up for success.

“You’ve already done the job of customer acquisition for all those people in your dining room; you don’t want to pay somebody else for that,” he advises. “You need to make sure you have an in-restaurant platform that allows you to not only bring technology into the four walls but take that patronage for yourself. That will then build over time and reduce your reliance on third-party, ultimately allowing you to leave it behind.”

Overall, then, those operations that can pivot their service model and use technology to deliver their service off their own backs and retain their customer base in-house will be well-placed to rid themselves of the dependency on third-party. All told, it’s part of the general shift the industry is seeing towards increased digitization of operations. COVID-19 has been the accelerant: where third-party delivery goes from here is unclear, but the debate rages on.