Partnerships and delivery have been hot topics over the last year, but are even more so now as a result of COVID-19. Brands have been forced to get creative and meet customers where they are in order to remain relevant, adapt to new restrictions, and make it through a great deal of uncertainty.
With no lack of news around third-party delivery, recently, two of the biggest names in the delivery business, Uber and Grubhub, announced they may be undergoing a merger according to a report from Bloomberg. Uber Technologies has made an offer to scoop up one of its biggest competitors in the delivery industry, Grubhub, for a reported $6 billion, according to this Wall Street Journal article.
"This move is inevitable and reveals the complex mosaic of competing interests facing the restaurant industry," John Pedini, CMO of Brierley, said. "Consumers want convenience, delivery services like Uber and Grub Hub need a profitable business model, and restaurants need delivery to be an incremental element of their business, not an alternative to dine-in. If the latter is the trend, the current model simply doesn't work, and having a merger that creates an 800-pound gorilla in the US market will make it all the more difficult if delivery fees become higher as a result. The brands that have strong relationships with their customers and can leverage CRM and Loyalty data to deliver differentiated experiences both in and out of the restaurant will thrive."
One of the other players in the industry, DoorDash, also acquired Caviar last year for $410 million. The continued monopolization of the industry may have massive ramifications for restaurants, and their thoughts on using third-party delivery services like Uber Eats or DoorDash.
While the choice and reasons for offering delivery or partnering with a third-party delivery service vary from brand to brand, each side sees a variety of opportunities and challenges with each.
"Customer data is the future of business long-term," Richard Jones, CMO at Cheetah Digital, said.
"Every business should be thinking about every single engagement that they have with a customer and what the opportunities are for data capture, on any channel. The more we can learn about the customer's individual preferences, the more we can personalize their experiences and offers to drive future return."
There are opportunities related to third-party delivery, such as the ability to drive awareness for the restaurant. Being available on a third-party delivery service might allow for people who don't even know the restaurant to see them and try it out for the first time.
Jones continued, "Having companies like GrubHub and UberEats allows the foodservice industry as a whole, to adapt and create new revenue lines and acquisition opportunities with these delivery models. However, larger restaurant chains need to ensure that this does not disaggregate them from their online customers, with the customer relationship being solely owned by these services. Restaurants are finding that the audience that is coming into their online channels and ordering delivery and pickup during the COVID-19 crisis isn't the same audience as the people that were coming into the restaurant regularly. This points us to what businesses might do in the recovery period of COVID-19, but owning the direct customer relationship is going to be important to take advantage of the opportunities to maintain these new audiences long term."
Additionally, third-party delivery offers overall convenience for the customer by letting them choose the way to get their food and is also a way for restaurants to remain connected to customers, especially with the pandemic causing restaurants to either close or limit in-store patrons and maintain social distancing. These opportunities show that restaurants can succeed in using the service.
Jones concluded, "Ultimately what we want is for restaurants to be operating at scale across a variety of different business models and channels, both online and offline. If restaurant chains look at all of these opportunities and use data to improve the relationship that they have with customers, they'll see higher customer lifetime value. Loyalty programs are a great way to manage those relationships, but as long as the loyalty program is really able to react to data around how customers are engaging with you. And having your own loyalty program will ensure that the Uber and Grubhub merger doesn't accelerate the disaggregation of restaurant businesses and their online audience. There is a unique opportunity to accelerate the recovery from this healthcare crisis by getting people back into the restaurants as well as maintaining and expanding revenue with the new online customers that COVID-19 generated."
However, the challenges for third-party delivery are also quite noteworthy. The first challenge is that, for some restaurants, their food just doesn't travel well. A restaurant that serves something better in stores wouldn't be the right candidate for a delivery service or needs to research which menu options it should offer for delivery.
Some other challenges are restaurants lose out somewhat on a direct relationship with their customer. If there is an issue with the delivery, like missing food or the driver is late, it might be the restaurant's fault when they have little control over the driver experience. This might make for bad customer experience and lead to less business.
Lastly, using one of the third-party delivery services can be very expensive for restaurants and take away from profits. The commissions for some of the third-party delivery services can be as high as 30 percent, which for a big restaurant brand like McDonald's or Chipotle is sustainable. Small businesses need every order to maintain profits though, and a service that eats into those orders with a big commission might hurt them more than the service helps.
An article in the Los Angeles Times talked to multiple restaurant owners, obviously in the Los Angeles area, including Anca Caliman, co-owner of Lemon Poppy Kitchen.
"Even before the madness, it was just a terrible deal no matter how you slice it," she said. "The fees are just too high. Restaurant profit margins are maybe 5 percent on average. Then to have a delivery service charge between 20 percent and 30 percent is just crazy. And the way they present themselves: 'You're going to get so many more orders.' 1,000 orders at 30 percent off does not help."