THIRD-PARTY AGGREGATORS FOR RESTAURANTS: A DRUG TO THE INDUSTRY?
It seems weird to imagine a time when you had to dial a phone number to order delivery. To hear the words “it will be there in 45 minutes to an hour” and be unable to track the courier. To be limited to pizza or chinese takeout, and only order on occasion. Restaurants’ abilities to deliver depended on their ability to maintain couriers and promote delivery options, so there were few that offered it. Eating out was an event, and eating at home consisted of groceries and home-made meals. Not much time has passed since our food delivery options were this limited, yet the industry has changed drastically in a very short period of time.
The emergence of the internet, smartphones and other technological advances had a direct impact on the way we consume. These technologies bred a new era of “quick” and “convenient” living. In turn, it altered the restaurant industry and services for both better and worse (depending on where you stand).
Third-party aggregators such as Uber Eats, Deliveroo, Glovo, Just Eat, Grubhub, and more emerged to provide the consumer with convenient home delivery options. Anywhere from fast food to the fanciest restaurant in town, full menus and quick delivery are found on these apps. This concept immediately did well as it went hand in hand with our fast-paced, technology driven society. In time, the food delivery industry skyrocketed even more as it became a need, rather than a want. In March of 2020 a worldwide pandemic rocked society. Leaving your house to “eat out” was no longer an option. Life itself was in limbo, and many businesses had to close their doors. Yet, the restaurants willing to adapt managed to remain on the map.
While it seems to already be doing so well, food delivery is riding an upward pointing arrow that doesn’t seem to end. The multi-billion dollar market of food delivery is expected to grow at a compound annual growth rate of 11% in 2025. It exists in many areas across the globe, with high success rates in North America and Europe. While it seems that this era of food delivery is bringing a world of new opportunity, it has an unspoken dark side that is taking its toll on restaurants (whether they use it or not).
During a time as hard as a global pandemic, these third-party marketplaces seemed to be a savior to restaurants trying to stay afloat. Restaurants had a way to reach their consumers directly at their door while they remained safe in their homes. However, it was soon found that this short term fix did nothing more than provide a fake helping hand, while simultaneously bleeding restaurants dry of their profits and customer data.
One of the most notable and alarming issues with these marketplaces is their high commission fees. While they were high before the pandemic, marketplaces were able to raise them even higher when restaurants started to need their help. Apps such as Grubhub or Deliveroo can take anywhere from 20-40% commission per order. Even as little as 15% commission per sale can cause a restaurant to lose money, as there are other aspects they have to pay for to run their business (such as food, restaurant space, supplies, employees, etc).
As if these high commission fees aren’t enough, marketplaces cause many internal and operational issues. They provide their own tablet in which orders appear, and restaurants have to manually insert orders into their own POS systems. This leaves room for human error and discrepancies that get blamed on the restaurant, harming their reputation amongst their consumers and increases operational complexity.
When a restaurant uses a marketplace, it doesn’t allow for them to see customer information when they place an order. These third parties are the owners of this data. The only thing the restaurant sees is what is being ordered. This lack of data is extremely troublesome for any business trying to sell a product online. Without customer information, restaurants can’t grow familiar with the demographics of their target audiences and contact them directly. This harms marketing strategy and the ability to connect with their consumers on a closer level. Promotional efforts have to be done blindly, thanks to the marketplaces that hide their consumers.
It is easy to forget that these apps are not just promoting one restaurant, but every bit of their competition as well. Whatever one restaurant gets out of a marketplace, hundreds of others get the same. Restaurants can create promotions and marketing strategies, but these third parties do not prioritize one brand over another. It is an unfortunate dynamic, as these marketplaces that claim to be a “partner” play the same game with so many others. Ultimately, their goal is to attract all of a restaurant’s consumers. This trap laid in front of so many became easy to fall for with growing dependencies and an inability to find better options. As consumers continue to use these apps for online ordering, the concept of eating out gets reduced and the decision making process follows different criteria than before. Meanwhile, other factors such as catchy promotions and delivery become more important . The ease of food delivery almost makes it too easy to consume. In some situations the luxury of going out will become too much of an inconvenience unless it is a really differentiated and valuable experience.
Similarly, it creates competition of a new form. The continuing use of third-party marketplaces has led to a rise in what is known as “dark kitchens” or virtual markets. To restaurants, a dark kitchen is as scary as the name might sound. These ghosts that haunt the restaurant industry have no room for seating, selling to consumers solely through delivery (and sometimes takeout). While this concept serves the marketplace industry well, the typical restaurant only suffers. It is easy to say a restaurant offers more when you look at this competitor from a wider scope, as eating out is more the experience than the food. But this concept is lost in online ordering. As this new industry has shown, success in food delivery does not extend past the food provided and the efficiency of delivery.
This information begs the question, why do restaurants continue to depend on these third-party marketplaces that could harm them? As strange as it sounds, they are addicted. These marketplaces provide easy, short term fixes to problems, and restaurants continuously feel compelled to use them. Third-party aggregators and marketplaces are the unseen drug of the industry. And, as any addict would, restaurants often forget about the negative side effects resulting from their use of third parties. This lack of recognition causes them to continue to use marketplaces to fix the problems they are causing… an endless loop of problems and short term solutions. Small businesses and restaurants are most significantly affected by them, as their dependency is the greatest. Considering they cannot afford to invest in their own digital ordering and delivery platform, they have to use marketplaces to create a name, becoming a part of the food delivery world.
Although marketplaces can be the only option for small restaurants, larger restaurants and restaurant chains have the opportunity to benefit from marketplaces while avoiding their downsides (an overall win-win situation). This opportunity includes offering an online ordering and delivery platform controlled by the restaurant itself. In doing so, they can leverage the marketplaces to get new customers by providing them incentives to bring them to buy directly through their own digital channel, automatizing all processes. If successful, orders would be going directly to the restaurants’ POS, eliminating operational issues and discrepancies. Zuplyit, a delivery SaaS platform for medium and large restaurant chains, offers all of this and more. It enables restaurants to run their own ordering and delivery systems, simplifying processes and increasing revenues.
Considering that consumer behavior will continue to evolve, it is very important for restaurants to adapt their services for new needs and wants. They can remain a step ahead by using innovative solutions that allow them to meet and exceed expectations, going from master chefs to master suppliers. Learning how to maneuver this new industry can be hard, but not impossible. As the pandemic subsides, and new challenges appear, restaurants can partner with innovative solutions like Zuplyit that can help now and prepare them for the future.