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Can restaurants make money from delivery apps?

February 28, 2020

According to a National Restaurant Association survey, nearly 60 percent of restaurant interactions now are for off-premises dining. Ninety percent of consumers buy takeout at least monthly.

Seventy-nine percent of the survey respondents said they order delivery directly from restaurants, while 53 percent order through third-party apps like DoorDash and Grubhub. “Digital platforms have made it very easy to order online in a seamless way from these various restaurants, so it has increased traffic quite a bit,” said James Cook, JLL's director of retail research for the Americas. “You will get more customers, and many of those customers are incremental, meaning you’re not cannibalizing your existing customer base.”

Many restaurants that use delivery platforms struggle to translate those additional sales into profit, however. Even if a business handles app-generated orders without hiring additional help, fees can make it a zero-sum game.

Indeed, such fees cut deeply into the profitability of using delivery apps, says Jot Condie, president and CEO of the California Restaurant Association. “Any restaurant owner will tell you: In this business, profit margins are already razor thin — on average, 3 percent to 5 percent,” he said. “So when a third-party delivery app wants as much as 30 percent of the cost of an order, that leaves the restaurant with little to no financial gain by the time the order is processed and out the door.”

Delivery companies are unlikely to slash fees anytime soon, though. Most are still working toward profitability themselves, observes Barry M. Wolfe, senior director in the Marcus & Millichap national retail group. Wolfe anticipates that in time, consolidation among platforms and the growth of such technology as drones and autonomous-car delivery will lead to lower fees. “If you can figure out how to take humans out of delivery, the cost structure is much more viable,” he said.

Some operators have their own ordering apps and do their own deliveries to capture that revenue. Still, third-party apps are strengthening their hold. Investment bank William Blair & Co. is projecting that third-party transactions will make up roughly 70 percent of delivery sales in 2022, nearly double the 37 percent of 2016.

By Matt Hudgins

Contributor, Commerce + Communities Today

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