Getting delivery set up for your restaurant can be exciting, but it can also be quite frustrating. Over the years, third-party delivery services have flooded the market, each aiming to grab a share of this rapidly expanding industry.
If you’re trying to determine the best option for your restaurant—or even considering launching your own food delivery service—it’s crucial to understand the pros and cons of each model. Let’s explore which delivery approach suits your restaurant best.
In-House Delivery vs. Third-Party Delivery: Which is Better?
The primary difference between in-house and third-party delivery services lies in who controls the delivery process. Restaurants that choose in-house delivery maintain full oversight, while outsourcing to third-party platforms means handing over that responsibility to an external service.
Neither model is inherently superior, as both come with distinct advantages and drawbacks. Let’s break them down.
In-House Delivery Services
Managing deliveries internally gives restaurant owners greater control over the process, but it also comes with significant expenses. So why would a restaurant opt to build its own delivery fleet instead of relying on a third-party service? Here’s why:
Pros of In-House Delivery
✔ Keep Profits In-House: With in-house delivery, restaurants retain 100% of the meal price instead of paying commissions to third-party platforms. While the initial setup requires investment, restaurants can maximize profit margins in the long run.
✔ Stronger Customer Relationships & Insights: With third-party delivery, restaurants lose the opportunity to connect with customers. In-house delivery allows restaurants to build personal relationships with patrons, fostering loyalty and ensuring a consistent service experience.
✔ Wider Customer Base: Despite the rise of third-party services, data shows that many customers still prefer ordering directly from restaurants. A 2019 study by Restaurant Business found that 78% of delivery orders were placed through restaurant websites or phone orders, leaving only 22% to third-party apps.
✔ Expand Your Reach: Brick-and-mortar restaurants depend on foot traffic, but delivery extends their market to new neighborhoods and communities, increasing overall sales potential.
Cons of In-House Delivery
✖ High Initial Investment: The biggest drawback of in-house delivery is the upfront cost. Restaurants must invest in packaging, delivery vehicles, drivers, insurance, an online ordering system, and website development. Even if restaurants opt to reimburse drivers for mileage, it remains an expensive endeavor.
✖ Full Accountability: Any delivery mishaps—such as delayed orders or poor packaging—are the restaurant’s responsibility. A lack of expertise in delivery logistics can negatively impact customer experience and reputation.
✖ Lower Visibility: Not partnering with third-party platforms may reduce brand exposure. While existing customers may order through the restaurant’s app, expanding reach without the massive user base of third-party services can be challenging.
According to Toast Creating and operating your own delivery and online ordering system gives you greater control over the guest experience, ensuring that at-home diners can enjoy the same high-quality offerings from their delivery experience as dine-in. After all, a study by Service Management Group found that 35% of at-home diners who had a problem with a third-party delivery service ultimately blamed the restaurant.
Third-Party Delivery Services
As the restaurant industry evolves, third-party delivery services like Uber Eats, DoorDash, and Grubhub have become game-changers. These platforms take full responsibility for delivery operations, allowing restaurants to focus on food preparation and customer service.
Pros of Third-Party Delivery
✔ Increased Discoverability: Third-party platforms already have millions of users actively searching for restaurants. By listing on these apps, restaurants gain instant exposure to a larger audience without needing to invest in extensive marketing.
✔ Low Upfront Cost & Simplicity: Third-party platforms handle delivery logistics, requiring minimal setup. Services like Uber Eats provide onboarding assistance, allowing restaurants to start deliveries within days.
✔ More Time for Business Growth: Outsourcing delivery frees up time for restaurant owners to focus on improving dine-in experiences, staff training, and marketing strategies rather than managing logistics.
Cons of Third-Party Delivery
✖ High Commission Fees: One of the biggest drawbacks of third-party delivery is the steep commission—often around 30% per order. This can significantly cut into profits, leading some restaurants to seek alternatives.
✖ Intense Competition: Unlike a brick-and-mortar restaurant where competition is limited to nearby establishments, third-party delivery apps pit restaurants against hundreds of competitors, making it harder to stand out.
✖ Operational Challenges (“Tablet Hell”): Managing multiple third-party orders from different apps can be overwhelming. Restaurants often juggle multiple tablets, leading to order errors and inefficiencies.
✖ Complicated Menu Management: Keeping menus updated across multiple delivery apps is tedious. If a restaurant runs out of an ingredient, it must manually update availability across each platform.
Key Considerations for Your Business
When deciding between in-house delivery and third-party services, businesses should evaluate the following factors:
- Business Size & Resources: Small businesses with limited resources may find third-party services more convenient, while larger businesses may benefit from the control of in-house delivery.
- Customer Experience: If maintaining a strong brand identity and service quality is a priority, in-house delivery may be the better choice.
- Profit Margins: Analyze whether the costs of running an in-house fleet outweigh the commissions charged by third-party platforms.
- Operational Efficiency: Consider whether your team has the expertise and technology to manage delivery logistics.
- Long-Term Goals: If expansion and scalability are key objectives, third-party platforms may provide an initial boost, while in-house operations can offer more control in the long run.
Hybrid Approach: The Best of Both Worlds?
Some businesses opt for a hybrid approach, combining in-house delivery for local orders and third-party services for extended reach. This strategy can help balance costs while ensuring broader market penetration.
Final Thoughts
Deciding between in-house and third-party delivery depends on your restaurant’s budget, goals, and market. While in-house delivery ensures control and higher profits, it requires significant investment. Third-party delivery offers convenience and visibility but comes at the cost of high commissions and competition.
FAQ’s
Can I Start My Own Delivery Service?
Yes, but before your business becomes operational, you must complete essential legal and regulatory steps. This includes registering for both state and federal taxes and obtaining the necessary permits and licenses for commercial deliveries. The costs for these requirements vary, so it’s important to factor them into your budget.
Is a Delivery Service Profitable?
Absolutely! As the demand for local delivery services continues to grow, so does the potential for profitability. This trend is reflected in increasing wages and salaries within the industry, making delivery services a viable business opportunity.
What Are the Risks of Using a Third-Party Delivery Service?
One major risk is reputational damage. If a third-party service is involved in a data breach, lawsuit, or receives negative public attention, customers may associate these issues with your business. Since third-party actions can directly impact a restaurant’s reputation, it’s crucial to choose a reliable service.
Who Pays for Third-Party Shipping?
In third-party freight arrangements, neither the shipper nor the receiver is responsible for the shipping costs. Instead, a third party—typically a logistics company—handles all freight payments, including Less Than Truckload (LTL) shipping and any additional charges.
What Is the Profit Margin of a Courier Business?
Courier businesses typically maintain a profit margin of around 10% to 15%, though this can vary depending on operational efficiency, delivery volume, and market conditions.
