Pros and Cons of Offering Food Delivery Service

Before COVID-19, the on-demand economy sparked by Uber, Netflix, and Amazon Prime had already started its spread to the restaurant industry. Consumers wanted convenience in all aspects of their lives, including food. 

In the new post-COVID world, that demand for food convenience has increased – both by necessity (i.e. shelter-in-place orders) and because so many brands are jumping on the food delivery service bandwagon. To make this service available to customers, restaurants are either relying on third-party delivery providers or creating their own with an online ordering system.

As more and more dining rooms are allowed to reopen across North America, it’s likely that the demand for delivery will be affected. But by how much? How many people will still prefer to order takeout and get it delivered versus dining in? Does that mean offering a delivery service is still worth the investment of time and resources?

Since all restaurants are different and serve different customers, there’s no one-size-fits-all answer. 

We’re laying out all the factors for you, so you can decide whether or not becoming a restaurant with delivery service is the right decision for your business.

In this food delivery guide, you’ll learn:

• The latest food delivery trends
• The pros and cons of offering food delivery service
• What to consider before making the decision, including location, venue type, and customers
• How to decide whether to take delivery in house or use a third-party service
• What you’ll need to implement a restaurant delivery service, including logistics and tools

By the end of this article, you’ll be able to make an informed decision about the best food delivery service for your restaurant, even in today’s climate.

Food Delivery Trends

According to the New Yorker, food delivery orders made up 7% of restaurant sales in the U.S. in 2016. Over the next few years, we saw the number of diners ordering delivery and takeout steadily increase. And, with people forced to stay home due to COVID-19, those numbers jumped again. Axios reported that Americans ordering takeout went from 19% in February to 22% in March and April. As a result, delivery app drivers have been busier than ever, trying to keep up with increased orders. 

Our State of Full Service Restaurants report – released in early 2020 before the pandemic – showed restaurants that offered online ordering conducted between 11% and 30% of their business this way and had seen an 11% to 20% increase in sales on average. This means that even as the economy normalizes, it’s likely a large portion of your restaurant’s business could still come from online ordering, a revenue stream that does provide opportunities for increased check sizes and sales – as long as you can keep the volume up.

Now of course, not every restaurant online ordering system is the same. While some restaurants are relying on third-party apps for both takeout and delivery (high volume and higher fees), others are opting for an in-house or direct online ordering system (potentially lower volume but low or no fees). If you’re not doing either, you’re missing out on a growing revenue stream – one that’s showing no signs of slowing down. Your first step is to look into your options and figure out what works best for your business.

The Rise of Ghost Restaurants

Food delivery has already made a major impact on the restaurant industry. In fact, it’s even inspired a whole new category of restaurant: ghost restaurants. 

Ghost restaurants are restaurants that only offer food via delivery. Unlike traditional restaurants, they don’t have brick-and-mortar locations where you can dine-in or sometimes even pick up. They typically run out of commercial kitchens, so the focus is on food preparation and order fulfillment, rather than an experience. 

Since most dining rooms have been forced to close at some point in the past few months, ghost restaurants have really had their time to shine, helping diners get their favorite dishes safely and lowering operational costs for restaurant owners in the following areas:

• Rent: They need less space and therefore have lower rent.
• Labor: They don’t require front-of-house staff so they save on labor.
• Space & Decor: They don’t offer a dine-in experience so they save on furniture, place settings, and decor.

Experts predict that the pandemic is going to accelerate the creation of ghost kitchens across the country, in order to give restaurants a more sustainable business model and meet the high demand for takeout and delivery from consumers.

That being said, you don’t have to run a ghost restaurant to profit from the benefits of food delivery.

The Pros and Cons of Implementing a Food Delivery Service

So is offering food delivery service at your restaurant worth it?

Let’s dive into the pros and cons of restaurant delivery services.

5 Advantages of Food Delivery Service

These are some compelling benefits of food delivery services.

• Increased check sizes. Restaurants see a 20% increase in check sizes from online and delivery orders versus dine-in orders. 
• Make up for reduced foot traffic. Most states and provinces have started some level of reopening for restaurants, but they face pretty strict restrictions that limit the number of guests allowed to dine-in at any time. Offering delivery can help offset the income lost from closed or half-empty dining rooms while reaching new customers who are either practicing shelter-in-place or still uncomfortable going out, even as restrictions lessen.
• More business opportunities. Sometimes customers want your food paired with the comfort of their own home. By offering delivery, you’re able to serve a wider range of customers.
• Less overhead. If delivery becomes the bulk of your business or if you shift to a ghost kitchen model, you could look at downsizing your space to save on rent or front-of-house staff to save on labor.
• Exposure to new customers. Delivery can help you reach new customers outside of the regulars, locals, and other customers from surrounding neighborhoods, which is especially important when restaurants are operating at reduced capacity or people are still wary about dining out. Plus, it’s even more important in urban locations, where potential customers may not have access to a car. Third-party apps can help amplify this reach, since they double as marketing platforms. When you sign up for Caviar, DoorDash, or Ritual, you’re putting your restaurant in front of their collective millions of customers. You’ll get your menu in front of diners who are outside normal walking distance – hello to new regulars!

Cons of Offering Food Delivery Service at Your Restaurant

What are the disadvantages of food delivery services?

• Less control. Whether you’re using an in-house or third-party fleet, you have less control over a customer’s experience with delivery. Customers could have a bad impression of your restaurant due to traffic or road conditions or a wrong turn – delays that have nothing to do with you or your food. If food arrives cold or poorly presented after the trip, it could negatively impact a customer’s opinion of your restaurant. You also have fewer opportunities to turn a bad experience around because you aren’t there when customers eat your food.
• More work to implement. If you choose to fulfill deliveries in-house, you have to deal with the hassle of looking for new staff and vehicles while creating a process for a successful service. 
• Smaller profit margins. If you’re using your own delivery fleet, you have to pay for the drivers, their insurance, their gas, etc. All these costs eat into your profit margin. If you’re using third-party delivery services, again there are costs. Even the best food delivery app companies will take deep cuts of each meal delivered, which means you have to have a high volume of orders to see any real profit. For example, New York-based healthy fast casual restaurant Mulberry & Vine spends between 20% and 40% of their revenue per order on delivery and couriers. Yikes. Third-party delivery apps have been widely criticized for their high fees – both before but especially during the pandemic. Some cities have implemented fee caps, while elsewhere restaurant owners are calling on diners to order directly from them to help keep more money in the restaurant’s pocket. 
• More points of contact. When working with a food delivery service, there will be more points of contact between the order being prepared and the food ending up in the hands of the customer. And, you won’t be there to ensure the driver is meeting the standards you’ve set for your restaurant. Food safety is a top priority right now, which means customers want to feel comfortable ordering from your restaurant and any extra points of contact could make them feel less safe.

3 Things to Consider Before Deciding Whether or Not to Offer Delivery Service

Food delivery isn’t a one-size-fits-all solution for restaurants. Consider your venue, location, and customers before determining whether or not to offer delivery.

1) Venue Type

Before the pandemic world state, delivery was best for restaurants where the food stood apart from the experience. If a big part of your offering was the venue ambiance or chef plating, you risked losing this important aspect of your brand with the delivery experience.

However, even fine dining restaurants are getting in on delivery now – it’s just about reframing the experience.

Many upscale restaurants have started offering takeout options that let diners bring that fine dining experience home. Alo, a Toronto-based fine dining restaurant, launched Alo at Home, a fixed price takeout menu. Each week, they offer a limited number of takeout slots for the preselected meal, complete with a link to a Spotify playlist curated by owner Patrick Kriss.

You can even get takeout from Michelin-star restaurants across the country now – from New York to Los Angeles, some of the biggest names in the restaurant industry have created at-home fine dining options.

Delivery can also be tricky for traditional fast food venues. Fast food was meant to be consumed quickly after being made, so quality could diminish by the time the consumer gets the delivery. No one likes soggy fries!

To combat these challenges, some fast food restaurants are reducing their menus in order to provide more efficient service and get orders out the door – and into the hands of waiting delivery customers – faster. McDonald’s is a prime example of this, with franchisees now campaigning to keep their smaller menu beyond the end of the pandemic.

2) Customers

Before implementing a delivery service at your restaurant, talk to your current customers to see if they would use it. Would they visit your restaurant more or less often if delivery was an option? Would they dine-in less and order delivery more? 

Also think about the new customers you could reach by offering food delivery, especially through a third-party site. Millennials may be leading the demand for food delivery, being three times more likely to order-in than older generations. But, as we said earlier, times are changing, with more and more people of all ages placing delivery orders. The same Axios study showed that parents are driving a lot of increase in takeout right now, with their post-pandemic numbers jumping 4%.

Are Millennials part of your target demographic? What about families? If they aren’t now, should they be? You could open yourself up to new clientele by implementing delivery.

3) Location

Delivery is more popular in cities than in suburban or rural areas where people already have cars and can drive to pick up food. Opt for delivery where people seek convenience over an experience.

DIY vs. Outsourcing Your Restaurant’s Food Delivery Service

If you decide to deliver food to your customers, will you take on delivery yourself by hiring someone to perform the deliveries or will you outsource delivery to a third party service?

Here are some things to consider for both scenarios.

DIY Food Delivery Considerations

If you opt for in-house delivery, you’ll need to find and train a delivery driver. Look for someone who has prior delivery experience and a vehicle. Pay for the driver’s gas and contribute to the upkeep of their vehicle, because you wouldn’t be able to offer delivery without it. You’ll also have to check with your insurance and make sure you can properly insure your driver. 

The delivery fee and business gained by offering delivery will help offset the cost of hiring a new person, but a lot of work goes into hiring and training the right person for the job. 

There are also ways to outsource the delivery portion, but keep the online ordering in house. If the thought of managing your own fleet of drivers seems overwhelming, but you don’t want to fork over the high fees for third-party delivery apps, consider tapping into other networks that provide you with just the drivers.

This could be a network of drivers from one of the ordering platforms, like DoorDash, or a completely separate company that just focuses on delivery services. For example, some restaurants are coming together to create local networks of drivers for food delivery – see if that is something happening in your area or look into starting it with fellow restaurateurs.

There will be a cost to this option – probably more than your own fleet – but it can be significantly less than using a third-party for the ordering and the delivery. 

Using a Third-Party Delivery Service 

If you use a third-party for both ordering and delivery service, it’ll be less work for you, but you’ll have to share your profits with that platform.

The costs you’ll have to put towards your third-party delivery service include:

• Set-up: The set up fee costs between $0 to $400, and is a one time-cost to add your menu, find hardware and software for your restaurant, and get on the map.
• Transaction: With most apps, you can expect a per transaction fee, which is a percentage of each other. Depending on where you are, the percentage varies – busier areas typically have higher fees. Typically you’re looking at 10% to 40% of each transaction. 
• Marketing: If you’re looking for how to market your restaurant delivery service, a third-party app can help you do just that. This can cost as little or as much as you’re willing to put into it. Most apps offer priority placement, promoted listings, and featured offerings – for a price. The prices range depending on which third-party app you use.

Keep in mind that customers may blame your restaurant if something goes wrong with delivery, even if it’s the delivery service’s fault.

This means you’ll want to have a system for responding in place before a customer complains. Do you have somebody dedicated to answering customer feedback? Prepare them with what to say if something goes wrong with a delivery order. It may be worth having an offer in place that encourages customers to come back, like 20% off their next order.

What You Need to Implement Food Delivery Service at Your Restaurant

If your restaurant doesn’t already offer delivery service, here are some of the top resources you’ll need to get you up to speed as fast as possible:

1. Staff

Food delivery requires staff. If you decide to handle deliveries in-house, you’ll need:

• A dedicated employee or two who can deliver orders to customers (if you’re doing delivery in-house)
• A front-of-house employee to oversee and process orders, coordinate with your drivers or third-party delivery folks, and update online menus when an item is 86’d 
• Additional back-of-house staff to accommodate the extra order volume (cook and/or expeditor)

This is also a great opportunity to bring back any staff that you may have laid off or top up hours of current staff so they’re back up to full-time. Consider setting aside time for additional training if staff are learning new roles or aren’t familiar with new cleaning and food safety practices. Cross-training is one of the best ways to make sure your staff are able to take on multiple types of shifts and feel like they’re advancing their skills.

2. Tech

A lot of restaurant technology goes into running a successful food delivery service.

Here’s exactly what you’ll need for the various stages of the order and delivery process. 

• Receiving orders – You can let customers place delivery orders in three ways: over the phone, online (Google or your own website), and a third-party app. Whether you’re opting for one, two, or all three, we recommend getting a system that streamlines orders right into your POS, since mistakes in manually entered orders can cost you up to $4,000 each year.* TouchBistro offers direct online ordering you can place right on your website (or order.tbdine.com), as well as an integration that will pull in orders from the leading delivery platforms directly into your POS.
• Fulfilling orders – Another benefit of the above-mentioned integration and direct online ordering is that both options help cut down on clutter and help increase efficiency, so you get more orders out the door faster. Instead of one tablet for each delivery platform, you just have your POS that centralizes all the orders. Those orders appear automatically on your POS, so you can just hit accept.
• Delivering orders – If you decide to fulfill delivery in-house, you’ll need to equip your delivery driver with a vehicle, insulated bags to keep food warm during delivery, and a smartphone for communication and navigation. If you opt for third-party delivery services, they’ll take care of these logistics for you.

*based on TouchBistro’s estimate of a restaurant’s average annual online ordering revenue

3. Cost 

These are some of the costs you can expect to face if you choose to implement an in-house food delivery service at your restaurant. If you choose to go with a third-party option, each provider offers unique rates. 

• Labor – For in-house delivery, you’ll need to pay your drivers.
  • Cost: Approximately $2,333 per month, according to Glassdoor
• Online ordering – Setting up a system to take online orderings on your website and streamline them right into your POS can cost anywhere from $50 to $140 per month, with some also charging per transaction fees (psst…TouchBistro Online Ordering doesn’t – you keep 100% of the profits). 
  • Cost: $50 to $140 per month
• Integration for third-party apps – If your POS doesn’t integrate with online ordering software, you’ll need to get one that does. 
  • Cost: Most POS online ordering integrations range from $30 to $100 per month

• Delivery packaging – You may already have takeout food packaging for doggy bags and pick up orders, but you’ll need to stock up when you begin offering delivery. You may also need to upgrade to containers that ensure that items don’t spill during delivery and food temperature stays even.
  • Cost: Approximately $960 to $2,160 per year. (Delivery-focused restaurants spend approximately $0.63 to $1.45 on takeout packaging per order. Our range was calculated based on 50 delivery orders per day, but with increase takeout orders right now this number may be higher)

Food delivery is a long-term investment, which is why it’s important to do your research before deciding if it’s right for your business. 

But it has only grown in past years and will likely continue to be an important revenue stream as dining rooms continue to operate at reduced capacity. Deciding whether or not to become a restaurant with delivery service is a choice that you should make based on your business’ needs, resources, venue type, customer base, and location.

One thing is certain: If it wasn’t before, the food delivery trend is definitely here to stay now.