Third-party delivery apps mostly suffer from a lack of transparency, particularly when it comes to pricing and fees. We dug deeper into the rabbit hole to see what’s really going on in the background and shed some light as to why they charge so much for so little and the future of third-party delivery apps as a whole in the post-pandemic world.
Here are 5 things third-party delivery apps don’t want you to know:
1. They’re Charging Everyone Marketing Fees (Not just Restaurants)
Third-party apps are essentially advertising platforms. You’re not paying fees to get your food delivered; you’re paying them marketing fees for having food customers order from you through the app.
Commission fees are just fancy words for marketing fees to make us think 15-30% of the sale goes into delivering our food when none of it actually does; it’s the food customer who pays for it.
And, in case you didn’t know, delivery drivers also pay the app somewhere around 25% “service fees” when doing deliveries for you. As crazy as it sounds, these third-party apps won’t leave a stone unturned to squeeze out fees out of everybody.
Third-party apps get to keep the commissions all for themselves.
We’re not against advertising. In fact, we encourage restaurants to use third-party apps for CUSTOMER ACQUISITION. It’s perfectly normal or even beneficial to offer a one-off 20% or 30% discount to get new customers onboard. The obvious problem is that with major third-party apps you spend 30% or more in commission fees for repeat customers ad infinitum (pun intended).
2. They Spend Millions of Dollars on Ads
With millions of dollars in fees siphoned off of restaurants, drivers, and food customers, one would assume these third-party apps are putting them into R&D, creating better and better services and making them readily available for everyone “as reliable as running water.” However, a 2019 data from Numerator shows just how much these major third-party apps spend on ads alone.
|Food Delivery App||Ad Spending||Media Type|
|GrubHub||$71 million||84% TV|
16% Mobile, Online, Radio
|DoorDash||$44 million||91% |
TV9% Mobile, Online, Radio
|Uber Eats||$28 million||38% TV|
Looking at Kantar’s 2020 data we see an upward trend on ad spending for these major third-party apps with GrubHub up by 31.8% and DoorDash a whopping 60.2% increase. Competition will only ever grow fiercer by the year.
This partially explains why third-party apps’ commission fees are still a pain as they were many years ago. They need those fees to fund their war chest and pay off investors who are anxious to see returns. Ultimately, it’s the restaurants, drivers, and food customers who shoulder the cost of their expensive “app wars.”
3. They Don’t Want You Competing with Them
Now you might be thinking, “If my customers already know how to make online orders, they might as well order directly from me. I’ll just make myself a simple restaurant website, put my contact details in and voila! I saved myself 30%.”
Well, not so fast!
Third-party apps have this already figured out before you even make your first move. In fact, Google some popular restaurants in your area and you’d probably see links to third party apps’ online order page along with other search results including the restaurants’ own website.
Some owners claim these third-party apps have been influencing search results such as making multiple copies of websites bearing their restaurants’ names to push customers into ordering through the app instead of from them. Others complain of getting billed for phone orders they don’t remember doing.
Hint: They get billed for marketing expenses even if the phone call didn’t end up in a sale. Also, the numbers in the app and search results aren’t from the restaurants themselves; they belong to the third-party apps.
Still others make it difficult for restaurants to convince old customers to order directly from them. Under the non-competing clause, they’re not allowed to do certain actions such as making the price in-store a lot less than in-app.
Normally, you’d have to mark up the price in-app to cover for commission fees. Well, that means you’d have to mark up your prices in-store as well.
4. They Outsource Drivers for Profit
Remember we told you about drivers paying 25% just to get your food delivered? This makes third-party apps sound more like Upwork but more specific for restaurants and delivery drivers.
First of all, they don’t have their own fleet but rely solely on independent contractors to get the job done as quickly as possible.
For this to work, they need dozens, if not hundreds of delivery drivers zipping all over the place non-stop. They do this through clever marketing, i.e. keeping drivers on the lookout for bigger opportunities with things like “Challenge,” “Peak Pay Bonus,” “Boost,” etc.
Secondly, delivery drivers work at their own peril. Third-party apps are under no obligation to ensure drivers and their vehicles are in good working condition. As independent contractors, delivery drivers take care of everything from gas to medical bills and everything in between.
Meanwhile, third-party apps take profit from these deliveries while spending ZERO dollars in the process. The passage of Proposition 22 in the state of California proves just how far these companies are willing to go to dodge worker’s rights.
To make matters worse, they can boot drivers out of the system for cherry-picking or making too many rejections. It’s a far cry from “being your own boss” as what they would have us believe.
5. Their Business Model is UNSUSTAINABLE
Believe it or not, major third-party apps are actually losing money despite having all these exorbitant fees. We’ve already covered some of the reasons – ad spending, paying out investors – but also the fact that restaurants all over the world are slowly slipping out of their grasp and getting solutions from software providers who have their best interest at heart like DeliveryBizConnect.
The only logical step for these companies to profit is to consolidate into one behemoth of a monopoly. By then, however, majority of restaurants would have already found their way out.
DeliveryBizConnect is borne out of restaurants’ pain and frustrations caused by the global health crisis and third-party apps’ predatory practices.
We’ve come a long way after more than 20 years of app development, turning our powerful CRM and Sales and Marketing Automation into a full-feature Restaurant CRM, complete with:
- Online Ordering
- Mobile App
- Driver App
- Driver Matching Service
- Route Optimization
- Exclusive Driver Hours
- Split-tipping (tip the restaurant or the driver, or both)
- Online/Cashless Payment
- Push Notifications
- Joint Venture (JV) Module (for promos and referral program)
It’s like having the power of your very own Uber Eats. Best part is you get all these features at just 3.33% per delivery compared to 15-30% commission fees of major third-party apps.
Watch our video to learn how we’re able to bring down delivery cost significantly and how you can start saving thousands of dollars in delivery fees in less than a month.
Tell Us How You Want to Start Doing Deliveries
If you need any help on how to jumpstart your own food delivery service, feel free to book an appointment with us for a 30-minute Complimentary Restaurant Sales Expert Call. We’re on a mission to help restaurant owners get back on their feet and increase sales like never before.