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When the COVID-19 pandemic hit North America, restaurants everywhere were forced to close their doors, shut down in-person dining, and rely solely on takeout and delivery operations to make ends meet. It was a devastating pill to swallow, especially for restaurants who were reliant on in-person experiences like sit-down dining.
And so, the great pivot happened (the great takeout unboxing, if you will…)
In the first week of April, just as a new coronavirus lifestyle was settling in, 22% of Americans ordered food online. That’s up 19% from the week before.
The average monthly spend on food deliveries in the United States was up 133% between April and December 2020 compared to the same period the year before, according to Earnest Research.
Furthermore, analysts and experts only expect this trend to grow as our lifestyle is tweaked toward whatever a new normal may be.
The focus was extremely narrowed down. It was simply about getting food into the hands of hungry customers. It was a complete shift in strategy, operations, and mindset.
As the popularity of — and reliance on — takeout and delivery grows, and restaurants need to rely more and more on this element of their business for revenue, there are two avenues for restaurants to explore: third-party delivery services and first-party or in-house delivery services.
Restaurant owners need as much money in their pockets as possible — especially coming out of the economic devastation of the COVID-19 pandemic. To combat these rising costs, restaurants are turning to in-house delivery.
So what’s the difference between in-house and third-party delivery?
In-House versus Third-Party Delivery
What is In-House Delivery?
In-house delivery (also known as first-party services) are there to help you do your own delivery. There are hundreds of different technologies — including Lunchbox — built to help you manage in-house delivery.
Today, customers want a personalized experience. A Walker study predicted that at the end of 2020, customer experience will overtake price and product as the key brand differentiator.
In-house delivery lets you take total control of your customer-facing presence and allows you to change and personalize it at any time as your business grows. You have your own dedicated app and website which both look and interact exactly the way you want it to.
What is Third-Party Delivery?
The availability and use of third-party services has grown at a dramatic rate over the past decade as the online ordering and app-based delivery space has quickly evolved to try and fulfill customer and restaurant needs.
Whilst it might sound nice to have someone else handling everything there are significant drawbacks to handing over control of the online portion of your business to someone else. Especially when that portion of your business is probably going to make up a large part of your revenue for the foreseeable future.
Firstly there’s the money: third-party services take as much as 30% off the top of each order! This practice is so well accepted by restaurants that San Francisco put a 15% cap on third-party delivery service fees. But that’s still 15%! Many establishments can’t consistently afford to give up such a large portion of their taking.
Using a third-party delivery service means that you’re on their app, great! But you’re sharing that space with a huge amount of other brands. All of whom are competing for attention and your customers. Also, within the app the services are regimented and set the same for everyone. Making the user experience the same. You’re forking out up to 30% of your revenue for no love, and no special treatment!
What is the difference between in-house delivery and third-party delivery?
Simply put: with in-house delivery, you own the fulfillment process. With third-party delivery, you’re allowing a separate company to manage your customers' ordering experience without your input.
The benefits of using in-house versus third-party delivery
When you use in-house delivery, you’re asserting more control over the last mile delivery and customer experience. You’re also saving money. There are plenty of ways in-house delivery improves your operations. Let’s dive in.
1. In-house delivery is more reliable.
As the world turns slightly back to normal, those same third-party services are holding restaurants hostage. Restaurants using these apps don’t get access to customer data and are charged fees of up to 30% — despite several legal battles:
On July 29, 2021, the New York City Council approved a bill requiring third-party food delivery services, such as Uber Eats, DoorDash, and Grubhub, to share customer data – including names, phone numbers, delivery and mailing addresses, and purchase histories – with restaurants upon request.
On August 26th, 2021, another bill was passed to make emergency delivery fee caps installed during the pandemic permanent.
And now, DoorDash, Grubhub and Uber have sued NYC over the fee caps.
There is no end in sight to this battle, and any restaurant using 3rd party apps will be caught in the crossfire.
2. In-house delivery is more affordable.
The cost of using a first-party service is minimal compared to the 15-30% that delivery services skim from the top of your hard-earned money.
Take a look at this photo showing a restaurant’s summary of data from GrubHub.
As you can see in the picture:
The restaurant had 46 delivery orders that were ordered and paid for through this third-party service.
Those orders totaled $1042.63 but the restaurant received just $376.54.
That’s a return of 36% from 46 orders.
If you know the razor-thin margins that restaurateurs balance to keep their businesses profitable then you’ll know that such a menial return from a third-party delivery company should start the alarm bells ringing.
The charges for first-party service providers are a lot less, as you can see in the bottom corner of the image. If this restaurant used an in-house service (like Lunchbox) to help them create their own proprietary app they would have a return of $937.80 from sales of $1,042.63. A return of almost 90%.
Compared to the original return given by this third-party service provider, the in-house provider would give restaurants a return of 240%.
2. In-house delivery gives you control over your customer experience.
When you use an in-house delivery app, you can optimize every single customer touchpoint. You can customize the takeout containers to be totally on-brand. You can include special offers in the packaging. You can even send dancing pandas to hand-deliver the food. Not kidding.
With a third-party app, you lose control of the customer experience the moment the driver leaves the restaurant. It might even end up being colder and/or damaged once it reaches the customer. It might even come with longer delivery times.
Simply put: if you really care about the way your food is perceived and received by your customers, in-house is the way to go.
3. In-house delivery gives you access to your customer data.
After Clean Juice started offering their own in-house app and website ordering in August 2021 using Lunchbox, the average annual spend per app user increased significantly. Plus, 92.1% of app users placed over two orders. That’s because Clean Juice started using customer purchase data to send marketing emails and push notifications to customers.
You can’t do that with third-party apps. In fact, you don’t know anything about your customers. The third-party app will take it and use it to market other restaurants to those customers.
While third-party apps are a good way for customers to discover your restaurant, you have no way to connect with them before and after they buy your food.
How to move delivery in-house: a 3-step guide
Most restaurants do a mix of both in-house and third-party delivery to help meet different customers’ needs and preferences. Completely moving to in-house immediately may result in a bad customer experience, especially for folks who are used to ordering from your restaurant using a third-party app. You instead need to focus on converting third-party customers to first-party. Here’s a step-by-step guide.
1. Decide exactly what you want to move in-house.
Some restaurants only want the mobile and web delivery platforms built in-house. Others want to hire their own delivery drivers and manage the fleet. Others might want to outsource all marketing. You need to figure out what you are capable of managing and what you instead need to outsource.
2. Get customers hooked.
To convert guests from third-party delivery, you need to make them care. There are three ways to do this:
Make it cheaper to order directly. This is obvious - and it will be cheaper regardless of whether or not you change your prices - but consider letting customers know via some advertising. You also have the ability to raise your menu prices on third-party. As a bonus, some laws are being passed that require 3rd-party apps to disclose when items are priced higher on the app.
Make certain items only available with in-house delivery. Known for your famous fudge cake? Make it so that people can only order it via your app.
With a loyalty program. Customers can only earn rewards through your program — and they miss our on points if they aren’t ordering directly.
3. Market the change.
Add a letter to the packaging for third-party deliveries. Maybe it’s a letter from the owner, a discount code to use in-house, or a QR code with a link to download your new app. Your in-house ordering won’t work if your customers don’t know about it.
Go on social media and let your followers know that you now offer direct delivery, and tell them what that means for your business and what it means for them as a customer.
Wrap it up
What’s the number one goal of a restaurant? Profit margins.
Third-party apps like Grubhub, DoorDash, and Uber are an easy way to get in front of customers and make profits in the short term. But in-house and native ordering gives you access to customer data and puts more money into your pocket. Third-party apps build a brick wall between you and your customers — which is why restaurants everywhere are taking the time and making the investment into building their own web and app ordering and delivery experiences.
See how Lunchbox can transform your restaurant’s digital ordering into a powerful omnichannel system.