The brand is shifting the third-party scales.
Across the country, tension has risen between restaurant operators and third-party delivery providers during the pandemic.
With margins even thinner due to the closure of dining rooms, complaints about third-party fees reaching 30 percent to 40 percent have been amplified. In some cases, governments have responded. San Francisco, New York City, Seattle, Washington, D.C., and other cities have instituted emergency caps on fees.
Some restaurants are in better positions than others, namely those that are able to attract customers on their own digital channels.
Zach McCurdy, creative director for veggie burger chain Bareburger, says the brand has spent the past two years reducing its reliance on companies such as DoorDash, Grubhub, and Uber Eats. The restaurant has 36 U.S. locations and five internationally.
In 2018, Bareburger owned about 14 percent of its digital orders, while third parties controlled the remaining 86 percent.
McCurdy says the brand’s journey to remedy this issue began by reconciling the web and app, which were on two different systems. Customers experienced a lot of friction, like separate log-in information for each channel.
“We were like, this is so complicated because we have to keep the web ordering customers away from the app because the language is different and they’re not ordering the same. So a huge initiative going into 2019 was let’s clean up the system,” McCurdy says. “Let’s make it so that customers can talk to each other across platforms. The keyword in 2019 was omnichannel ordering, and we really took that to heart to figure that out.”
Bareburger worked with Lunchbox, a digital solution company, to fix the issue. Web, app, and catering orders were placed under one roof, which simplified the digital experience. Once the foundation was established, the next step was marketing to those consumers and educating them about why it’s better to order first party as opposed to third party. This has included weekly marketing cadences where Bareburger talks to consumers through email and push notifications.
Digital ownership grew to 34 percent in 2019. Fast forward a year later, and Bareburger now controls the majority of its digital transactions at 51 percent—a key milestone given third-party fees and the oncoming pandemic. The chain even worked with Lunchbox to build curbside pickup in basically under eight hours, further elevating its digital presence.
“In terms of the operating costs of everything, it’s a lot more beneficial for us and it’s cost-effective for the restaurant to own that customer because we’re not paying those marketplace fees and everything like that,” McCurdy says. “And it impacts the relationship with the customer to the point where we’re able to take that 30 percent and the operating cost that was forced by third party and we can kind of move that over to rewarding the customer through offering an aggressive reward system, but we also can take that and create better solutions for that last-mile delivery, as well.”
McCurdy says there’s both fortunate and unfortunate sides to the relationship between restaurants and third-party delivery companies.
On the fortunate side, third parties connect brands to new customers. But on the unfortunate side, these new customers don’t come with the corresponding data. This means third parties essentially eliminate any relationship the restaurant may potentially build with new customers.
“In my opinion, that’s not a great way to hold a relationship,” McCurdy says. “In my opinion, that makes it a little one-sided on their end, and they haven’t really been willing to budge on it.”
The landscape of third parties may change tremendously if Uber’s potential acquisition of Grubhub comes to fruition. Data from analytics firm Edison Trends showed that in April, DoorDash commanded 47 percent of the food delivery market while Grubhub controlled 23 percent and Uber Eats represented 26 percent. Second Measure had DoorDash at 42 percent of sales in March, followed by Grubhub at 28 percent, and Uber Eats at 20 percent.
The acquisition would result in DoorDash and Uber potentially controlling more than 90 percent of the delivery market. Less competition could mean higher fees for restaurants.
According to Second Measure, Grubhub controls more than 60 percent of the market in New York City, where many Bareburger restaurants are located.
McCurdy notes that Grubhub in particular has a history of misleading restaurants. His main example is the company’s announcement in April that it would suspend up to $100 million worth of commission payments for independent restaurants. However, Grubhub later clarified that the fees would be deferred, not waived, meaning restaurants would still have to pay later.
“I think it’s interesting from the fact that from my standpoint, Uber Eats generally has a better relationship and certainly a better PR team with restaurants than Grubhub,” says McCurdy, regarding the potential merger. “Grubhub always seems to, whenever they give a helping hand, they always have their fingers crossed behind their back.”
New York City capped delivery fees at 20 percent. The 20 percent cap includes a 5 percent cap on orders placed through third-party apps and an additional 15 percent cap on restaurants using the apps for delivery.
McCurdy believes the cap should’ve passed before the pandemic.
“I think it’s been a long time coming for the state to actually look at those fees,” McCurdy says. “I wish it was a little sooner and wasn’t caused by a pandemic to do so. I think it’s going to be a necessary help for a lot of these smaller restaurants … Everybody knows the operating costs and what it means to be a restaurant. And then to have your dine-in slashed and then to still have to pay a majority of these fees without any interference from the government until finally now, I think will be a very much-needed relief for a lot of these people.”
“It’s going to be helpful in the short-term,” he continues. “I would love to see what it means in the long-term and I don’t really know if we have a solution to that yet. But I’m really interested to see how this impacts a year from now.”
As for reducing reliance on third parties, McCurdy says it starts with improving the first-party experience by looking at how you’re offering digital ordering and where you can improve.
Then it’s just a matter of marketing and educating the customer.
“I think it’s really investing the time in getting to know—and finding solutions to getting to know—your customers,” McCurdy says.
