Restaurants are trying to build back after a huge financial hit due to the pandemic. Whether it’s national chains or local mom and pop spots, the permanent shift to an increase in delivery compared to on-premise dining and pickup has impacted the traditional restaurant model. In fact, within a year of the pandemic, about 1,000 restaurants closed in NYC alone.
In order to thrive during a second COVID winter, and the new era of the restaurant-diner relationship, businesses must find ways to cater to this demand. Regular delivery has always been the major revenue source during colder seasons; diners prefer to stay in the comfort of their own home rather than brave the chill. This isn’t out of the ordinary — this preference always grew in the winter.
However, the traditional operator and third-party delivery relationship has changed, creating a new tangle in what was once an easy give-and-take. Thanks to increased fees, if you’re using a third-party service, you are likely losing upwards of 30% of each sale to that service. Everyone is trying to compensate for their lost revenue during the pandemic, and third-party is no different.
So what does the everyman operator do? If it’s not enough to lose 30% per order, these boosted fees also deter customers. Customers love a good deal, and third-party charges often pile on pre-checkout, causing customers to change their minds and abandon the order. These third-party delivery services take away money that could be going to the business, workers, marketing, and more.
Luckily, since the start of third-party delivery apps, first-party has become far more accessible. First-party options have come a long way, with affordable, accessible technology that can suit large chains and small, local businesses alike. This is due largely to the sudden boom in tech with a focus on creating fully independent operators.
Advances in technology have made first-party an easier option than ever and created new opportunities for operators to think outside the box. In fact, the Modern Pearl, a food hall in Texas, boosted its residential delivery sales by 346% through first-party ordering. This new full control over ordering operations changed the game for Modern Pearl and prompted them to discover an entirely new source of revenue.
That boost would have been far less through third-party, but beyond that, the amount of churn would have increased. The revenue made, rather than being divided between operator and third-party, went straight to tips, loyalty programs, and investment in salary to decrease server overturn. This is crucial for employee retention during a time of mass resignations and labor shortages.
Friction, an additional element, can’t be ignored when it comes to delivery. The seamless order and payment process allows for reliable transactions and delivery, decreasing inconveniences that customers no longer tolerate. The switch increases profit overall, thanks to the easy and quick design that guests have come to expect from their experiences with larger tech ordering, like Amazon.
This proven boost can be seen from large chains to smaller independent owners. Tomlinson Brands, a virtual food all with one in-venue location, saw incredible results from adding first-party to their third-party offerings. With more orders coming in and out faster, they were able to boost their average monthly revenue by about $32,000. This ghost kitchen universe, much like other virtual brands, relies heavily on delivery sales for profitability. Accessing new audiences, repeat orders, and more go hand-in-hand with adapting to new tech out.
Even older and more established chains are getting in on the action. Tartine Bakery’s 8+ locations in California adopted first-party order and pay to take advantage of the unique flexibility options. They had tried to create their own in-house method, and realized that it would be simpler and far more effective to adopt a flexible system that they could completely customize to their unique needs.
Their bakery wouldn’t be able to update their menu when their stock ran out or a new batch of goods came out of the oven. The data they collected was used to bring back customers in targeted marketing campaigns, and soon they found their delivery check sizes had doubled.
From ghost kitchens to established full-service restaurant chains, first-party delivery has become not only standard but a necessary step in reclaiming their chunk of profit from third-party commissions. But rather than trying to switch over to first-party alone, a hybrid option has become the lighthouse in the pandemic’s storm.
Operators are finding that third-party does wonders for visibility. It opens the door with new customers to create new relationships and spread awareness. Meanwhile, first-party is what keeps them coming back, with reduced prices, increased loyalty and more consistent engagement.
Steve Simoni is the CEO of Bbot, an online, contactless order-and-payment platform. Prior to Bbot, Simoni worked in technical sales support and product management for SaaS companies, including Marketo and EverString. As a serial entrepreneur, Simoni previously founded a B2B technology company for the sales profession, an experience where he learned crucial lessons about product-market fit.