Third-Party Services: Friend or Foe?
Stepping up to feed an on-demand culture with third-party services.
By Steven Jackson
Whether you are currently in the delivery game or believe that offering delivery is a source of incremental income, you might want to take a closer look at the pitfalls of using services such as Grubhub, Uber Eats, Postmates or Door Dash. The current business model used by these third-party services might be detrimental to your own franchise. For the past 60 years, pizza has been the undisputed leader in the food delivery game. The industry worked hard to figure out internal processes and invested in building a business model around it. Now, third-party delivery services are building off a model of personal transportation and promoting restaurant delivery services. It seems that the going rate for this promise of incremental sales increases range from 20 percent to 35 percent of gross sales revenue. Before engaging in one of these services, franchises should consider the following.
Customer Experience
Operationally, third-party delivery services can pose significant challenges. Services not integrated with POS systems can cause order tracking problems and reporting issues. When you rely on a third party, the person delivering your product likely has little exposure to your brand. They have no loyalty to your brand and no knowledge of your operational procedures or customer service standards. They are hoping to make a quick buck in the gig economy by fulfilling as many orders as possible. There’s no guarantee that this person will deliver your product in line with your standards, or that it isn’t going to be sitting on the floor of a car with three other orders. Customers may not have the benefit of your coupons or discount codes, which could harm your brand’s perceived value, especially combined with delivery fees. The consumer has finite resources, and value is often the top consideration when choosing a meal option. As much as people want their food to be conveniently delivered, they are also looking to spend within their budget. Often the pricing or item descriptions on these third-party sites are not accurate. Inaccurate product descriptions along with incorrect or outdated pricing are sore spots with customers, who may blame you, not the third-party company, for these mistakes.
“You should not let third-party companies control your customer experiences, consumer communications, trademarks or brand.”
Loss of Data
In today’s digital age, connecting with your customer on a regular basis is closely related to how much consumer data you can gather and analyze. When someone places an online order directly through your brand’s dedicated portal, you gain valuable data, including the customer’s contact information and ordering history. This allows the sophisticated marketer to utilize targeted digital marketing to reach and retain these customers. Customers using third-par ty delivery provide data to these entities for their own benefit. Look at the potential impact on your online ordering “suggestive selling” tools and loyalty programs. Can you afford to lose out on this data?
Trademark and Brand
Third-party sites often target browser search words associated with your brand. Their goal is to redirect your customer to their website. Many customers may not even realize that they are placing their order through the third-party site and not directly with you. The company is then free to use the data collected on your customer to market its own services or even worse – the products of your competitor. Monetizing their services into a profitable model will probably require selling this data to the highest bidder.
Profitability
Much like the hotel industry experienced with the proliferation of third-party room reservation sites, can the restaurant industry absorb the impact to its gross revenue per customer that these third-party delivery services are extracting from participating restaurants? Is the promise of incremental sales growth worth the price? There may be a need for change in the restaurant delivery model. However, that doesn’t mean you should sit by and let third-party companies control your customer experiences, consumer communications, trademarks or brand.
“The current business model used by third-party services might be detrimental to your own franchise.”
Subscription Model
One way that franchisees can remain relevant while staying on trend may be introducing their own subscription-based models and/or loyalty programs to existing delivery options. Subscription models will eliminate the dreaded per-delivery fees and instead propose a flat-rate subscription to present a clear value proposition to consumers. A subscription-based delivery fee and loyalty program would be new to the evolving industry and could offer a significant perk to returning consumers. This may be what it takes to pose a truly competitive edge to getting ahead of third-party food delivery companies while still thinking of the customer. After all, your goal should be like ours at Hungry Howie’s – to make the customer experience an exceptional one.
Steven Jackson is CEO and President of Hungry Howie’s Pizza. He has worked in the restaurant industry for over 40 years. Learn more about Hungry Howie’s at franchise.org/franchise-opportunities/hungry-howies-pizza.