Could Delivery Service Partners Offer Restaurants More Than a Lifeline?
Restaurants and delivery service partners (DSPs) have had a love–hate relationship since the onset of Covid. Companies like DoorDash and GrubHub initially offered a lifeline to food businesses struggling to keep their doors open. Gradually, though, they came to be seen as burdensome or even exploitative. Now, with the pandemic subsiding, the relationship between DSPs and restaurants is evolving.
DSPs are looking for ways to be more flexible with restaurants. They’re initiating white-label models, subscription programs and new data tools to retain restaurants and diners. To minimize their perceived detrimental impact, they’re now positioning themselves as marketing and discovery tools for restaurants and the key to building thriving, omnichannel businesses.
How Did Restaurant Delivery Get Here?
The delivery partner market has grown significantly of late. Delivery apps have added billions in revenue to the industry while helping stave off bankruptcy for countless restaurants during the height of the pandemic.
They also charge commissions that can total up to 30% of orders. That’s on top of the delivery fees passed onto consumers. Clearly, delivery apps serve a vital need for restaurants, but balancing that need against the costs they extract is not so easy to reconcile.
Complicating the picture, the delivery service market has become crowded while technology has improved dramatically. This has helped some delivery service partners undercut competition. It has also changed the power dynamics between DSPs and restaurants.
What’s Next for Delivery Service Partners and Restaurants?
DSPs are now working to deepen their relationships with restaurants by finding ways to make delivery apps work for the restaurants to differentiate themselves. Many DSPs now offer white-label online ordering for restaurants. They’ve evolved pricing models to offer more flexible commissions and implemented subscription programs to boost retention rates. Market share strategies have also shifted from user acquisition models to attempts to maintain active users via retargeting and branding.
Behind almost all these efforts is data.
Pre-pandemic, the restaurant owned the customer data. That all changed when delivery service partners became the de facto front of the house. Delivery service partners were suddenly the gatekeepers to valuable customer data. Not surprisingly, access to that data became a valuable bargaining chip.
“The DSPs have increasingly become THE marketing platform for restaurants, and the preferred discovery engine of customers,” says Tom Fox, chief business development officer at Omnivore, a platform recently acquired by Olo that helps restaurants digitize their operations. Of the three things that make up the DSP experience (namely discovery, ordering, and delivery), we are increasingly seeing restaurants opt-in primarily because of the discovery piece of this equation. Unlike two years ago, it isn’t solely about offering delivery at any cost today.”
We’ve moved into a multi-channel universe in the delivery market, where many restaurants work with at least two providers. Most restaurants will stick with platforms that not only allow them to maintain a higher margin but also ensure access to customer data. This combination of data and a multiplicity of delivery service partners hints at another tantalizing possibility.
“A decade ago, advertisers and ad networks began optimizing their buys across multiple networks in real time in a bid to keep margins high. I think that’s coming for restaurants, as well,” suggests Tom Fox. “We’re not there quite yet but when that happens, the dynamics will shift and require DSPs to be even more competitive with each other than they are today.”
DSPs could ultimately offer restaurants more options and more flexibility to manage upstream channels in a way that serves the restaurant best — just as programmatic advertising did with digital media a decade earlier. Effectively, DSPs would align with each restaurant’s carrying capacity by programmatically managing their ordering channels to ensure that every time an order is passed onto the kitchen., it’s at the highest possible margin at that moment.
This model would effectively eliminate order throttling and cost optimization for DSPs, so it is an open question as to how willingly the market would embrace the “programmatization” of delivery.
There are other ways in which delivery service partners could alter the restaurant landscape by embracing the lessons of digital marketing.
Just as digital marketers test ad buys through multivariate and A/B testing, DSP-enabled virtual restaurants could practice something similar. Virtual restaurants use existing restaurant infrastructure to prepare orders while leveraging third-party delivery service partners to deliver.
The virtual restaurant model allows restaurants to launch new menu items (or completely different cuisines) without massive capital investment. DSPs allow them to have an idea and live test it with real customers. If it doesn’t succeed or sales decline, it costs the restaurant nothing to simply turn it off.
Embracing an Omnichannel Restaurant Industry
For years, omnichannel strategies have been a kind of holy grail for retailers struggling to maintain brick-and-mortar businesses in the face of stiff competition from online D2C platforms. The landscape for restaurants is different, but omnichannel strategies are more viable thanks to DSPs.
Delivery service partners already provide multiple digital touchpoints for discovery, monetization, and delivery while helping to ensure a consistent experience. The more DSPs become “THE marketing and discovery platform” for restaurants, the more easily omnichannel restaurant strategies can be embraced.
Data and AI enabled the digitization of advertising a decade ago. Now, those same forces that drove innovation and transformation in advertising are changing the dynamics between restaurants and delivery service partners. DSPs are becoming more than a lifeline. They’re helping fundamentally change how restaurants and the industry operate while also helping to create the omnichannel restaurant business of the future.
Meiry Vaknin is VP of partnerships at YouAppi.