Learn the real reasons why the restaurant delivery industry is having a hard time remaining profitable.
The food delivery business was absolutely booming at the peak of the COVID-19 pandemic and for many months after. But as the world returns to “normal operations,” demand for restaurant delivery has changed. Many restaurant delivery services (RDS), especially the Big 3, are feeling the strain and struggling to remain profitable.
Here’s the tough part: There’s no single reason why food delivery apps are struggling. The problem is the product of several independent issues, which makes finding a solution all the more challenging.
So why are food delivery services struggling?
It’s hard to differentiate between food delivery brands and services.
UberEats, DoorDash, GrubHub, and smaller RDSs all offer the same service: They deliver food. The delivery experience may differ from one order to another, but no brand has managed to create a defining, stand-out delivery option. As a result, people don’t usually feel much brand loyalty toward one RDS over another. They tend to make purchasing decisions based on price. This has driven RDSs to offer near-constant promotions to stay competitive.
This leads to another challenge.
It’s hard for restaurants to make money off restaurant delivery orders.
Between commissions and other fees, restaurants lose a hefty percentage of their profits through third-party delivery services. Some restaurants are opting out altogether, in favor of hiring their own delivery drivers or simply not offering delivery.
Some cities and states introduced commission fee caps—usually around 15%—in recent years to protect restaurants’ profit margins. Some of those caps have been allowed to lapse, while others have become permanent.
Diners are on a budget.
Food delivery is, almost without exception, more expensive than dining in. Some people are happy to pay for the convenience and luxury. Others can’t spend those extra dollars quite so easily.
There are two primary factors driving this:
- Inflation. Recent economic activity has led many people to slash their delivery budgets.
- A spike in delivery fees. Many RDSs have increased their fees, especially when compensating for local or regional commission caps.
Regardless of how heavily either factor impacts a single spender, the results are the same: People are ordering less delivery.
People are going back to dining in.
During the COVID-19 pandemic, delivery was the only way to experience restaurant food. Even as restaurants opened back up, many people chose to continue ordering delivery. For a while, it seemed that many people had made restaurant delivery a habitual part of their week. But now, with the worst of the pandemic in the rearview mirror, more diners are returning to the in-restaurant experience.
This is more complicated than it may seem. Before the pandemic, the Big 3 RDSs relied heavily on venture capital, and none were reporting sustainable profitability. The sheer volume of delivery orders placed during the pandemic made these companies profitable for the first time.
However, now that order volume has dropped substantially, the problem has resurfaced. As of 2022, DoorDash and UberEats control 85% of the restaurant delivery market—and they’re still not profitable.
Why? Because they’re spending so much money. Specifically, these companies are shelling out major bucks to advertise their services and continue updating their technology. Analysts have estimated that these companies only earn $0.90 to $1.20 of profit on an average $36 order. It’s no wonder these big names are so heavily reliant on venture capital to stay afloat!
What can your RDS learn from this?
Needless to say, this is a complex issue, and several contributing factors are largely out of anyone’s control, but you still have options available to you! You might consider:
- Brainstorming ways to differentiate your RDS. Can you make the delivery experience more memorable? Can you strike up exclusive deals with some popular restaurants in your area?
- Reviewing your expenses. Can you cut anything with a poor ROI? Are you paying for any services that aren’t necessary? If so, you can boost your profits—or pass those savings onto the customer.
- Talking to your restaurant partners. How do they feel about your commission rates? Can you make some adjustments that will benefit both of you?
Don’t be afraid to put your RDS under a microscope and look for creative ways to make a change. Just because the industry is facing some challenges doesn’t mean your business has to struggle, too.
If you’re looking for a way to level up your food delivery services (and reduce your expenses), consider DataDreamers—our cutting-edge food delivery software has customer-friendly features, all for a flat, predictable price. We’ll never hit you with a surprise fee or offer promotions you didn’t authorize. As a result, you can build your budget with ease and always know where your money’s going.
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