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Third-Party Online Ordering a Blessing & Curse for Food Franchises

An image of someone ordering food online.

You know Americans LOVE to order food for delivery, but have you ever considered the numbers?

In the past five years, online orders have tripled.

Nearly half of consumers report ordering food for delivery in the past six months.

And investment bank UBS predicts annual food delivery sales will skyrocket from $35 billion to $356 billion by 2030.

This spiking demand has spawned the launch of countless delivery services including GrubHub, DoorDash, Uber Eats, Postmates, Seamless and Caviar to name a few.

While restaurant sales are expected to grow by 5.9% over the next five years, food delivery services are forecasted to quadruple that growth in the same span, signaling a major shift in how food will be ordered in years to come.

GrubHub (the #1 food-delivery company in America) is growing faster than even the most well-known food and beverage franchises—the top chains, including McDonald’s, Starbucks, and Chipotle, have grown by an average of 11.1% since 2013, whereas GrubHub has grown by a jaw-dropping 47.4%.

This online-ordering boom is led by Millennials, who are 3X more likely to order food online than their parents.

Unfortunately, this online-ordering boom isn’t all good news for America’s food and beverage franchises.

The Digital Dilemma

Though there can be little doubt that food delivery platforms like GrubHub make it easy for restaurants to add online ordering to their repertoire (and reach fast new audiences of diners at the same time), the convenience isn’t without a price.

Depending on the circumstances, restaurants can pay these food delivery platforms as much as 30% in commission—that’s a BIG chunk of change. So big, in fact, that many restaurants struggle to break even using these food delivery platforms.

Another drawback? By partnering with third-party delivery platforms, restaurants inadvertently sacrifice customer loyalty. Why? Because consumers become loyal to the delivery service as opposed to the actual restaurant.

But the biggest problem for food and beverage franchises is that third-party delivery cannibalizes in-restaurant sales—43% of consumers who order food for delivery would have dined-in had a delivery option not been available.

Avoiding Pitfalls

Despite these drawbacks, third-party online ordering is here to stay, and the overwhelming majority of franchises are flocking to delivery services to provide the ease and convenience of modern consumers demand.

Whether online ordering kills or complements restaurants is up to franchise brands.

Certain steps can be taken to avoid pitfalls including negotiating better commission rates and limiting delivery to off-peak hours to gain consumer insight.

Learn more about 2019 food trends and how to attract more customers with digital marketing campaigns in our latest report, Scorpion Franchise Report: Food & Beverage Industry 2019.