Fast food companies are betting big on delivery. It might not pay

Commissioning on third-party platforms could hurt restaurants by reducing profits and eroding customer loyalty. By partnering with them, the restaurants could hurt themselves.

Go while

To take advantage of the growing trend, restaurants are relying heavily on delivery.

Some only offer vivid promotions via third party delivery services.

By restructuring their operations to enable delivery and directing customers to third-party platforms, restaurants are hoping to reach new customers loyal to these services. Most restaurants also offer deliveries via their own sites and apps, as well as partnerships with multiple platforms.

"Delivery remains one of the main drivers of our digital growth," said managing director Brian Niccol during a recent call for results. We found that there was little overlap between our own integrated applications and the applications of our third party partners. "

"The delivery of food and beverages in the United States is still in its infancy," said Chief Executive Officer Kevin Johnson at a recent earnings conference call with analysts. "We do not yet see Starbucks Deliver making a significant contribution to our US earnings, but we believe this delivery represents a significant growth opportunity in the long term."

Not all restaurant chains think that delivery partnerships are the way to go. Domino's, in particular, decided not to work with delivery sites.

The holdout

For Domino, delivery is a big problem.

Sales of the pizza chain have recently suffered in part due to "the aggressive activity of third-party aggregators," said CEO Richard Allison, in an interview with analysts regarding second quarter earnings.

He added that Domino continues to "come under significant pressure" from these services, and that he "does not expect this activity to diminish in the short term".

Despite the pressure, Domino does not foresee a partnership with a delivery site.

Allison said that he did not think that partnering with third-party platforms would create additional sales, and that these platforms would ultimately hurt the profits of the restaurants.

Whether third-party platforms generate new sales or simply redirect customers is essential.

What could go wrong

Extra sales are good for restaurants. However, if customers who order, for example, in the McDonald's app, go through a partner like Uber Eats, McDonald's generates less profit because it has to pay a commission to Uber Eats.

It could also lose these customers to the benefit of competitors.

Someone using the application of a restaurant can only order in this restaurant. When they visit a delivery aggregator, they can sort by distance, delivery time, cost or kitchen, and end up ordering at a different location based on these statistics.

"It has become clear to restaurant brands that they have to work very hard to have their loyal customers place their orders directly to the brand," said Glass.

And if something goes wrong with the order, customers are more likely to blame the restaurant than the delivery service. By outsourcing deliveries, companies in the food sector are also outsourcing the management of their brand.

Nevertheless, restaurant brands should not avoid working with delivery services, said Morningstar analyst R.J. Hottovy.

"I think at the moment there is enough consumer demand for you to do it," he said.

But "you have to know who controls this data," said Hottovy. "It's the biggest thing."

Ultimately, Hottovy predicts that restaurants will offer a "hybrid" approach, relying on outside delivery services during off-peak hours and using their own drivers otherwise.