In-house vs Third-party Delivery: How to Improve Profit Margin and Deliver a Five-star Experience
Food delivery platforms can be easy to onboard with little or no upfront investment - but in the long run, can be impactful on financials. Here are some reasons why operators should run their own delivery services to maximise on full profit earnings, all the while maintaining brand consistency.
Over the global lockdowns, social distancing regulations, dine-in ban on top of travel restrictions – needless to say, the pandemic has had a devastating effect on hospitality. Occupancies declined from the dormant tourism, causing many to temporarily - and for some - permanently shutter. Yet the silver lining amidst it all, the pandemic has accelerated each businesses’ digital transformation strategy and opened up customer’s acceptance of technology.
Food delivery platforms have withstood the headwinds as one of the strongest players during the pandemic, having doubled down on orders during the lockdown periods, and continued to see an upward trajectory of growth from adapted behaviours even after. Where food & beverage outlets and restaurants were recognised as an essential sector to maintain open and serve the public, many operators were still significantly affected by dine-in restrictions and bans, prompting businesses to turn to food delivery platforms as aid to list online and reach the mass at home.
The gig economy has drastically changed consumers’ demands and expectations for immediate gratification and is met with speed. But while consumers can satisfy their food craving, restaurants actually suffer from steep costs as delivery platforms can take up to 40% cut per order. The industry already struggles on its own regardless as it is not typically a profitable department with high expenses and labour costs for maintenance.
Before rushing to join food delivery platforms, here are some reasons why operators should take back control and run their own delivery services in-house to maximise on full profit earnings, all the while maintaining brand consistency from order to table.
Steep cuts & razor-thin margins
Food delivery platforms may be a convenient and easy solution to onboard just to get restaurants listed and online with little or no upfront investment - but in the long run, can be impactful on financials.
Delivery companies typically can take up to 30% commission per order which in retrospect is already the profit margin for restaurants, leaving just enough to cover the costs of operations. Delivery partners not only earn from commissions but also entice restaurants to further shoulder costs for on-site promotions, third-party advertisements meanwhile the platforms also earn additional revenue from their subscription model and delivery fee charges.
The commission cuts are hefty and for that, many businesses tend to raise prices on their online listings to stay afloat. However, misleading fees can be damaging for customer trust and any discounts given also become lost revenue, at the further expense of the staff.
Uncontrollable customer service
Couriers and drivers of food delivery services are all self-employed contractors. Tales of bad delivery experiences from long wait times and cold damaged food run on the occasion.
Full reliance on the platforms are risky as gig workers are not incentivised to provide excellent service, nor do the brands have any influence on staff training. With no control or visibility, what happens in the last mile can be detrimental to the business's reputation. Eight in 10 customers tend to blame the restaurant for poor customer service and not the delivery platform itself.
Further deceptive practices by food delivery platforms are also common in the industry, which can also affect the brand reputation of those onboarding the service.
Why you should deliver in-house instead
Digitise with an online ordering system to offer delivery to rooms and beyond, as well as click-and-collect to maximise additional opportunities of sale. Set up own in-house delivery services to not only reduce costs, claim full margin but also create opportunities and earnings beyond hotel guests with external customers. Invest in building its own fleet of drivers to share services amongst different restaurants under the same group and property, whilst controlling the delivery process with clear communication and adherence to branding. Avoid compromising on the quality of service and extend the five-star experience and support directly from your own channels.
Delivery platforms also limit the level of customisation details customers can request, hindering the attentive experience hotels look to provide. Change menu with freedom and flexibility while also offering full customisation to adapt to customer’s specific dietary requirements.
Offer menu exclusives to compete against the market and upkeep the luxury status by not being attainable to the mass through delivery platforms. Create niches and localise offerings with a special menu depending on the local market. Hotels may even explore onboarding third-party vendors to curate local delicacies.
Additionally, provide experiential offerings during deliveries and bring the hotel experience into the homes of the consumer with personal consultation services such as wine pairing or cooking lessons. Allow customers to also purchase dining experiences as gift cards to pass on to peers and loved ones.
Refine the monetisation strategy and capture the market share from the ongoing growth of the food delivery business, whilst reigning back on control and costs to increase profit margin. Create a centralised ecosystem where the customer can order their food and hotel merchandise all through one checkout and one unified basket on the website. Further incentivise patronage with existing loyalty schemes which can help build up the database for retargeting and to build stronger relationships through personalisation in the long run.
Learn more about Techsembly’s hospitality solutions here. Book a call with our Glovbal Head of Growth, Floris Vermeulen, to explore building your own in-house delivery and e-commerce ecosystem to deliver a unified customer journey today.