July 31, 2023

In-House or Third-Party Delivery Services: Which is Better?

The restaurant industry has evolved rapidly in recent years, thanks to the skyrocketing demand for food delivery services. This growth has presented restaurateurs with a compelling question: should they use third-party delivery services or establish their own in-house delivery system? As a restaurant owner, this can be a dilemma you’re currently facing. So, follow our guide to delve into the pros and cons of both options before making the most informed decision for your business.

Pros of third-party delivery services

Establish brand presence

Leveraging third-party delivery services can dramatically enhance your restaurant’s visibility, thereby helping your business scale more efficiently. Many well-known food delivery apps, such as GrabFood and Deliveroo, have a substantial loyal customer base. They work as an online storefront for your business, showcasing your tasty offerings to a large audience without the need for significant marketing investment. This means you can boost your brand exposure quickly and outsource the entire delivery process with little or no upfront cost, gaining access to the platform’s network of delivery tracking systems, couriers, secure payment methods, and more. With many consumers ordering from these third-party platforms, you will likely see a great uptick in orders.

Streamline operational workflows

Third-party delivery services have significantly simplified the delivery process for restaurateurs, which can be a boon for your operations. Once you sign up, the platform handles numerous aspects, including drivers, customer service, and platform infrastructure, allowing you to focus more on what truly matters – your food and customers.

Focus on growing the core business

The use of third-party delivery services can free up valuable time and resources so you can focus on the core functions of your food business, for instance, crafting delicious food and delivering a memorable dining experience. With less time spent on managing delivery logistics, you can dedicate more effort to hire and manage staff, as well as develop a unique experience that sets your restaurant apart.

Cons of third-party delivery services

Charge commission fees

That said, there are also drawbacks to using third-party delivery services, the most significant being the high commission fees. A restaurant typically has to pay a sizeable percentage (approximately 20-30%) of each order’s value, which can eat into your profits. Therefore, it’s vital to assess whether the increased sales from partnering with third-party platforms outweigh these commission costs, and to leverage analytics to track your restaurant’s performance from time to time.

Lack of customer control

Another challenge is the potential loss of control over customer experience and brand representation. Once your food is out for delivery, it is difficult to ensure it arrives warm and on time while satisfying customers’ needs. Additionally, any complaints about the delivery typically go directly to the restaurant, even though you may not manage that aspect of the service. This lack of direct communication with your end customers inevitably makes it intractable to maintain positive brand awareness.

Highly competitive environment on platforms

While these third-party delivery services can increase your reach, they also expose your restaurant to intense competition as you’re listed alongside thousands of other eateries. Standing out from your competitors is made harder as a result.

Pros of in-house delivery

No loss of margins

Switching gears to in-house delivery, one significant advantage is that you retain all of your delivery profits, thereby eliminating the additional cost of commission fees. This can be particularly beneficial for smaller, local restaurants. Running your delivery operation also makes updating your online offerings easier, offering a quick turnaround for price adjustments and menu changes, which is an aspect that is often slowed down by the approval process of third-party platforms.

Better services for customers

Choosing in-house delivery gives you more control over the customer experience, allowing you to uphold your business standards from the moment an order is placed to the moment it reaches the customer’s doorstep. You’ll also have greater flexibility over menu updates, specials, and food images. This complete control over your delivery process ensures that you can offer a top-notch experience to your online customers.

Keep customer data & maintain good relationships with them

A substantial advantage of in-house delivery is access to customer data, which can be used for retargeting, personalised marketing efforts, and even creating a loyalty or rewards programme. Direct communication with your customers also fosters stronger relationships that are essential for local restaurants keen on building a loyal customer base.

Cons of in-house delivery

Cost of setting up & running delivery service

Establishing an in-house delivery service does, however, require significant initial investment and expertise. These costs range from purchasing delivery vehicles, acquiring relevant licences, setting up a reliable payment system and driver insurance, to developing a tracking system. Furthermore, scaling your delivery service can be capital-intensive, and making ill-informed decisions could result in significant financial losses.

Ongoing upkeep of vehicles & management of delivery drivers

Even after setting up the delivery service, the upkeep and management tasks can be daunting. From ensuring compliance with city guidelines and managing staff to keeping technology updated, these responsibilities add another layer of complexity to your operations. Also, managing delivery executives and ensuring food reaches customers in perfect condition can be a challenging task, especially during peak hours.

Smaller customer pool & less reach

One potential drawback of opting for in-house delivery is the limited reach and smaller customer pool, especially when compared to the extensive user base of third-party platforms. While your loyal customers might prefer ordering directly, attracting new customers may require more intensive marketing efforts, leading to additional costs.

The optimal food delivery option: the hybrid model

So, which is the better option? The answer might be a combination of both – a hybrid model. This approach allows you to enjoy the reach and capacity of third-party delivery services during peak times, while also offering a personalised touch for customers ordering directly. Still, the most suitable delivery model highly depends on your restaurant’s goals, size, and capital.

Which one will you choose?

Choosing the right delivery model for your restaurant is an important strategic decision that can significantly impact your business. The potential benefits of a hybrid model are worth considering, but it’s essential to weigh the pros and cons of each approach based on your restaurant’s individual needs and resources. As always, the key lies in continuously evaluating your strategy, learning from the experience, and being flexible enough to make necessary changes for your restaurant’s success. Interested in opening a CloudKitchen® delivery kitchen in Singapore? Fill out the form below or contact us today.

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