February 29th, 2024
Online food delivery market is expected to grow by 10% over the next five years and reach $1.79 trillion in volume by 2028 globally which makes delivery option a must for any pizza restaurant. With third party delivery services charging up to 30% in commission fees per order and increasing minimum wages, the decision between employing own drivers versus third party delivery services has become increasingly more difficult for pizza restaurants.
With over 73,000 pizza restaurants in US alone, making the right decision for delivery operations is crucial consideration for pizza restaurant owners. In this article, we will compare both options and determine which delivery option makes the most business sense for pizza restaurants.
Pizza giants like Domino’s and Pizza Hut use in-house delivery and have managed to build successful pizza businesses in part to their delivery systems. While smaller pizza restaurants might not have the economies of scale to benefit from in-house delivery as much as large chains like Domino’s and Pizza Hut, there are pros and cons worth considering.
Having direct control over delivery operations can help pizza restaurants improve delivery timelines, standardize quality of service and reduce friction for operational efficiency. One of the biggest benefits of having in-house delivery is being able to schedule more drivers for peak hours to fulfill and deliver more orders on time.
On the staffing side, pizza restaurants also have full control over who makes deliveries, timelines and access to delivery data. This not only helps improve operational efficiency but also improves organization autonomy to enhances the entire delivery process.
When using own drivers, pizza restaurants can provide more consistent branding through uniforms, car branding and consistent delivery times. By having full autonomy of delivery systems, pizza restaurants are able to consistently deliver on brand and provide a consistent standard of quality to customers.
With 70% of consumers preferring to order directly from restaurants, pizza restaurants don’t always stand to benefit from third party delivery service as they typically require consumers to checkout through their own app (ie: Uber Eats, Doordash, etc.). For customers who like to call to order, offering an in-house delivery can be the best way to provide high quality service.
By having in-house delivery drivers, pizza restaurants can also offer a more personalized customer experience which can create a cyclical net benefit that starts with more satisfied customers. Customers who are happy with the service they received are more likely to give a higher average tip to drivers who in turn are more likely to provide better quality service if they think they will be tipped more.
With 30% commission rates on delivery orders being common among third party delivery service providers and average profit margins of 15% among pizza restaurants, having in-house delivery drivers can decrease costs over time.
While there is an upfront cost to in-house drivers which includes the hiring process, vehicle related expenses and wages, per delivery cost decreases overtime as the delivery systems get optimized and streamlined into the entire restaurant process.
It’s difficult to envision more reach than having access to DoorDash’s 32 million users who are actively searching for food to order. Unless your pizza restaurant is well known and has the resources to operate a sprawling delivery network, getting enough orders and reach to deliver those orders can prove to be a daunting task.
Another aspect worth considering is your pizza restaurant’s ability to deliver a sudden influx of orders using in-house drivers. Your pizza restaurant is likely to be under staffed or over staffed with drivers at any given time which will negatively impact your operational performance.
It can take considerable time and resources to go through the process of hiring in-house delivery drivers. From posting openings on recruitment portals to reviewing candidate applications and conducting interviews, the overall process of just finding one right candidate can take more than ten hours.
The time it takes to conduct background checks, on-board and train drivers which can all add significant strain to your pizza restaurant’s operations. Also, the cost of in-house driver turnover can significantly impact not only your delivery operations but also your overall brand image if customers are impacted by the turnover.
Vehicle related expenses add another layer of costs to your restaurant’s overhead when you staff in-house drivers. Expenses such as insurance, parking, gas, tolls and maintenance can have a significant impact on your pizza restaurant’s bottom line.
Employee related expenses such as wages, overtime pay, tax contributions and employee insurance can also add significant cost to overall expenses and reduce your ability to invest into other areas of your pizza restaurant.
The online food delivery market is dominated by DoorDash (66% market share) and UberEats (23% market share) in the US. Accessing these companies’ extensive delivery networks and enormous active user bases can offer a lot of value to pizza restaurants despite the hefty 30% delivery fees.
When partnering with a third party delivery service, pizza restaurants get instant access to an established network of delivery drivers and vehicles, enabling quick implementation of delivery services.
This offers restaurants reach to areas beyond its immediate vicinity and can help expand into a broader customer base. Third party delivery services also provide flexibility in delivery options, including same day or scheduled deliveries without requiring infrastructure setup.
Shifting the responsibility of hiring, training and managing in-house delivery drivers is another benefit of hiring third party delivery service. With over 8,000 non fatal injuries of pizza delivery drivers recorded in 2019, minimizing liability risk is also important.
By partnering with third party delivery services, pizza restaurants are able to minimize the risk of legal liabilities such as accidents, injuries and property damage as they are typically the drivers’ or delivery service’s responsibility.
Third party delivery services allow pizza restaurants to adapt quickly to fluctuations in delivery demand without the constraints of fixed staffing levels. Pizza restaurants can seamlessly adjust delivery operations during peak hours, holidays or promotions to meet fluctuating demand.
Third party delivery also give pizza restaurants the option to temporarily suspend delivery services during slow periods or off peak hours to optimize resource allocation and reduce wage costs.
Despite third party delivery services having a screening process for hiring drivers, pizza restaurants have limited oversight and control over the conduct, professionalism, and performance of third-party delivery drivers. This lack of control can result in potential inconsistencies in service quality, including delivery times, order accuracy, and customer interactions, leading to negative customer experiences.
When using third party delivery services, restaurants will face difficulty in enforcing brand standards and customer service protocols, which may result in brand reputation damage and loss of customer trust. For example, average user score for Uber Eats is only 2.8 stars which should worry any pizza restaurant trying to build a recognizable brand.
Pizza restaurants also risk negative brand associations and customer dissatisfaction due to delivery mishaps or poor service quality associated with the third-party provider. With 93% of consumers reporting that their purchasing decisions are influenced by online reviews, low customer satisfaction can lead to poor reviews and lower sales for your pizza restaurant.
With most delivery services charging 15-30% commission fees per order, pizza restaurants should also consider additional fees that delivery as a service companies charge. These additional fees include marketing fees, technology fees and even menu fees that get transferred onto consumers.
To assess whether it’s more financially beneficial to employ in-house delivery drivers versus third party delivery services, let’s look at an example of $1000 in delivery revenue with average hourly wage rate of $15.91 for pizza delivery drivers and 30% fee rate for third party delivery services.
While third party delivery service fees can vary, a typical 30% fee will cost your pizza restaurant around 10% extra than having in-house drivers. Besides wage costs and additional costs such as gas and insurance, your pizza restaurant will also incur initial cost of hiring, training and on-boarding delivery drivers. But with 15% average margins across the pizza restaurant industry, 10% can make or break a pizza restaurant.
The debate between in-house delivery and third-party delivery for pizza restaurants underscores the importance of balancing costs, control, and customer experience. While third-party delivery services offer convenience and access to a wider customer base, they come with notable fees and potential loss of control over delivery standards. Conversely, in-house delivery empowers restaurants to maintain quality control, enhance customer satisfaction, and potentially save on commission fees, albeit with added responsibilities in recruitment, training, and logistics.
The best choice depends on the specific needs and resources of each pizza restaurant, emphasizing the significance of carefully weighing the pros and cons to make an informed decision that aligns with the restaurant’s goals and values.
Third-party delivery refers to the process where a unaffiliated company, provides delivery as a service and delivers food orders placed by customers from partnered restaurant to customers’ location. Popular examples of third-party delivery services include Uber Eats, DoorDash, Grubhub, and Postmates.
Inn-house restaurant delivery refers to the restaurant itself employing drivers to deliver food orders directly to customers without involving third-party delivery services. The restaurant handles all aspects of implementing, managing and executing a delivery system.
It depends. Third party delivery services will cost restaurants more per delivery than having in house drivers, but in-house delivery service implementation requires significant resources and effort to implement.