Sales Are Up for Food-Delivery Apps, All While Juggling High Cost Structure

Delivery Apps Soared During Lockdowns

Food-delivery apps have reported exploding revenue throughout the pandemic. Analysts say the challenge for these companies lies in managing high labor costs in the quest for profit. One focus for companies like DoorDash (DASH) and rival UberEats (UBER) has been improving driver efficiency.

Part of this process involves waiting to match drivers with orders until the food is almost ready for delivery, reducing time spent waiting. Features have also been added to delivery apps in order to track missing items, so companies make sure refunds are kept in check. All the while there’s pressure from competitors to cut commissions charged to restaurants, who are more than willing to negotiate lower fees with delivery sales growing in importance.

Restaurants Rely More on Deliveries and Scout Out Lower Fees

In an effort to give independent restaurants more flexibility, both DoorDash and Uber Eats introduced a sliding commission scale in 2021. Eateries can choose between a 15% and 30% commission, which ties into the level of support and marketing restaurants receive. While some restaurants reportedly welcomed the choice, others worry food-delivery apps are gaining outsized influence on their business operations.

Data shows restaurants may continue to play ball with food-delivery apps, and continue to look for the lowest fees. Delivery orders were up 17% last December on a year-over-year basis according to research from NPD Group. This reportedly continued even after restaurants reopened during the summer.

McDonald’s Is on the Clock with DoorDash

These companies are experimenting with creative solutions. Recent DoorDash documents show the delivery company is entering into an agreement with fast-food giant McDonald’s (MCD) that puts a financial incentive behind improved efficiency. Analysts note larger restaurant chains have had success negotiating lower commissions due to their volume. This latest deal offers McDonald’s the ability to pay as low as 11.6% commission on some orders, provided the food is ready in less than four minutes. The fees can go up to 17.6% when drivers wait over seven minutes.

Other large restaurant chains are taking steps in response to the rise of delivery apps. Chipotle Mexican Grill (CMG) and fast-casual chain Noodles (NDLS) charge customers higher prices when using delivery apps as opposed to their own apps or simply making in-store purchases.

So far it looks like the pandemic has altered the way many people think about procuring their meals throughout the day. Companies like DoorDash and UberEats sit at the forefront of this shift and have sales to prove the trend could be permanent. Making sure these operations are profitable, however, is the focus going forward.

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