When restaurants partner with delivery platforms, most of the gains go to chains rather than independent restaurants, a recent study showed.Fred Lum/the Globe and Mail
There was a time when I used food delivery apps constantly. They were convenient, fast-ish and let me try new places without leaving the house.
But over the past year, I’ve mostly stopped. When pandemic lockdowns led to an explosion in the growth of app-based food delivery, the economics of a third-party middleman were hotly debated.
A study published last year in the Management Science journal looked at what actually happens when restaurants partner with delivery platforms like Uber Eats and DoorDash. Yes, sales go up, but so do the hidden costs. And there is a big difference in how independent restaurants are affected compared to chain restaurants.
We already know delivery orders cost more. Between service fees, delivery charges and markups on the food itself, that $18 pad thai can balloon to $30 before taxes and being asked to tip in advance (don’t get me started).
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But what the study shows is that while restaurants do benefit overall, most of the gains go to chains. Independent restaurants see smaller boosts, and most of the value doesn’t come from delivery orders, but rather, from more people discovering them and deciding to eat in.
Partnering with these platforms tends to increase total revenue for these restaurants, mostly from new or occasional customers. That sounds like a win. But it also cannibalizes their in-house takeout orders, which means lower margins.
Big chains often have better deals with delivery platforms. They have the volume to negotiate lower fees with the apps. They might even build their pricing with delivery in mind.
Independents? They’re usually stuck paying full-freight. That means they get less of each sale, even though their food likely costs more to make and serve.
For some restaurants, it becomes a trap. They join a platform hoping for growth, only to find themselves hooked on a new customer base that’s less loyal, more expensive to serve, and more likely to bounce to the next place offering $5 off their next order.
That’s a rough trade-off. Especially when you think you’re helping a local business by tapping “order again.”
Now, I’m not trying to guilt anyone out of convenience. There are lots of good reasons to get your food delivered – time, mobility, parenting, exhaustion and more.
But if you’re someone who enjoys supporting neighbourhood restaurants, it’s worth knowing how much of your money actually gets to them. Spoiler: it’s not much.
So what can you do?
First, if the restaurant has its own online or phone-based ordering system, use that. Some places will even offer a small discount for ordering directly. You’ll save a few bucks and they’ll keep more of the sale.
Second, pick it up yourself. I’ve started doing this more often. It saves money, sure, but the real benefit is the food. It’s just better – hot, fresh, not juggled around in a backpack for 25 minutes.
And third, eat at the restaurant when you can. You get the meal as it was meant to be served and it sends a clear signal to the restaurant: I want you to keep existing.
It’s not about swearing off delivery forever, it’s about being intentional. If you’re ordering in twice a week, swap a delivery for a dine-in experience when you can.
The cost might be the same if you get upsold into dessert, but instead of paying for delivery and markups, you get a fresher meal.
Independent restaurants are part of what makes a neighbourhood feel like home. They host our birthdays and anniversaries. They’re where we meet friends, and they bail us out of last-minute, we-have-nothing-in-the-fridge emergencies. Restaurants make our cities better.
But they’re also running on tight margins and the economics of delivery aren’t in their favour.
I used to think ordering from a local place through a delivery app was helpful. Now I realize supporting these businesses means showing up.
The research confirms independent restaurants benefit most when delivery drives dine-in visits, showcasing what makes them special.
Picking up your own food or dining in isn’t always as easy, but it’s better – for them, and me too. That’s the real takeaway.
Preet Banerjee is a consultant to the wealth management industry with a focus on commercial applications of behavioural finance research.