The pros and cons of third-party delivery services for franchise restaurants

June 04, 2019

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The way restaurants deliver food has changed over the years. In the past, they either hired their own drivers or they didn’t offer delivery at all. With the arrival of third-party delivery services, many franchise restaurants can now deliver food, creating an additional source of revenue. However, there may be additional costs involved.

Using Skip the Dishes, Uber Eats, Foodora or other third-party delivery providers can make the cost of delivery very high. For instance, it’s not uncommon to see fees of as much as 35% of the bill —which is very high considering how low margins are.

On the other hand, having a third-party deliver food saves the hassle of hiring and retaining drivers. In many cases, a third party might be less expensive than having more employees and having additional labour costs and paying for mileage reimbursement.

Another thing to consider is the quality of food delivered. In-store, the restaurant can control the quality and the delivery from the kitchen to the customer. It’s highly unlikely something will affect the delivery of the food in these cases.

Using a third-party means a restaurant can’t guarantee the quality of the food by the time it gets to the customer. If the delivery person gets lost and the food arrives cold, for example, the quality will be impacted. This can negatively affect a franchise restaurant’s brand perception even if it’s not their fault.

Apps can also have an effect on employees. If more people are ordering online instead of visiting a restaurant, it can affect tips as a result of fewer customers coming through the door. Certain staff may be responsible to fulfil the orders, but not receive a percentage of the tip that goes to the driver. Also, employees may need to deal with technical problems that can occur with apps and may spend a large amount of time speaking to customer service to try to deal with these issues.

Many restaurants also aren’t set up for delivery workers to come and go. They may be at the front of the house, hovering near the host or hostess, which employees and customers may find frustrating. The restaurant layout may need to be reconfigured if third-party delivery services start to make up a large percentage of a business’s sales.

The bookkeeping part of the equation for food delivery apps can be a problem for restaurants because the payment process is different than it is for a regular customer. For example, the customer pays the third-party delivery service, which also collects the delivery fee as well as any applicable taxes; the delivery service pays the drivers; and the franchise pays the taxes on the delivery fee.

For instance, there may be reporting and reconciliation challenges. Some delivery service companies may consolidate the tax amounts or the detail isn’t provided. There are also issues with refunds and accounting for the delivery fee. As a result, month-end reconciliation is both time consuming and complex.

The payment frequency from each delivery service is also different. For example, Uber Eats pays weekly while Foodora makes payments every two weeks.

The impact on royalty and advertising payments should also be considered. As many franchise agreements date back to before third-party delivery apps became commonplace, it can be unclear whether royalties are payable on the total charged to the customer, or the revenue for the restaurant net of delivery charges.

BDO can help

We have extensive experience accounting for third-party delivery services with accurate, timely, cloud-based bookkeeping services. We also help franchise restaurant owners accomplish their goals by providing consulting, bookkeeping, and other business advisory services. Contact our Franchising or Cloud Bookkeeping Services professionals to learn how we can support your business.