Delivery is here to stay. But are First-Party or Third-Party channels the best way to win?

The growing popularity of third-party delivery platforms was a trend that predated the pandemic.  2018 and 2019 saw massive year-over-year (YoY) % growth for the industry, and in the beginning of 2020 both restaurant-focused and grocery-focused platforms were still sustaining YoY % growth healthily in the double digits.

COVID accelerated delivery adoption massively, as in-person restaurant visits and grocery shopping were forever changed by social distancing policies, and permanent in-person concern for many shoppers even as policies ended.  Grocery-focused platforms like Instacart saw especially strong growth at the beginning of the pandemic (300%+).  But fortunately for the delivery market, the return to pre-COVID “normals” like restaurant dine-in hasn’t caused platform sales to recede.  Overall, through September 2021 the third-party delivery market is holding a 150%+ growth rate compared to equivalent months in 2019.


Beyond the lack of a pullback on delivery usage, customer sentiments on future of use delivery and satisfaction rates with a prior delivery experience both suggest there is little indication delivery’s popularity will wane anytime soon.

Among restaurant-focused platforms, market share leaders DoorDash and UberEats have trended especially well.  And alongside them are both grocery leader Instacart and noted microfullfillment specialist goPuff.  Though microfulfillment is still in its early stages, % growth rates vs. 2019 are generally like that of the larger delivery platform peers, and are indicative of the expanding demand for previously underserved needs like convenience store snacks, non-food household goods, and alcohol.  But the lines continue to gray across platforms, with DoorDash also venturing into grocery and convenience store partnerships, suggesting that more occasions and product types exist as future growth opportunities for other platforms too.


A barrier to delivery adoption on the part of restaurant operators, especially before the pandemic, has been the understandable concern of cannibalizing transactions that would otherwise go directly through the restaurant, in the process sacrificing dollars to the third-parties via fees and driver tips.  That, along with concerns over product freshness and controlling the end-to-end brand experience, continue to leave some restaurant chains as third-party delivery holdouts.

But the first concern appears to be unfounded, especially since the pandemic began.  In under one-third of cases, surveyed delivery orderers say they would have purchased directly from the restaurant if third-party ordering wasn’t an option.  In the remaining two-thirds of orders, the respondent says they would have gotten food from somewhere else, indicating in those cases that third-party delivery drove an incremental transaction to that specific restaurant at that specific time.

If hypothetically the product cost per restaurant transaction is 30% of revenue, prices stay constant on first-party and third-party channels, and third-party channels take fees that also amount to 30% of revenue, a restaurant would definitely make incremental profit by selling on third-party delivery if two-thirds of the orders are incremental.  The scenario below displays further, and in fact determines with these assumptions that third-party delivery would create profit growth as long as ~45% or more of the orders are incremental (far less than the 68% currently shown by research).

If a third-party delivery presence can help grow a restaurant brand’s bottom line, first-party digital ordering channels have the potential to do it even more so.  The better per-order economics (by avoiding platform fees), the improved control of customer experience, and the better collection of data for continuous innovation + personalized communications are all advantages.  And fortunately for brands, customers want to order via first-party when they have the choice.  

But as shown below, certain restaurant brands have experienced digital adoption rates and splits of first-vs. third-party digital ordering far different from one another.  Digital adoption success for Chipotle, Chick-fil-A, and Starbucks may be a product of their affluent-skewing, digitally-savvy customer base, but they also have done excellent jobs building first-party channel loyalty through customer-friendly user interfaces, rewards and special offers, and data-driven personalization not possible to the same extent on third-party platforms.

For a brand to maximize its opportunity to ride the sustained growth of delivery, the proper prioritization of first-party vs. third-party is key.  It also is not a simple choice of one vs. the other, but instead a proper balance between the two.  To find that balance, it may be safest to aim for benchmarking against brands with digital adoption outpacing the market overall - ones like Chipotle - until more context specific for an individual brand can be assessed.  Having the first-Party vs. third-Party digital ordering split fall significantly more than 70/30 in favor of first-party could indicate missed opportunities to reach customers who begin on third-party platforms before deciding the restaurant from which they want to order.  Shifting too far in the opposite direction may mean an unnecessary sacrifice on margins per order, if more of those transactions could have taken place on the brand’s own channels instead.

Investing further on the value proposition for the customer to use first-party channels is the way to win.  Even if third-party is an acquisition tool to get a customer to order delivery from a given restaurant for the first time, beginning a 1:1 communication with the customer from that point forward and converting them to a first-party customer in subsequent orders is the goal.  Gauging customer awareness and perceptions of a brand’s first-party digital channels, plus concept testing specific rewards, experiences, or exclusive menu options, are all tools to make the first-party conversion as easy a choice for consumers as possible.

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