Agreeing to a contract with a third-party delivery partner is a big decision. It can be overwhelming to ponder all the details and ramifications. That’s why it is smart to pull in a legal adviser.
Ryan Palmer is a partner with Lathrop GPM.
Ryan Palmer, the head of Lathrop’s restaurant, food, and beverage industry team, begins consultations with a question: “Is working with a third-party delivery provider right for your business?”
For many operators, it is. Consumers are accustomed to ordering from DoorDash, Uber Eats, and GrubHub. If they can’t find you on one of those platforms, you might as well not exist.
And there are real dollars at stake. The U.S. online food delivery market size reached $29.1 billion in 2023. It would seem silly not to get a piece of that pie.
The decision is not straightforward though. A provider will want some level of control and to keep a sizable portion of each sale.
Only an operator can decide what is right for an operator. Before you say yes, talk through these issues with an adviser.
Are we exclusive?
A provider will want you to go steady. You don’t have to. Many operators work with multiple marketplaces. By not being exclusive, you might be turning down benefits — leeway to negotiate marketing partnerships, menu updates, promotions — but that might be fine.
“It’s about preserving future options,” Palmer said. “You don’t know what technology is going to do. You don’t know what your concept is going to look like. If you’re locked into a long-term exclusive contract, you don’t have any other options.”
If you agree to exclusivity, make sure you define performance benchmarks, and ask for the right to terminate the contract if the provider falls short.
Get the Data
Providers will share some data but it might not be as comprehensive as you want. The best you may get is demographic info. But make sure you at least get that.
“Ask for an anonymized customer report,” Palmer said. “It will be aggregated data and it generally won’t have anything that lets you reach out to individual consumers. The orders will be running through a platform you have access to but don’t own.”
Marketing spend
Antonia Scholz practices with Cheng Cohen.
A provider can deploy a variety of marketing tactics that can benefit you. It could place you on a carousel in its app. It could provide a discounted delivery fee on certain days. It could run any number of menu campaigns. Ask about them. But don’t be surprised if it asks you to invest as well.
“I’ve had providers say, If you put a thousand dollars of marketing into a campaign we will do something,” said Antonia Scholz, a partner at Cheng Cohen. “Usually that will be reflected in a monthly or a quarterly budget. That may dictate how you run your promotions, which could have a big impact on your success on the platform.”
Will your SEO benefit?
Think of what a provider can do that you can’t. You may have a slick digital approach but you probably can’t match a provider’s reach.
“Along with delivery, what you’re really paying for is a provider’s advertising and promotions expertise,” Palmer said.
A provider isn’t driven by altruism. It will funnel orders through its channel, not yours.
“When consumers search for you, they will find a link to order through the provider as opposed to your home page,” Palmer said. “That can be frustrating but it still might be worth it to you to promote your restaurant.”
Price parity across platforms
Providers know they’re not the only game in town. If you plan on working with more than one provider, ask about price parity.
“If your burger is $10 on one marketplace, can it be $12 on another platform?” Scholz said. “Get into the nuances when you negotiate.”
Tech integration
You may have a responsive website and mobile app that you love. But how will your tech integrate with that of a provider? It may be no problem or it may be tricky. Ask about it on the front end.
“You want the software components to fit together on all channels so you can maximize sales,” Scholz said.
Liability insurance
Most contracts have clear-cut language in the event of a driver accident. But what happens if a customer contracts food poisoning? Or if a driver tampers with an order? These questions should be considered before signing a contract.
“If you are going to work with a marketplace, talk to your insurance broker and get advice,” Scholz said.
Chargebacks
Here is a scenario you might encounter. You prepare a meal for delivery and hand it off to a driver. The driver gets lost and arrives late. Or jostles the bag and spills the order. Something. The customer is unhappy and complains. You get a request from the delivery provider to make a full refund. You have done nothing wrong. But you give the refund.
This happens all the time, said Chris Munz, president of growth at the restaurant technology company Voosh, during recent Food On Demand Conference. Across the industry, 2.5 to 3 percent of an operator’s total revenue is hung up in delivery disputes that lead to chargebacks, he said. Who pays for what under which circumstance?
“Look at the contract and make sure you have the support you need,” Scholz said.
Listen to your Lawyer
Be careful about what you sign. Consider every word with your lawyer. If it makes sense for you to try a partnership, go ahead. Be optimistic at the outset. A provider will want you to succeed. It will want you to stay on its app. See what happens. If it doesn’t meet your expectations, you can always pivot.
“The contracts these days are fairly reasonable,” Scholz said. “A lot of kinks have been worked out in both directions. The providers have built a level of trust.”
