This story is part of a series based on The Path to Third-Party Excellence, a secret shopper study from Intouch Insight conducted exclusively for Restaurant Business and its sister publications CSP Daily News and Nation's Restaurant News.
Third-party delivery apps are pushing discounts as customers become more price-sensitive.
A study by researcher Intouch Insight found that nearly half (49%) of delivery orders have a discount attached. That included 65% of orders on DoorDash, 55% on Uber Eats and 27% on Grubhub.
The study, The Path to Third-Party Excellence, used secret shoppers to place 600 delivery orders from April through June. The orders were split evenly among the three apps and between limited-service restaurants and convenience stores.
The shoppers were not allowed to use a paid subscription to waive their delivery fees or get other benefits. But they still found plenty of savings to be had, such as free delivery, a dollar amount or percentage off their order, or a free item.
Those discounts are funded by the restaurants, by the apps themselves, or via a co-funding agreement between the two.
The discounting on delivery apps comes amid a surge of value offers across the restaurant industry as operators try to appeal to customers who have become more careful with their spending.
Food delivery, with its menu price markups, fees and tip, is precisely the type of discretionary expense consumers tend to forgo when money is tight. And yet DoorDash and Uber Eats have continued to rack up sales and transaction growth quarter after quarter, even as many restaurants struggle with traffic declines.
That has been in part due to delivery’s convenience. Consumers got accustomed to having meals delivered during the pandemic, and many haven’t stopped. The apps have also vastly expanded their selection to include not only more restaurants, but also grocery stores, pharmacies and retailers. And, as the Intouch Insight study shows, consumers really like the service: 91% of shoppers who ordered delivery from a restaurant said they were satisfied with the experience.
These benefits have apparently helped delivery apps overcome concerns about cost. But a greater focus on affordability could also be playing a role.
For instance, the apps have quietly reined in their delivery and service fees in recent years. Average delivery and other fees declined from $6.87 in 2022 to $5.96 this year, a change of 15%, according to Intouch Insight.
Lower delivery fees have been accompanied by more discounting. On Uber Eats, the number of merchant-funded discounts rose by 70% year over year in the second quarter, CFO Prashanth Mahendra-Rajah said during the company’s earnings call last month. Uber Eats has been encouraging restaurants to use discounts, expanding the types of offers available and making them easier to set up. Its website says that discounts can help restaurants attract new customers, increase order volume and get larger orders.
“We see very strong cooperation from merchants in using merchant-funded offers to drive their demand,” Mahendra-Rajah said, according to a transcript from financial service site AlphaSense. “It is actually a very helpful way for them to address their need to attack the affordability question that folks are asking.”
DoorDash said the Intouch Insight data did not match its own data on discount frequency, but declined to share how many of its orders feature a discount. However, the company said that discount activity on its app has not increased much: In July, it was up less than 3% year over year.
But, like Uber Eats, DoorDash has been promoting more discount options for restaurants. In July, it introduced lunch specials and happy hour discounts designed to help operators get more orders during slow periods. DoorDash said restaurants that used item-level discounts saw an average sales increase of 33% during happy hour and 23% during lunch.
“The revenue generated during these hours helps balance our labor costs while keeping our team members engaged during typically slow times of the day,” said Clinton Gray III, co-founder and chief brand officer at Nashville-based pizza chain Slim & Husky's, in a press release announcing the new discount options. “It's a great strategy for community-based businesses looking to find new customers that will lead to increased revenue week over week.”
Intouch Insight’s shoppers found fewer discounts on Grubhub compared to the other two apps. A Grubhub spokesperson said the company is focused on keeping prices low every day, and added that if a customer finds a better price on another third-party delivery app, Grubhub will make up the difference and offer $5 off the customer’s next order.
Delivery apps may also be using discounts to compete against one another for customers. According to an Intouch Insight survey this year, only 31% of delivery app customers said that they always use the same app, which means the majority of users could be swayed.
“For those who switch between apps, 50% of respondents said cheaper delivery fees influenced that decision, and 39% said promotions played a role, reinforcing the role that discounts can play in influencing those consumer purchase behaviors,” said Sarah Beckett, senior director of marketing for Intouch Insight.
For restaurants, discounting can be a double-edged sword. While low-priced offers can help attract new customers, those orders are typically less profitable. And they can train customers to always expect a deal.
“A consumer who only responds to promotions might not be a great consumer,” said Meredith Sandland, CEO of delivery software provider Empower Delivery. “They might be one that is complex for your business to handle and might not be as profitable.”
Three-unit Crisp Salads in Portland, Oregon, frequently runs discounts on the delivery apps. Delivery makes up 45% of Crisp’s business, and discounts such as buy one, get one free help it drive sales and get better placement on the apps, said founder Emma Dye.
She estimated Crisp’s average delivery costs range from 25% to 35%, which includes a 20% commission plus the discounts Crisp pays for. The discounts are usually effective at boosting sales, Dye said, and the revenue they generate typically exceeds the cost. But they have also become hard to quit.
If Crisp were to stop doing them, “I think our revenue would drop. I think we wouldn’t be seen in the apps as much,” Dye said. “I just feel like I have to be doing that to compete.”
“It is a bit of a doom loop,” said Sandland, who noted that third-party delivery discounts encourage customers to order through those platforms rather than directly from the restaurant, which is typically operators’ preferred method. “It’s not good for you, but you can’t stop.”
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