over year in the second quarter, CFO Prashanth Mahendra-Rajah said during the company’s earn- ings 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 at- tract new customers, increase order volume and get larger orders. “We see very strong coopera- tion from merchants in using mer- chant-funded offers to drive their demand,” Mahendra-Rajah said, according to a transcript from finan- cial 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 In- sight data did not match its own data on discount frequency, but declined to share how many of its orders feature a discount. Howev- er, 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 in- troduced lunch specials and happy hour discounts designed to help op- erators 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 mem- bers engaged during typically slow times of the day,” said Clinton Gray III, co-founder and chief brand offi- cer at Nashville-based pizza chain Slim & Husky's, in a press release announcing the new discount op- tions. “It's a great strategy for com- munity-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 com- pared to the other two apps. A Grub-
hub 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 cus- tomer’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 con- sumer purchase behaviors,” said Sarah Beckett, senior director of marketing for Intouch Insight.
TYPES OF DELIVERY DISCOUNTS BY APP THE OFFERS CUSTOMERS RECEIVED DIFFERED DEPENDING ON THE APP.
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 con- sumer,” said Meredith Sandland, CEO of delivery software provider Empow- er 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 gener- ate 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 de- livery discounts encourage customers to order through those platforms rath- er 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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OCTOBER 2024 RESTAURANT BUSINESS
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