A fixed fee paid by the apps to the restaurants would help fix inefficiencies, says Professor Robert Swinney.
The rise of food-delivery services like DoorDash and Uber Eats provided a lifeline for restaurants during the pandemic. The relationship, though, seems to have soured of late, as people slowly resume their eating-out habits.
One reason is an inherent flaw in the revenue-sharing contracts between the restaurants and delivery services, said Professor Robert Swinney of Duke University’s Fuqua School of Business.
Under the predominant revenue-sharing contract, the delivery service that receives an order generally keeps 15-30% of the revenue and returns the rest to the restaurant. This percentage cut not only makes a dent in already low restaurant margins, it also causes the delivery service to make decisions in a way that fails to account for the negative impact that delivery orders have on the dine-in experience, said Swinney.
“Delivery orders placed on the platform generate congestion in the kitchen,” Swinney said. “This makes service worse for dine-in customers, potentially leading to restaurants losing dine-in revenue.”
Swinney, an associate professor in Operations Management, and colleagues– Pnina Feldman of Boston University and Andrew E. Frazelle (PhD, ‘18) of the University of Texas at Dallas–research coordination problems in supply chains, and they suspected similar coordination problems were happening here. “In a supply chain, where one firm makes a product and another firm sells that product, because certain costs are incurred only by one firm or the other, firms can make uncoordinated decisions, taking actions that may be in their own best interest, but that decrease the profit of the whole supply chain. Delivery platforms are a type of supply chain, with the restaurant making the food and the platform selling and delivering that food to customers,” Swinney said.
Jan. 11, 2023