Midsized Restaurant Chains Grapple With Reliance on Third-Party Aggregators

As major restaurants build out extensive digital platforms to compete with third-party restaurant aggregators, smaller chains are left in a bind.

Take, for instance, fast-casual Mediterranean brand Cava, which has more than 260 locations across 22 states and Washington, D.C., which recently filed to go public via initial public offering (IPO) with the Securities and Exchange Commission (SEC). The brand outlined in its Form S-1 the risks of depending on these marketplaces, noting that its larger competitors are better equipped to take on these challenges, given that they may “be able to take advantage of greater economies of scale.”

Cava noted that “substantially all” of its delivery sales, including those that are placed through direct ordering platforms, are fulfilled by third-party aggregators’ drivers, leaving the restaurant highly dependent on these companies.

“The third-party food delivery service industry has been consolidating and may continue to consolidate, which may give third-party delivery companies more leverage in negotiating the terms and pricing of contracts, which in turn could negatively affect our profitability,” Cava stated.

The restaurant added that, amid its plan to expands its “proprietary delivery services,” it will be increasingly forced to compete with these third parties, which “may have greater financial resources to spend on marketing and advertising.”

Certainly, aggregators have extensive reach. According to data from last month’s edition of the Connected Dining series, “Connected Dining: Third-Party Restaurant Aggregators Keep the Young and Affluent Engaged,” an exclusive PYMNTS report based on a survey of more than 2,200 U.S. consumers, 40% had used aggregators in the previous six months. Plus, three-quarters of consumers reported using aggregators when they do not have time to cook at home.

Consequently, Cava is not the only midsized chain to be concerned about relying too heavily on third parties. Others are finding ways to increase the share of delivery orders fulfilled via their own channels.

For instance, Sweetgreen, a fast-casual chain with around 200 locations, recently relaunched its subscription program, where $10 a month gets customers up to one daily $3 discount on their purchase, adding an annual subscription option that includes free delivery. By doing so, the brand incentivizes its most loyal customers to place delivery orders via direct channels.

The move came months after Chinese-inspired casual dining chain P.F. Chang’s, which has more than 300 restaurants across 22 countries, announced the launch of a rewards program subscription, offering free delivery, expanded rewards-earning opportunities and “VIP-level service” for $6.99 a month.

Of course, these kinds of offerings can be expensive for these midsized chains, many of which may not have the ability that their larger counterparts do to invest the time and resources into building out their delivery offerings.

“While this is a guest-facing rewards program, I think it’s also interesting to note some behind-the-scenes elements,” P.F. Chang’s Chief Operating Officer Art Kilmer said in an interview with PYMNTS. “This process consisted of 18 months of integration between various platforms as well as backend coordination by our team and providers as well as execution and training with our field team.”

Still, ordering directly from restaurants rather than via third-party channels is the norm for consumers making restaurant purchases digitally. A PYMNTS survey of nearly 2,000 U.S. consumers found that 16% of diners primarily order food via restaurants’ direct ordering channels such as their website or their app. Meanwhile, only half that share (8%) stated that they mainly order food via third-party aggregator.