Delivery apps offer discounts for price-conscious customers

Third Party Shipping Discounts | Illustration: Midjourney/Nico Heins

This article is part of a series based on The Path to Third-Party Excellence study, conducted by Intouch Insight exclusively for Restaurant Business and its affiliated publications CSP Daily News and Nation’s Restaurant News.

Third-party delivery apps are offering discounts as customers become more price sensitive.

A study by research firm Intouch Insight found that nearly half (49%) of delivery orders come with a discount included. That included 65% of DoorDash orders, 55% of Uber Eats orders, and 27% of Grubhub orders.

Test, The path to excellence in outdoor solutionsused mystery shoppers to place 600 orders for delivery between April and June. The orders were split evenly between three apps and between limited-service restaurants and convenience stores.

Shoppers weren’t allowed to use a paid subscription to waive shipping fees or get other benefits. But they still found plenty of savings, like free shipping, an amount or percentage off an order, or a free item.

These discounts are financed by the restaurants, by the apps themselves, or through a co-financing agreement between them.

The discounts on delivery apps come amid a surge in value-for-money deals across the restaurant industry, as operators seek to appeal to customers who have become more cautious about their spending.

Food delivery, with its markups on menus, fees, and tips, is exactly the kind of discretionary spending that consumers tend to forgo when money is tight. Yet DoorDash and Uber Eats continue to see sales and transactions grow quarter after quarter, even as many restaurants struggle with declining traffic.

That’s partly because of the convenience of delivery. Consumers have become accustomed to ordering food delivery during the pandemic, and many haven’t given up. Apps have also vastly expanded their selection, including not just 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 have ordered delivery from a restaurant said they were happy with the experience.

These benefits have clearly helped delivery apps overcome cost concerns. But a greater focus on affordability may also play a role.

For example, apps have quietly reduced their delivery and service fees in recent years. Average delivery and other fees fell from $6.87 in 2022 to $5.96 this year, a 15% change, according to Intouch Insight.

Lower delivery fees have been accompanied by deeper discounts. At Uber Eats, the number of merchant-funded discounts increased 70% year over year in the second quarter, Chief Financial Officer Prashanth Mahendra-Rajah said on the company’s earnings conference call last month. Uber Eats is encouraging restaurants to take advantage of the discounts by expanding the types of offers available and making them easier to set up. The company’s website says the discounts can help restaurants attract new customers, increase order volume and get larger orders.

“We’re seeing very strong collaboration from vendors in using vendor-funded offerings to drive demand,” Mahendra-Rajah said, according to a transcript from financial services site AlphaSense. “That’s actually a very helpful way to address the need to address the affordability issue that people have.”

DoorDash said the Intouch Insight data doesn’t match its own discount frequency data, but it declined to say how many orders are discounted. However, the company said discount activity on its app hasn’t increased significantly: It was up less than 3% year over year in July.

But like Uber Eats, DoorDash is promoting more discount options for restaurants. In July, it introduced lunch specials and happy hour discounts to help operators get more orders during down times. DoorDash said restaurants that used item-level discounts saw an average increase in sales of 33% during happy hour and 23% during lunch.

“The revenue generated during these hours helps us offset labor costs while keeping our team members engaged during what are typically slower times of the day,” Clinton Gray III, co-founder and chief brand officer of Nashville-based pizza chain Slim & Husky’s, said in a press release announcing the new discount options. “This is a great strategy for community businesses looking to find new customers that will lead to increased revenue week over week.”

Intouch Insight customers found fewer discounts on Grubhub compared to the other two apps. A Grubhub spokesperson said the company focuses on keeping prices low every day, adding 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 can also use discounts to compete with each other for customers. According to an Intouch Insight study this year, only 31% of delivery app customers said they always use the same app, indicating that most users can be swayed.

“Among those switching apps, 50% of respondents said lower shipping fees influenced their decision, while 39% said promotions played a role, confirming the role discounts can play in influencing consumer purchasing behavior,” said Sarah Beckett, senior director of marketing at Intouch Insight.

For restaurants, discounts can be a double-edged sword. While low-price offers can help attract new customers, such orders are usually less profitable. And they can teach customers to always expect a bargain.

“A consumer who only responds to promotions may not be a great consumer,” says Meredith Sandland, CEO of delivery software provider Empower Delivery. “They may be someone who is complicated for your business to serve and may not be as profitable.”

Three-unit Crisp Salads in Portland, Oregon, often offers discounts on delivery apps. Delivery makes up 45% of Crisp’s business, and discounts like buy-one-get-one-free help boost sales and gain a better placement on apps, said founder Emma Dye.

She estimated that Crisp’s average shipping costs range from 25% to 35%, which includes a 20% commission plus discounts that Crisp pays for. Dye said discounts are usually effective in increasing sales, and the revenue they generate usually outweighs costs. But they’ve also become hard to quit.

If Crisp stopped doing that, “I think our revenue would go down. I think we wouldn’t be seen on apps as much,” Dye said. “I just feel like I have to do it to be competitive.”

“It’s kind of like a doomsday loop,” said Sandland, who noted that third-party delivery discounts encourage customers to order through those platforms rather than directly from restaurants, which is typically the preferred method for operators. “It’s not good for you, but you can’t stop.”

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