Once a simple POS system for restaurants, Toast has over the years morphed into the Swiss Army Knife of restaurant tech platforms, offering everything from payment processing hardware to back-of-house payroll software. Add delivery to that list. Today, the company announced the launch of Toast Delivery Services, which will, according to a company press release “eliminate high commission fees” from third-party services like DoorDash or Grubhub.
To do that, Toast will “enable restaurants of all sizes with an on-demand network of local drivers”. That’s a big point, since an expensive aspect of any partnership with a third-party delivery service is the cost of paying drivers.
Typically, restaurants pay higher commission fees to third-party delivery services when they need access to the entire delivery stack: the marketing, the technical ability to process orders, and the drivers themselves. While subtracting any one of those can lessen a commission fee, most restaurants need the whole stack. And, as we discuss frequently, the commission fees for those things can be 30 percent per each individual transaction — a point that’s rightly causing a lot of uproar right now as restaurant struggle to stay alive in the face of dining room shutdowns.
To be clear, though, Toast is not supplying those drivers itself. A Toast spokesperson told me over email that, “Drivers do not work directly for Toast. Toast Delivery Services powers technology to dispatch local drivers from 3rd party network partners to fulfill all orders.” Who those third-party networks are was left unsaid.
It seems, then, that Toast is acting as more of a middleman between the restaurant and the driver fleet. Restaurants can still access third-party drivers, only through a partnership with Toast, which would process the orders, not Grubhub or DoorDash or Uber.
Restaurants will also still pay fees per transaction on orders, but via Toast, those are based on a flat rate rather than a percentage of each order. According to the company release, “the cost to deliver within a five-mile radius is under $8, versus a percent of sales.” More specific numbers weren’t given, and that’s where the benefits get a little cloudy. Depending on the size of the order, that under $8 figure may or may not be higher than what Grubhub et al. would charge.
For the sake of argument, let’s say I order a $15 burrito from a restaurant three miles away. Grubhub would charge a roughly $4.50 commission fee to the restaurant. Toast hasn’t said how it exactly calculates the distance-based fee, which means the commission on my burrito could be lower, about the same, or even higher, if the flat fee winds up being $8.
That said, with shelter-in-place orders still active and many families hunkering down at home, larger orders and family-style meals are all the rage on restaurant menus right now. A 30 percent commission fee of a $40 family order would cost the restaurant $12 if they were working with DoorDash or Grubhub. In that case, Toast’s flat fee would be considerably cheaper, if the restaurant was within five miles of the delivery destination. Toast’s spokesperson said that “Typically the delivery fulfillment radius serviced by [Toast] is 3-5 miles.”
There are a couple clearer spots in this news. Restaurants wanting to set up Toast for Delivery do not need existing Toast POS hardware. Customers will also keep control of their customer data, which is another sticking point with third-party delivery services.
Earlier this month, Toast cut 50 percent of its staff, prompting the question of how much restaurant tech a restaurant actually needs. Toasts new delivery system will have to prove itself a significant money saver for restaurants in order to stand up against the major third-party services.
Much of that would depend on the size of the orders a restaurant typically processes. I suspect those will continue to be larger for some time to come. Even when more states ease shelter-in-place restrictions, restaurant dining rooms will operate with far fewer tables and a lot more rules. Diners — many of which will be wary about going out to eat at all — may prefer to order in for the whole family instead. If that winds up being the case for the foreseeable future, Toast’s new system may prove an attractive bet for restaurants looking to improve their delivery logistics.