New research from Wharton’s Manav Raj finds that delivery platforms are intensifying competition and pressuring profit margins, forcing many restaurants to close.
For consumers, delivery platforms like DoorDash and Uber Eats have made dining easier than ever. With just a few taps on a smartphone, hungry customers can browse menus, compare options, and order meals delivered right to their door. The convenience is undeniable. But for restaurants, the story is far more complicated. Behind the scenes, food delivery apps are intensifying competition, squeezing profit margins, and forcing many restaurants to close their doors.
How Delivery Platforms Transformed the Restaurant Industry
Delivery platforms first emerged in the early 2000s with companies like Grubhub and Seamless, which offered an easier way to place orders online instead of calling restaurants directly. But it was the smartphone revolution of the 2010s that truly propelled the industry. Apps like Uber Eats introduced features like GPS tracking and real-time delivery updates.
These features did not only make ordering easier; they changed how people think about dining. “Platforms break down barriers,” Raj said. “If you wanted Chinese food before, you’d pick the nearest option. Now, you can order from anywhere in the city, and it arrives at your door. Proximity is no longer a factor.”
This ease of access has broadened consumer choices but also created new challenges for restaurants. Raj’s paper shows that the arrival of digital platforms increases competition in two key ways.
“There’s horizontal competition — restaurants now have to compete across much larger geographic areas,” he said. “And there’s vertical competition, where platforms impose fees, creating margin pressure.” Both forces make it harder for many restaurants to survive.
How Does DoorDash Work for Restaurants?
How do companies like DoorDash work for restaurants? Delivery platforms charge restaurants a basket of fees that can add up quickly. These include commission fees of typically 15-30% per order, delivery fees (often 10-20% if using the platform’s drivers), and payment processing fees. Restaurants can also pay extra for marketing services like sponsored listings to boost visibility.
“Our research demonstrates that the emergence of these platforms significantly increases the likelihood of restaurants closing their doors,” Raj noted. The reason? Restaurants face mounting pressure to compete on a larger scale while also absorbing the costs imposed by the platforms. For some, it’s a losing battle.
While the overall market has become tougher, not all restaurants are affected equally. Raj’s study showed that restaurants are more likely to close when delivery platforms enter the market if they’re less efficient at generating revenue or if they’re in areas with lots of competition.
Also, younger and smaller independent restaurants often struggle more, he said. “Familiarity plays a big role. People order from their favorite restaurants because they trust them, not just because they’re close by. Newer restaurants lack that level of consumer trust and recognition, making it harder for them to compete.”
Interestingly, some types of hospitality establishments are thriving in this new environment. “Bars and clubs seem to benefit from delivery platforms,” Raj said. “Their service often complements delivery. For example, people might order takeout before heading out for a night out. They don’t face the same direct competition.”
The study also revealed that traditional markers of success, like location, are becoming less important for restaurants. “Location is less valuable in a world where delivery is king,” Raj observed.
Can Restaurants Adapt to Apps Like DoorDash and Uber Eats?
His study also underscored the importance of restaurants adapting to the ‘on-demand’ economy. “Invest less in prime locations and focus more on efficiency,” Raj advised. “If you’re competing in the takeout segment, think about how to deliver the best experience at the lowest cost. And above all, position yourself in a way that adds value beyond what the platform provides.”
Delivery apps themselves also face strategic choices, he said. While their business model thrives on having a wide variety of restaurants, the current system encourages consolidation, which could limit diversity in the long term. “It’s in the platforms’ interests to promote a diverse range of options,” Raj suggested. “One way to do that might be directing traffic to younger, independent restaurants to help them compete.”
All told, delivery platforms have done more than make ordering food easier; they have reshaped how restaurants compete, operate, and, ultimately, survive. “These platforms offer consumers incredible convenience and choice, but the trade-offs for restaurants are significant,” Raj said.
For restaurants, the challenge is clear: Adapt to the platform-driven market or risk being left behind. And for platforms, the opportunity lies in fostering a competitive ecosystem that balances convenience for consumers with the sustainability of the industry.
As Raj put it: “The food delivery apps are here to stay. The question now is how restaurants and platforms can work together.”
