As competition in the food delivery world heats up, restaurants turn to third parties to keep up

Key Points
  • Olo is partnering with third-party delivery service DoorDash and digital ordering marketplace EatStreet.
  • Partnering with EatStreet and DoorDash makes it easier for customers to order food online and it grows Olo's restaurant partners' footprint in the U.S.
  • In the next five years, about 25 percent of restaurant sales will occur through digital ordering, Olo's CEO Noah Glass says.
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Digital ordering heavyweight Olo is expanding its online empire.

Olo, which creates the software that allows customers to order food from online menus and prepay in advance of deliveries, told CNBC that it is partnering with digital ordering marketplace EatStreet and expanding its partnership with third-party delivery service DoorDash.

Competition in the food delivery world is steep. Partnering with EatStreet and DoorDash makes it easier for customers to order food online and it grows Olo's footprint in the U.S.

Olo now services more than 200 major restaurant brands — more than 40,000 locations nationwide — via mobile, web and telephone.

In the next five years, about 25 percent of restaurant sales will occur through digital ordering, Olo's CEO Noah Glass said, citing analysts. That's about $200 billion of the $800 billion that people spend annually at restaurants.

As digital sales continue to increase, restaurants, particularly independent chains, need to find a way to get customer orders. That's where Olo comes in.

Restaurants pay Olo a monthly fee per store for access to its software. The software allows restaurants to create one menu that appears on all online ordering sites and apps, streamline orders into one centralized system and outsource delivery to third-party services.

Glass said digital same-store sales for restaurants that have been with Olo for more than a year grew 30 percent between 2016 and 2017.

Olo's new partnerships help the restaurants that use its services get access to more customers in more places and grow their online presence.

EatStreet, which competes with GrubHub, provides customers with a number of delivery-eligible restaurants near their location. It is available in more than 250 cities and connects customers to more than 15,000 restaurants.

Sites like EatStreet make online ordering easier and convenient by displaying all of the restaurants that deliver in your area as well as menus, prices, delivery fees and the typical delivery time. Customers place their order through the site and it is sent directly to the restaurant. The restaurant fulfills the order and delivers it using its own drivers.

EatStreet allows restaurants in smaller markets that don't have the presence of third-party delivery services to reach customers. Diners who order online tend to spend more money than those who eat at a restaurant, making these sales important for restaurants to capitalize on.

In mature digital ordering markets, online orders that are placed on sites like EatStreet account for the majority of digital orders. In the United Kingdom, for example, 70 percent of online orders come through digital marketplaces. In Turkey, it's 90 percent, Glass said.

While EatStreet brings Olo's restaurant brands to smaller markets, its partnership with DoorDash connects these brands to more than 500 major cities in the U.S. and in Canada.

DoorDash is one of a number of third-party delivery services in major metropolitan areas. Restaurants that allow ordering through these services can save money by decreasing their own delivery fleets and focus on what they does best: make food. The delivery service picks up the food from the restaurant and delivers it directly to the customer.

"Not every restaurant out there has that same sort of scale where they can have a favorable deal with one of these providers," Glass said.

He pointed to McDonald's partnering with UberEats and Yum Brands' recent investment in GrubHub as examples of larger restaurant companies that have been able to create lucrative relationships with third-party delivery companies.

While these partnerships with EatStreet and DoorDash may lure new restaurants to sign up with Olo, Glass said it is important for restaurants to strike a balance between these third-party services and their internal ordering services.

Third-party services, whether they incorporate delivery or not, charge restaurants a commission for their services and often reap the benefit of having full access to consumer data.