NO FREE LUNCH
Restaurants, delivery apps at odds over fees as demand grows
Diners got used to delivery during the pandemic, and the habit may stick long after dining rooms reopen. But restaurants and delivery companies remain uneasy partners, haggling over fees and struggling to make the service profitable for themselves and each other.
Companies such as DoorDash and UberEats helped many restaurants stay in business during lockdowns, allowing diners to stay in and still order out. But that convenience came at a price: Delivery companies can charge commission fees of 30% or more per order, hurting restaurants’ already meager profits.
Some restaurants have since started their own delivery or dropped off the platforms altogether. Delivery companies are trying to keep them in the fold with lower-priced services and relief funds. But they’re not making money either.
“The relationship was bad, and it didn’t get better with the pandemic,” said Karan Girotra, a professor at Cornell University’s Johnson College of Business.
Girotra said delivery can be profitable in dense neighborhoods, where multiple orders can be delivered quickly and cheaply. But in sprawling suburbs, the cost of shuttling food gets too high.
“The economics don’t work out, so the delivery companies have to squeeze someone,” he said. “They have to squeeze the restaurants, the customers or the people working on these platforms.”
Figuring out how to make delivery profitable could be crucial in the coming years. Delivery was already growing before the pandemic, but it surged worldwide during lockdowns. Online orders for home delivery more than doubled in the U.S., Russia and Canada last year, and jumped around 30% in France, Germany and Spain, according to NPD Group, a market research company.
In a recent survey, the National Restaurant Association found that 60% of U.S. adults — and 71% of millennials — said they’re more likely to get delivery now than they were before the pandemic. But it’s unclear how many people will stick to delivery once the pandemic is over and they can dine in again.
Robbin Swaney, a retiree in Walker, Michigan, said she and her husband started getting delivery about once a week from Uber Eats early in the pandemic. At the time, they wanted to help local restaurants, but they have also come to like the convenience. “We’ll keep doing it,” Swaney said. Some restaurant owners still welcome delivery companies as partners. Corey Kaplan, who owns Corey’s NYC Bagel Deli in downtown Chicago, said DoorDash expanded his reach when his usual traffic of office workers dried up. The company lowered his commission fees and even provided bags.
“DoorDash single-handedly saved this store,” said Kaplan, whose delivery orders now make up 70% of his sales, up from 20% before the pandemic.
Chocolate maker Jeffray Gardner says he probably loses money on the one or two delivery orders he gets each day at Marsatta Chocolate in Torrance, California. But he’s still happy to work with delivery companies because they help him reach a wider audience. Last year, he even drove for DoorDash and UberEats to make extra cash and meet other local restaurant owners who might stock his chocolates.
But many restaurant owners say they can’t make the math work.
Evelyn Shelton, the chef-owner of Evelyn’s Food Love in Chicago, says the food she makes in her 40-seat restaurant, such as fried lobster, is expensive, so her margins are already slim. She only briefly tried third-party delivery before deciding to focus on catering to survive the pandemic.
“Doing a revenue share with someone who hasn’t bought any food or paid any labor doesn’t make sense to me,” she said. “We’re too tiny to give away all the profits.”
Many U.S. and Canadian lawmakers agree, and temporarily capped the fees delivery companies can charge to restaurants during the pandemic. DoorDash said it lost $36 million in the fourth quarter alone because of fee caps in 73 cities, counties and states including Washington and Oregon.
Kevin Huang, vice president for merchant operations at San Francisco-based DoorDash, said he understands the impulse to protect restaurants. But if DoorDash charges diners more to make up for the lost revenue, then fewer people will order. That hurts restaurants and the gig workers who drive for DoorDash, he said.
Huang says the relationship between restaurants and delivery companies is frayed partly because delivery grew so quickly during the pandemic.
“Overnight, they were forced to rely on delivery in order to stay open,” he said. “There were probably things lost in terms of how our business works and how our pricing structure works.”
Huang said the company is trying to build trust. It’s making more in-person visits to restaurants to educate them about their options, such as building their own websites so they can bypass some DoorDash fees.
Uber Eats said it’s experimenting with new pricing tiers. It has a light plan — with a 5% commission fee — that lets restaurants use their own drivers, for example. A premium plan, with a 20% commission fee, gives restaurants more visibility on the app and access to Uber Eats drivers.
But delivery costs money, and the companies are under pressure to start showing profits. DoorDash and Uber Eats both lost money last year, even though their sales more than tripled. European rivals Deliveroo and Just Eat Takeaway.com — which recently acquired U.S. delivery company Grubhub — also lost money last year.
“If those guys can’t turn a profit, it shows how broken the system is,” said Josh Saltzman, the co-founder of Ivy and Coney, a restaurant and bar in Washington.