Do delivery apps help restaurants?

LOS ANGELES — How much should delivery companies be able to charge restaurants? It’s a question that has been brought into sharp relief by COVID-19, as restaurants have seen takeout and delivery orders, which might have previously made up a fraction of their sales prepandemic, become essential to their survival.

Nationwide, among the “Big Four” apps that make up an estimated 95% of the third-party delivery market — Postmates, Grubhub, UberEats and Doordash — most charge restaurants a commission fee of 15% to 30% per order. Business owners usually negotiate a contract when signing up for a delivery app: If a restaurant chooses to use multiple delivery services, it might be charged a higher commission than if it signed an exclusive agreement with one app.

On the consumer side, delivery apps often charge customers a flat rate for delivery (which can vary according to a restaurant’s distance and other factors) or simply tack on a percentage-based service fee. But just because you’re paying $5 to Postmates or Grubhub for delivery from your local pizzeria, doesn’t mean the business is off the hook. As much as one-third of the pizza’s price might be charged to the restaurant as a commission for delivery and marketing services (the latter of which ensures the restaurant is prominent and easily accessible on the app), meaning that once fixed costs such as rent, ingredients, and labor are subtracted, a restaurant might make a few dollars on a $20 pizza, all while the consumer is largely unaware of said margins.

In April, the owner of a Chicago pizza restaurant posted to Facebook an invoice from Grubhub that showed he pocketed only $376.50 from more than $1,000 in delivery orders. Though Grubhub said the restaurant’s charges were an outlier, the post went viral, fueling concerns that onerous fees were hurting struggling restaurants.

So why partner with third-party delivery apps in the first place? Many restaurateurs, such as Anca Caliman, co-owner of Lemon Poppy Kitchen in Glassell Park and Parsnip in Highland Park, see them as a “necessary evil” during a time when indoor dining remains closed and demand for food delivery has grown exponentially. While complaints over high fees on apps were common among owners before the pandemic, they were less urgent when delivery orders were 15% of a restaurant’s sales, not 50%. As a result, many restaurants have urged customers to opt for pickup instead of delivery, enlisted in-house drivers or partnered with local courier services to avoid high commissions.