Restaurants, apps at odds over deliveries
Haggling over fees amid COVID has left strain between uneasy partners
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 percent or more per order, hurting restaurants’ already meager profits.
Some restaurants, fed up with the fees, have since started their own delivery or dropped off the platforms altogether. Delivery companies are trying to keep them in the fold with lowerpriced 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 percent in France, Germany and Spain, according to NPD Group, a market research company.
In a recent survey, the National Restaurant Association found that 60 percent of U.S. adults — and 71 percent of millennials — said they’re more likely to get delivery now than they were before the pandemic. But it’s un
clear how many people will stick to delivery once the pandemic is over and they can dine in again.
‘Cost of doing business’
Chris Milton, owner of the Houston-based breakfast chain Toasted Yolk Cafe, said as the pandemic started to ease and delivery started accounting for less of his revenue, he began reconsidering and renegotiating the commission he was paying to third-party platforms. His company was growing, and that gave him leverage with Uber Eats, which lowered their take to 20 percent from 30 percent.
He had 12 locations and six more in progress, Milton said.
“At that point they really wanted to keep our business,” he said.
To offset delivery costs, he said his company ups the price on each menu item up by between 50 cents and $1 on third-party platforms such as Uber Eats. It only covers about half of the delivery price, he said. The rest?
“It’s the cost of doing business,” he said.
Around 10 percent of the company’s sales comes from delivery. At the pandemic’s peak, delivery accounted for 30 percent of his revenue, well above the 2 percent to 5 percent in the pre-pandemic era.
It hurt when third-party platforms like Grub Hub tried to take more of the pie during the pandemic, said Nicole Bean, owner of Pizaro’s Pizza, which has two Houston locations.
“It’s a really big slap in the face,” she said, noting she immediately shut out Grub Hub when they said they would raise rates. “We cut them off, and we started to figure out how are we going to take this delivery thing to the next level.”
Even before the pandemic, Bean had already decided Uber Eats’ 30 percent commission was too high, she said. So she ramped up her in-house delivery team and integrated DoorDash into her point of service platform as a backup, if things got too busy. (The integrated version of DoorDash charges her a flat $7 fee rather than a percentage, she said, which she found more manageable.)
Even as a backup, she said third-party platforms are unreliable, often showing up late and messing up orders.
“That’s the downside,” she 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 singlehandedly saved this store,” said Kaplan, whose delivery orders now make up 70 percent of his sales, up from 20 percent 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, Calif. 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 Uber Eats 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.
Frayed relationships
Evelyn Shelton, the chefowner of Evelyn’s Food Love in Chicago, says the food she makes in her 40seat restaurant, like fried lobster, is expensive, so her margins are already slim. She only briefly tried thirdparty 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 such as Washington and Oregon.
Kevin Huang, vice president of merchant operations at San Franciscobased 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, like 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 percent commission fee — that lets restaurants use their own drivers, for example. A premium plan, with a 20 percent 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.
After an unprecedented year, many restaurants are somewhere in the middle. Philadelphia restaurant owner Aaron Anderson thinks delivery fees are too high. But he also sees some value in delivery companies, which can help restaurants test new concepts.
Anderson, who operates four Original Hot Dog Factory locations, started a delivery-only brand late last year called Chef Big Rube’s Kitchen. It’s been so popular that Anderson will soon open a physical restaurant. He hopes it will be packed with patrons who aren’t getting delivery.
“Once things open back up, a lot of people are not going to be using the delivery apps, and that gives us the leverage to negotiate those fees,” he said. “Right now, we don’t have that leverage.”
“The relationship (between restaurants and delivery platforms) was bad, and it didn’t get better with the pandemic.” Karan Girotra, Cornell University professor