Deliveryapp costs:
Besieged businesses forced to make hard choices
Besieged businesses are forced to make difficult choices.
What’s breathing financial life these days into Simileoluwa Adebajo’s Nigerian restaurant in San Francisco, Eko Kitchen, may also slowly be killing it.
Thousands of Bay Area restaurants like Eko Kitchen nixed dinein service last month in adherence to the state’s shelterinplace order. The change has left the industry clinging to any semblance of revenue generated through delivery apps like Uber Eats, Grubhub, DoorDash, Caviar and Postmates. It turns out, the dependence, driven by desperation, is costly — the commissions for each typically range from 15% to 30% of an order.
The charge isn’t new to Bay Area restaurateurs, but the conditions under which they’re having to foot the bill — during a global pandemic — are different. The situation has forced some businesses into dire straits as they either contemplate closing, attempt to boycott the apps alongside other small restaurants, or venture out to sign up with smaller unproven food delivery firms charging flat fees instead of percentages. The industry’s lifeline is, as of now, the source of its misery.
“(Delivery apps) honestly don’t care about you as a small business. They make their money off those large, corporate clients that are national chains like McDonald’s, where there’s one within 5 miles of anyone ordering,” Adebajo said. “The small businesses like mine over there in the corner, they’re not thinking about how the fees impact my kind of business. They don’t
care about us.”
Boycotts were already on the minds of a cadre of chefs in the East Bay, according to Oakland chef Nelson German, who said many were fed up with the delivery service fees well before the coronavirus pandemic. The situation changed when people were ordered to shelter in place, he said.
“We were going to do that, but right now with how the industry is, a lot of us need all the help we can get when it comes to these services,” German said.
To their credit, some delivery companies have made tentative concessions to help smallbusiness owners. Postmates is temporarily waiving commissions for San Francisco food businesses that wanted to join its service. Grubhub is temporarily deferring its marketing commissions from independent restaurants. DoorDash and Caviar are allowing restaurants to sign up and are not charging commissions for 30 days, lasting through the end of April.
But even these gestures of goodwill during dire times are made by the companies while they focus on potential profits. Grubhub’s “Supper for Support” may give customers a $10 discount on orders of $30 or more between 5 and 9 p.m., but weaved into the fine print of the deal that Grubhub will base its commission on the “nondiscounted product total rather than the amount paid by the customer.”
Free marketing, discounts and deferred payments just aren’t enough, according to Octavio Diaz, owner of Agave Mexican Restaurant in Oakland. Diaz is dropping delivery apps like Caviar for lesser known companies like OrdrSlip, which focuses on restaurants that can’t afford, or don’t want to pay, the thirdparty fees associated with using services like Uber Eats or Grubhub.
With OrdrSlip, a restaurant pays a flat $100 monthly fee, along with a $1,000 setup fee. An annual fee is $1,100, with a $750 setup fee. And at a time when profits are down, the flat fee is more accommodating to the new restaurant market, Diaz said.
“You just save a lot of money having a set price. You do one order and pay $100 and you do 1,000 orders and still pay $100,” he said. “The other apps just aren’t flexible. The rates are so high right now that they’re driving places — that are just trying to hang on — out of business.”
Bay Area restaurant owners are also thinking about the fees customers face while using each service. With unemployment skyrocketing and closures decimating the smallbusiness industry, how far a dollar can go when it comes to ordering delivery is important, Diaz said.
Caviar, since it’s a more premium delivery service, tends to have the most fees. The service charges a delivery fee, a restaurant fee and a service fee.
DoorDash delivery fees usually fall between $5 to $8. Postmates charges a delivery fee, a minimum order amount, a small order fee and a percentagebased service fee. Uber Eats charges a delivery fee based on how far a customer is from a restaurant, which is similar to Grubhub.
The deliveryapp world is a competitive marketplace. Before the pandemic, which has made them necessary for business in the Bay Area, there were around 40 million thirdparty delivery app users in the U.S., according to recent data. Many of the companies are looking to increase their share of the market this year, including DoorDash, which filed to go public in February with a $13 billion valuation.
DoorDash, and many of the deliveryapp companies, operate in similar ways to Bay Area tech startups — raise funds fast and expand even faster. It turns out the 15% to 30% fees restaurants are bemoaning aren’t making the companies rich, according to Michael Petrilli, a San Francisco restaurateur and food business consultant. Petrilli also oversees the operations the Little Star pizza chain in the Bay Area, which has a robust delivery operation.
“These companies are like startups. If you get in there early with them, you aren’t paying the 30% fee, you’ll have something lower. The 30% just seems to be the going rate now,” he said. “It’s a dogeatdog battle between these delivery companies. They all want more of the market, and that 30% is all about value. Think of it this way: 10% of $10,000 worth of orders is a lot more to them than the 30% of $1,000 worth of orders, which most places are doing.”
But even for larger brands like San Francisco’s Daily Grill restaurant, which is listed on Grubhub, Postmates, Doordash and Uber Eats, the fees matter.
Matt Carralejo, vice president of Grill Concepts Inc., which is Daily Grill’s parent company and oversees 13 locations across the country, said the company is constantly reevaluating how to use the delivery apps in profitable ways. What it comes down to is volume, he said, but even that has its own pitfalls during the coronavirus pandemic.
“The delivery fees are a substantial cost, but we try to balance that by just doing more. Instead of a higher price and selling less, we lower our prices and sell more,” he said. “It’s tough with the limited staff now. We’re all just learning on the fly and making adjustments as time goes on.”