The Atlanta Journal-Constitution
Restaurants, delivery firms at odds as demand grows
Uneasy partners haggle over fees, struggle to make service profitable.
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 like Doordash and Uber Eats 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, 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 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.
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 singlehandedly 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 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.
Evelyn Shelton, the chefowner of Evelyn’s Food Love in Chicago, says the food she makes in her 40-seat restaurant, like 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, like Washington and Oregon.
Kevin Huang, vice president of 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, 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% 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.
The confluence of yet another feasibility study examining light rail on the Atlanta Betlline, the Biden administration’s intention to pass a major infrastructure bill, and the resurgence of congressional earmarks have reinvigorated the debate over the future of mass transit in Atlanta.
For most of us who live in the city, the debate is not whether to invest in mass transportation — it’s how to do it. With the national political debate centering on infrastructure, it is clear now is the time to push for an influx of much-needed federal transit dollars.
Unfortunately, the dollars are limited and appropriations will be divided among 50 states, hundreds upon hundreds of cities and thousands of projects.
As such, it is incumbent upon our state and city leadership to be responsible stewards of taxpayer money and opt for the transportation mechanism most likely to provide the desired benefits in the near term. Notably, while the need for transportation hasn’t changed, the options for its provision have. The invention and subsequent rapid development of autonomous transit have brought about a more diverse set of transportation investment options for consideration. Autonomous, mass transit shuttles operating on geo-fenced closed loops are consistent, reliable and, more importantly, cost-effective.
According to pre-pandemic MARTA estimates, light rail on the Beltline will cost upwards of $570 million and be com
plete sometime around 2045, assuming funding gaps are closed. Autonomous shuttles, on the other hand, can provide efficient, electric and inexpensive mass transportation on the entire Beltline for a fraction of the cost.
Each electric autonomous shuttle costs approximately $500,000. To cover the whole Beltline with constantly circulating autonomous shuttles, you’d need nearly 200 shuttles (taking into account a third of the fleet would be charging at any one time). That would cost about $100 million, leaving more than $470 million left over. This surplus can be used for trail preparation and establishing a level and continually maintained vehicle track that would run parallel to the existing paved trail. That effort, while it will require finan
cial investment, would be significantly less expensive than building out rail infrastructure, saving the taxpayers tens of millions of dollars.
In addition to being fiscally responsible, we should consider that the citizens of Atlanta have been patiently waiting for city leadership to provide transit on the Beltline for years. Transit was pitched as part of the original plan, and city leaders have paid lip service to the idea for years. It is time to deliver. However, while rail has been the common refrain, technological advancements present us with more readily available options that we did not previously have. In areas of the Beltline where foot and bike traffic is lower, autonomous shuttles can be operational in a matter of months. In more heavily trafficked areas,
after a few months of path preparation, we could achieve our dream of Beltline transit. Cost-efficient, electric transportation available immediately — what’s not to like?
Finally, putting cost and time efficiency (both major federal priorities) aside, in a world where dollars are finite and transit projects are seemingly endless, we must tell a consistent story for why Beltline transit deserves federal funding. To do that, we should align our ask with the goals and aspirations of the administration — funding zero emission transit and boosting innovative industry.
By using autonomous vehicles to provide Beltline transit we will pitch a new story, one centered on innovation, green technology and forward-looking public policy, thereby aligning our goals with those of the Biden administration and Democratic leadership in Washington and boosting our chances of federal support.
More than that, we would create an innovative transit corridor that would transform the public image not only of Atlanta and the Beltline but also of the region’s mass transit. An investment in autonomous shuttles will raise the local profile of our oft-beleaguered, unappreciated public transit agency. Innovation will spur ridership. To get millennials and Gen Xers to engage with MARTA, the organization must speak their language. Young people do not respond to outdated strategy and yesterday’s technology, but rather to excitement, novelty and innovation. And, as an added benefit, introducing Atlantans to autonomous transit technology early in its development will increase the likelihood that we, as a collective, will be eager adopters of shared autonomous vehicle fleets upon their widespread deployment.
Throughout my career, I’ve worked at nearly every level of government. I am intimately familiar with what goes into appropriations decisions, and I’ve been a consistent advocate of cost efficiency and innovation in government. I’ve learned that good public policy begins with setting a goal — transit on the Beltline is that goal. How we achieve that goal should adjust as technology advances and options become available. Light rail is a means to an end, not an end in and of itself. Autonomous shuttles can provide the same service for a fraction of the cost, with a shorter time horizon and highlight the forward-looking, technologically savvy character of Atlanta.