June 18, 2024

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delivery apps profit as restaurants forced to close doors

<span>Photograph: John G Mabanglo/EPA</span>
Photograph: John G Mabanglo/EPA

California restaurants were some of the first in the US to close in order to stem the spread of the coronavirus. And in the food service industry’s crisis, third-party delivery platforms have found great opportunity.

As businesses have been forced to close their dining rooms amid shelter-in-place orders, many have attempted a quick pivot to takeout and delivery. Without a physical presence in their customers’ lives, many restaurants’ immediate survival has come to depend on a digital one, shifting power and control from business owners to third-party technology companies that take large commission fees on every order. It has meant a boon for platforms such as UberEats and DoorDash, rare corporate winners in an accelerating unemployment crisis and recession that has decimated food service – though the apps still likely won’t be enough to keep many small businesses alive.

Apps to the rescue – or profiting from an industry’s collapse?

Third-party delivery platforms frame their business as one of marketing. When restaurants still had dining rooms to fill, apps promoted their service as a way of reaching new customers. Now the platforms hold the restaurant market captive, and the apps are more crowded than ever.

On the consumer side, the deals look great: UberEats is dropping delivery fees to drive more demand. Grubhub is offering a special “Supper for Support” $10 discount to qualifying customer orders every evening.

Related: ‘I could be on the street’: 100,000 jobs at risk as coronavirus pummels California restaurants

But restaurants are left to pick up the tab, as Grubhub’s usual commission is still calculated on the pre-discount total. From company to company, those commissions can range from 15% to as high as 35% of order totals.

<span class="element-image__caption">A Grubhub delivery person makes bicycle deliveries on the empty streets of Washington DC.</span> <span class="element-image__credit">Photograph: Erik S Lesser/EPA</span>
A Grubhub delivery person makes bicycle deliveries on the empty streets of Washington DC. Photograph: Erik S Lesser/EPA

UberEats has waived activation fees for new restaurants, but has declined to reduce commissions. Grubhub has temporarily deferred but not waived or reduced commissions for some independent restaurants.

Still, many struggling restaurants have no choice but to give in and sign up. Grubhub reports more than 10 to 15 times the usual onboarding requests from new restaurants, with 4 to 5 times more new businesses added to the app on a regular basis. “We know these are tough times for independent restaurants because people are not eating out. Our mission here is to help keep their doors open,” Grubhub said in a statement.

Faced with shutting her doors for the first time in over 20 years, Rachel Herbert, the owner of four Park Cafes across San Francisco and Oakland, took her chances on tech. “The first place we turned to was the third-party delivery companies,” she said. “When we’re looking at what we need to do to keep our doors open, we have to remember that 30% of the revenue we’re taking in is going to go to third-party delivery. They’re experiencing a boom. Don’t get me wrong, we’re grateful for the service. But it sure would be nice if they reduced those fees.”

Herbert says sales are down 80% across her cafes, which relied on neighborhood foot traffic. “We’re not really breaking even, but we’re keeping our doors open, so we’re making enough to pay the people who are working and providing that service for the neighborhoods,” she said. “It’s a matter of survival.”

Los Angeles restaurant owner and consultant Adam Weisblatt often tells his clients that third-party delivery is a good tool for short-term cash flow – but not for profit.

“The delivery fees and service charges from these websites are murder. They’re incredibly high rates,” said Weisblatt. “It’s almost impossible to profit at all.”

<span class="element-image__caption">Trays of to-go orders ready to be bagged are seen at the Michelin-star SPQR restaurant.</span> <span class="element-image__credit">Photograph: Stephen Lam/Reuters</span>
Trays of to-go orders ready to be bagged are seen at the Michelin-star SPQR restaurant. Photograph: Stephen Lam/Reuters

Weisblatt has temporarily shuttered his oyster bar, and kept his Thai restaurant Same-Same open for takeout and delivery on several third-party platforms.

“We’re doing quite a bit of delivery and to-go, but that’s always been a significant portion of our business. Still, Same-Same is going to lose money every month – we just don’t know quite how much yet,” he said.

“These sites live off of restaurants, they need us to survive. But I don’t feel like they’ve been especially supportive of the industry. They’re not proving to be good partners right now,” Weisblatt added. “It feels like a very short sighted decision not to be helpful, and that as soon as business returns to normal, people are going to look to really eliminate these things.”

Pivoting to survive. But for how long?

Some restaurants, many of them totally new to takeout and delivery, have attempted to make that leap already, deciding to go it alone and platform-free. That means keeping more of their profits, but expending more labor along the way, from wrangling orders as they come in to launching new DIY delivery fleets.

S+M Vegan relied on catering and regular pop-ups at bars in the Bay Area before the shelter-in-place order took effect. Plans for their brick and mortar, set to open later this summer, have fallen through. Now they’ve switched to twice-weekly meal pick-ups from their commercial kitchen.

“The advantage is we can do it by ourselves. Third-party delivery apps are known for being kind of a scam,” said co-owner Marie Chia. “The most successful restaurants run on a margin of about 6%, so the more people order from you, the more you’re losing money. We don’t need to be giving over 30% of our already very small margins.”

With only two owner-operators, S+M is too short-staffed to run delivery orders – but turning to an app for help is not an option.

“We’re just trying to maximize what we can get out of this and the value that we can give to our customers,” said co-owner Shane Stanbridge. “If we were taking a 15% to 30% chunk out of our margins, we might feel tempted to inflate our prices to make up for it. That’s just so unnecessary.”

California’s Alcohol Control Board loosened restrictions on restaurants selling liquor to-go, which has helped fill the gap for some businesses, with the margins on drinks typically wider than on food.

<span class="element-image__caption">An employee for Atelier Crenn restaurant hands a takeout order to a customer in San Francisco, California.</span> <span class="element-image__credit">Photograph: Josh Edelson/AFP via Getty Images</span>
An employee for Atelier Crenn restaurant hands a takeout order to a customer in San Francisco, California. Photograph: Josh Edelson/AFP via Getty Images

Oakland’s Kon-Tiki bar and restaurant began delivery service the day the new rules were announced, doing about half their usual business, said co-owner Matt Reagan. Ultimately he decided against using third-party platforms. The operation has gone old-school, with a menu available online, but orders made over the phone. “We give people the expectation up front that takeout is your best option – we can get you delivery but it’s going to be a little bit,” he said. “It’s like time traveling to 15 years ago and you’re just waiting for your pizza to show up.”

For now, it’s enough to pay some bills, and allow Kon-Tiki to hire back some staff. Plans to open another Oakland restaurant, Palmetto, are continuing apace, though with a to-go only grand opening planned for April. “There’s going to be a market there. It doesn’t have to be a big market, it just has to be something,” said Reagan. “For now, there’s a path forward. People are making a conscious effort to support the places that they want to survive.”

But as the nation slips deeper into a coronavirus recession, no one knows if consumers will be able to afford to keep up that kind of support – or if it will be enough to save the industry. In a National Restaurant Association poll of more than 5,000 restaurant owners, 11% said they’d likely permanently close in the next 30 days, and 3% reported that they’d already closed for good.

“We all want to have the lights on and people employed and be open for the day of the victory parade,” said Reagan. “But I think there’s going to be a lot fewer restaurants when that day comes – a lot of neighborhood staples that aren’t going to be able to make it through to the end.”

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