Restaurants hate delivery apps like Grubhub and Uber Eats. So they’re turning to these alternatives
“The worst thing that has ever happened to us is them,” said Mathieu Palombino, owner of the small New York pizza chain.
Palombino has done well with its own delivery fleet, he said. But now he thinks that logging out of Seamless is not an option. If you’re not with Seamless, “You no longer exist online. You are not there.” Because so many people order through the app, turning it off would mean losing about 80% of their business overnight, he said.
Restaurant operators complain that third-party suppliers like Seamless, DoorDash and Uber Eats are prohibitively expensive. These platforms provide customers with the ability to order from local restaurants, process restaurant payments, and allow contract drivers to collect meals from restaurants and deliver them to customers. They often charge restaurants around 30% per order for these services. However, profit margins in the restaurant industry are often paper thin, so these fees can wipe out the restaurant’s profits or go into the red. And when they outsource delivery to these platforms, restaurants also pass on valuable customer data and control how delivery orders are displayed to their customers.
As a result, restaurants are developing alternatives to complement the big players, such as direct order perks and DIY delivery services. These efforts help, but they are not enough to make the difference. Many restaurants are tied to delivery services that they hate without finding a clear way out.
Delivery to restaurants has never been more important.
Delivery has become a lifeline since the pandemic that forced Americans to stay at home and in restaurants across the country to limit capacity or close their doors completely. And whether they like it or not, restaurants have joined the delivery platforms in droves: during a conference call with analysts in May, Matt Maloney, CEO of Grubhub, mentioned that many new restaurants have signed up for their services since the pandemic in the US. A report released in July by research firm Technomic and Uber Eats found restaurant operators using third-party delivery services to increase by 27% since mid-March when some municipalities were banned. To help restaurants with the pain some apps could cause, cities across the country have started limiting the fees that delivery apps can charge restaurants. Officials in Denver, New York City, Los Angeles and elsewhere voted to put a 15% pandemic cap on third-party delivery charges. In New York City, third-party apps may charge an additional 5% for other fees, a total of 20%.
And the delivery services themselves have not been deaf to the plight of the restaurants, which are an integral part of their own business.
During the crisis, some delivery workers temporarily lowered fees to ease the burden on restaurants. They also have a wide variety of options for restaurant operators to give them more control.
A spokesperson for Uber Eats pointed out that while the service charges 30% per order for delivery, in areas where the company can legally do so, that fee drops to 15% when restaurants use their own drivers and when Pick-up orders disappear. With Grubhub, which has merged with Seamless, restaurants can choose whether or not to use their own drivers. With DoorDash Storefront, DoorDash has launched a new product that allows restaurants to set up their own online shops and charge a flat fee instead of a commission per order. And even before the pandemic, some restaurants were able to negotiate lower prices.
For some restaurant operators, however, the concessions are nowhere near enough. In some regions, smaller apps have emerged as alternatives to the big names.
Chomp, an Iowa City-based delivery platform that serves restaurants in the local market and charges about 20% per order, saw “tremendous growth” during the pandemic, according to co-founder Adam Weeks.
Weeks said restaurants might be attracted to their service not only because of the lower fee, but because it is a local provider with fewer restaurant partners. That means Chomp is easier for restaurants to reach out to when something goes wrong, Weeks said. And when orders go wrong, Chomp works with restaurants to quickly replace the order – rather than just offering a refund that can leave customers hungry and frustrated. But because big delivery services are so well known, getting customers to download the app wasn’t easy.
“It was difficult … finding our way into these properties on the phone screen,” he said.
Free pizza and burger specials
Some restaurants try to get customers to order directly from them by offering special offers.
For example, if you order two pizza cakes over the phone at any of Motorino’s three New York locations, you will receive a third cake for free. Motorino promoted the special online and on its pizza boxes.
Customers who dine at 5 Napkin Burger, also in New York City, will receive a postcard with their check on it, asking them to order “directly from any restaurant that offers this option” because “that means more money from yours Shopping up to allows stay in the restaurant. “Customers who eat at the restaurant or who order directly can get a special burger of the day, and the burger chain has waived delivery charges instead of on some orders for customers using their website a third party provider.
However, customers still have to find their way to your website to place the order, which could be a significant hurdle, according to Robert Guarino, CEO of 5 Napkin Burger. The restaurant offers delivery through its own website, but 5 Napkin Burger is also on Grubhub.
“Very few people have cut the cord,” said Guarino. “There may be a day that this happens, especially in urban areas.”
Some restaurant operators who were not interested in delivery prior to the pandemic plunged in after being forced to close their doors.
Kentucky-based chef and restaurant owner Ouita Michel is one example. In the spring, she tried to set up her own ad hoc delivery service.
“We have turned our staff into delivery drivers, probably against any advice from our insurance company,” she said. The economics of third-party delivery platforms made no sense to Michel’s farm-to-table spots, where ingredients are expensive and margins are even lower than fast food or other restaurants. She also didn’t want to lose control of how her food was presented to customers. Michel’s servers stopped delivering when her dining rooms reopened, but she doesn’t use mainstream delivery providers.
Instead, some of Michels ’restaurants are piloting a new app called Delivery Co-Op, which uses a collaborative model. Delivery Co-Op promises restaurants more control over the delivery process by charging a monthly membership fee instead of a commission per order. The group also collects membership fees from customers and uses these funds to hire drivers. These drivers are embedded in individual restaurants so that they can become familiar with their menus and processes. There are approximately 25 restaurants on the group’s waiting list.
Restaurants that try to avoid key delivery platforms by partnering up don’t stand a great chance, warned Andrew Charles, a restaurant analyst at Cowen.
“The catering industry is not set to cooperate,” he said because it is so competitive.
But competition could also weigh on the delivery business itself, noted Melissa Wilson, director of market research firm Technomic.
“Before the pandemic, consumers were very willing to pay the high delivery and service charges for convenience,” said Wilson. But now that there are more options for bringing groceries to go, customers may be more price conscious.
“The curb service changed the game,” she said. “There are definitely more options now for restaurants to convince consumers to consider either drive-thru, the restaurant’s own delivery service, or the curbside instead of going to a third party,” she said.
For Motorinos Palombino, the responsibility lies partly with the customer.
“I really wish people would choose to call their local pizza place,” he said. “It makes such a big difference.”
FIX: This story has been updated to clarify that Adam Weeks is the co-founder of Chomp.