Restaurants, delivery apps seek to freeze
Customers have become accustomed to delivery during the pandemic, and the habit is to stick around long after dining rooms reopen. But restaurants and delivery companies remain concerned partners, fighting over costs and struggling to make the service profitable for themselves and each other.
Companies like DoorDash and UberEats have helped many restaurants stay in business during lockdowns, allowing customers to stay and order. But that convenience comes at a price: Delivery companies can charge a commission fee of 30% or more per order, hurting restaurants’ already meager profits.
Some restaurants, tired of the fees, have since started their own delivery or have abandoned the platforms altogether. Delivery companies are trying to keep them in the fold with low cost services and relief funds. But they don’t make any money either.
“The relationship was bad, and it didn’t improve with the pandemic,” said Karan Girotra, professor at Johnson College of Business at Cornell University.
Girotra said delivery can be cost effective in dense neighborhoods, where multiple orders can be delivered quickly and inexpensively. But in the sprawling suburbs, the cost of food commuting becomes too high.
“The economy is not working, so delivery companies have to rush someone,” he said. “They have to squeeze the restaurants, the customers or the people working on these platforms.”
Understanding how to make delivery profitable could be crucial in the years to come. Delivery was already increasing before the pandemic, but it increased worldwide during lockdowns. Online orders for door-to-door delivery more than doubled in the United States, Russia and Canada last year, and jumped about 30% in France, Germany and Spain, according to NPD Group, a market research company.
In a recent survey, the National Restaurant Association found that 60% of American adults – and 71% of millennials – said they were more likely to be delivered now than they were before the pandemic. But it’s unclear how many people will stick to childbirth once the pandemic is over and they can have dinner again.
Robbin Swaney, a retiree in Walker, Mich., Said she and her husband started giving birth about once a week by Uber Eats when the pandemic began. Back then, they wanted to help local restaurants, but they also came to love the convenience.
“We will continue to do this,” Swaney said.
Some restaurateurs still welcome delivery companies as partners. Corey Kaplan, owner of Corey NYC Bagel Deli in downtown Chicago, said DoorDash expanded its reach when its usual traffic of office workers dried up. The company reduced its commission costs and even provided bags.
“DoorDash saved this store on its own,” said Kaplan, whose delivery orders now represent 70% of its sales, up from 20% before the pandemic.
Chocolatier Jeffray Gardner says he’s probably losing money on one or two delivery orders he receives each day from Marsatta Chocolate in Torrance, Calif. But he’s always happy to work with delivery companies because they help him reach a wider audience. Last year he even drove for DoorDash and UberEats to earn extra cash and meet other restaurateurs who could stock his chocolates.
DO THE MATH
But many restaurateurs say they can’t make the math work.
Evelyn Shelton, chef-owner of Evelyn’s Food Love in Chicago, says the food she cooks at 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.
“Sharing income with someone who hasn’t bought food or paid for work doesn’t make sense to me,” she said. “We are too small to give all the benefits.”
Many US and Canadian lawmakers agree and temporarily cap the fees delivery companies can charge restaurants during the pandemic. DoorDash said it lost $ 36 million in the fourth quarter alone due to 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 push to protect restaurants. But if DoorDash charges customers more to make up for lost revenue, fewer people will order. It hurts restaurants and gig workers who drive for DoorDash, he said.
Huang says the relationship between restaurants and delivery companies is frayed in part because delivery has grown so rapidly during the pandemic.
“Overnight, they were forced to rely on delivery to stay open,” he said. “There have probably been losses in terms of how our business works and how our pricing structure works.”
Huang said the company is trying to build trust. It’s about making more in-person visits to restaurants to educate them on their options, like setting up their own websites so they can bypass some DoorDash charges.
Uber Eats said it was experimenting with new pricing levels. It has a lightweight plan – with a 5% commission – that allows restaurants to use their own drivers, for example. A premium plan, with a 20% commission, gives restaurants more visibility on the app and access to Uber Eats drivers.
But delivery costs money and companies are under pressure to start making a profit. DoorDash and Uber Eats both lost money last year, although their sales more than tripled. European rivals Deliveroo and JustEatTakeaway.com – which recently acquired US delivery company Grubhub – also lost money last year.
“If these guys can’t make a profit, it shows how broken the system is,” said Josh Saltzman, co-founder of Ivy and Coney, a restaurant and bar in Washington.
Business owner Aaron Anderson, who runs multiple restaurants, poses for a photo at his Rita’s Italian Ice location in Philadelphia on Friday, March 26, 2021. Restaurants and delivery companies remain concerned partners, struggling over fees and struggling to make the service profitable for themselves and each other. Anderson thinks the shipping costs are too high. But he also sees some value in delivery businesses, which can help restaurants test new concepts. (AP Photo / Matt Rourke)
Jeffray Gardner, owner of Marsatta Chocolate holds cocoa fruit pods outside its flagship store in Torrance, Calif., On Sunday, March 28, 2021. Restaurants and delivery companies remain concerned partners, struggling over fees and battling to make the service profitable for themselves and each other. Gardner says he’s probably losing money on one or two delivery notes he receives each day. But he’s always happy to work with delivery companies because they help him reach a wider audience. (AP Photo / Damian Dovarganes)
Jeffray Gardner, owner of Marsatta Chocolate, explains his artisanal chocolates to new customer Katherine Trontman at his company’s flagship store in Torrance, Calif. On Sunday, March 28, 2021. Restaurants and delivery companies remain concerned partners , haggling over fees and striving to make the service profitable for themselves and for each other. Gardner says he’s probably losing money on one or two delivery notes he receives each day. But he’s always happy to work with delivery companies because they help him reach a wider audience. (AP Photo / Damian Dovarganes)
Marsatta Chocolate owner Jeffray Gardner poses with a bag of cocoa beans at his company’s Torrance, Calif., Office on Sunday, March 28, 2021. Restaurants and delivery companies remain concerned partners, negotiating fees and battling to make the service profitable for themselves and for each other. Gardner says he’s probably losing money on one or two delivery notes he receives each day. But he’s always happy to work with delivery companies because they help him reach a wider audience. (AP Photo / Damian Dovarganes)