The food delivery category has become a true juggernaut, thanks large in part to an explosion of delivery apps and remote ordering platforms. Digital food delivery is projected to grow into a staggering $467 billion business over the next five years, according to Morgan Stanley, up as much as 31 percent from where it stands today. There are plenty of reasons folks have gravitated towards them in the past decade or so, with general convenience topping the list.
The developers of these services have designed it that way, of course, with handy features like logging your past orders, managing payment transactions, and texting updates on when your food will arrive, with varying degrees of accuracy. If you’ve become addicted to your food delivery app or apps of choice, you certainly wouldn’t be alone but you ought to know all this convenience comes at a price.
Part of that price is paid by you in the form of delivery fees, but more often than not it’s the restaurant that takes the hit. Delivery apps and platforms like Grubhub, Doordash, Uber Eats, and Caviar make most of their money by taking a cut of the restaurant’s profit—sometimes as much as 30 percent.
As a gesture of good faith, many of the food delivery companies suspended their fees when the pandemic hit, but those lost fees equal lost profits for the apps and have been mostly reinstated. At a time when so many restaurants are teetering on the edge of financial ruin, even these smallest of monetary blows can prove fatal.
A Critical Moment for the Industry
According to a recent report, 65 percent of Americans have been ordering more takeout since the start of Covid-19, with an average weekly spend of $67 on roughly two and a half orders. Likewise, restaurants have been relying on takeout at a much higher clip with indoor dining restrictions still in place, and many people wary to eat indoors. Even as we begin to re-open to some degree of normalcy, restaurants that haven’t closed permanently will find themselves digging out of some very deep holes. (Not to mention most health professionals predict another spike in Covid-19 infections, come winter). All of this spells trouble for many restaurants, large and small, and losing a cut to the many delivery apps isn’t helping.
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As CBS Los Angeles reported earlier this year, some eateries are opting out of the apps altogether, citing the high fees as simply too big of a hit when every single penny counts towards keeping the lights on. Claudio Blotta, owner of Italian restaurant All’Acqua in Atwater Village, Los Angeles lamented, “The apps are just too expensive for us at this point. They charge anywhere from 20 to 30 percent and it’s not feasible for the amount of business we are doing.”
Delivery Apps Do Help for Certain Restaurants
There are certainly instances in which food delivery platforms help restaurants and in myriad ways. I’ve called eateries on occasion only to be told they don’t take orders over the phone, for instance, and was directed to a website or online ordering portal, sometimes powered by a delivery app like Grubhub or Doordash.
Noodles & Company, a fast-casual chain with over 400 locations has seen its takeout/delivery share of total business reach as high 96 percent during the pandemic but has embraced the delivery apps, even now. When asked how these third-party partners have evolved over the years, a spokesperson for the restaurant chain mentioned that they’ve been integrated into the point-of-sale systems, making order taking seamless and life a little easier for such a large group. They also noted most of the company’s third-party partners did reduce or completely drop fees on orders placed through their platform at the onset of the coronavirus outbreak but, overall, commissions are back to normal.
For smaller, neighborhood eateries without the scale of a Noodles & Company, the benefits are not the same. Delivery areas are generally smaller, for starters, so they’re able to reach most of their warm, local customer base via Yelp, Google Maps, targeted marketing, and good old fashioned word of mouth.
“Necessary evil” is a term that gets tossed around a lot when speaking of takeout and delivery third-party platforms. It’s true that they do help many restaurants expand reach and encourage ordering takeout and delivery, more generally. But most of the restaurant owners I’ve spoken to who rely on takeout and delivery say they simply couldn’t compete without a presence on the apps, even though 20 or 30 percent is a significant cut. If they could operate competitively without those incurred fees, most of them would.
Thomas Claxton, the owner of a popular Chicago deli Frances’ Brunchery is firmly in this camp: ”The way I look at the situation is that they’re indeed a necessary evil,” he told me over email. “With Covid-19 restrictions for some businesses, it’s the only way they’ve been able to scrape by and cover their bills. But the exorbitant fees make it impossible for these operations to make any money. When you look at the significant increase in food/labor cost, paying 33 percent out to a delivery company makes this a literal zero-sum game.”
Mike Sajaja, the owner of Aladdin’s Mediterranean & Middle Eastern cuisine in New Albany, Indiana (just across the river from Louisville) agrees to some degree but for his restaurant, the upside helps offset the losses. “Of course the delivery apps charge high fees, but the volume of business they bring makes up for it. Considering the current situation, I don’t think we could survive without them.”
A spokesperson from Grubhub, one of the biggest players in the space, shared this blog post outlining ways they’ve tried to support restaurants—the lifeblood of their business—including pausing fees temporarily and donating over $100 million to struggling businesses. Some cities, like New York, went as far as to cap what third-party delivery apps could charge when the pandemic was at its peak.
Should You Quit the Delivery Apps?
That’s up to you, of course.
I’d be lying if I said I never use them. I find ordering apps to be most helpful when traveling in countries where I don’t speak the primary language but want noodles, curry, or pizza sent to my hotel or Airbnb. That said, knowing I can help struggling restaurants earn more, I’ve tried to order directly through them as much possible, especially in this precarious climate. Personally, I like speaking with someone, too, since I’m that guy with questions in need of answering or am in search of a recommendation. (Don’t worry, I tip accordingly).
Big chain restaurants like McDonald’s, Applebees, and Chipotle will almost certainly survive the next few months and some of these foodservice empires like Noodles & Company have said they find the apps helpful in streamlining the process. But if you’ve got a roster of go-to mom & pop joints in your neighborhood for ordering Thai, pizza, Chinese, and Greek that rely heavily on takeout and delivery business, you can bet they are having a very rough year and would appreciate that 20 to 30 percent back in their pocket.
It doesn’t hurt to ask, either: Next time you’re picking up an order in person, find out if they have a preference for how customers place orders and then oblige. To stem the rising tide of restaurant closures in cities and towns across the country, it’ll take a mighty effort. Bypassing delivery apps may be the easiest way you can help your favorite restaurants survive one of the rockiest periods they’re likely to face.
Disclosure: For a short period, the author of this article worked for an agency on the media relations team representing Grubhub & Seamless.
Header image courtesy of NurPhoto / Getty Images.