Ordering delivery? How companies like Grubhub, Uber Eats take a bite out of restaurants’ profits

Imagen de la aplicación de Uber eats. (Dreamstime/TNS)
advertisement
Testing Article Top Adspace

By Sarah Blaskovich The Dallas Morning News (TNS)

As restaurants all over the country have been forced to close dining rooms and move to to-go and delivery services, restaurateurs and passionate foodies have issued a battle cry: Eat local!

Many restaurants that never offered delivery food — or who didn’t consider it a main stream of revenue — are advertising their partnerships with third-party companies like Uber Eats, DoorDash, Grubhub or Favor so they can get a sliver of the profits. The reason is simple: In this coronavirus climate, restaurants are going to fail fast. Anything helps.

Third-party delivery companies are poised to capitalize on the sales, too.

“Around the globe, the restaurants that form the backbone of our communities are being asked to change how they operate,” writes DoorDash CEO and co-founder Tony Xu in a statement. “Yet these restaurants continue to serve their customers by remaining open for delivery and pick-up, and now, more than ever, they need all of our support.”

That’s true. But consumers don’t realize that local restaurants hand off a significant piece of profit when they partner with a third-party delivery service.

“All of those companies take a giant bite out of our numbers,” says Ian Tate, executive chef at Lake House Bar and Grill in Dallas.

He says the best way to support a local business is to call a restaurant directly, place an order, and either pick it up or ask if they are employing delivery drivers.

Most third-party delivery companies take a cut of 20% or 30% per sale. Margins can fluctuate for all kinds of reasons, including in times of economic crises. Uber Eats says it takes 15% to 30% of each sale. Grubhub wouldn’t give a number and couldn’t clarify who is eligible for low or no commission fees for what they describe as “impacted” independent restaurants. DoorDash didn’t respond to a request but said in a statement that the company is waiving commission fees when new businesses sign up. Favor is waiving fees temporarily for businesses with five restaurants or fewer.

Here’s how the business model works: Let’s say a consumer wants to order a burger from a local restaurant via a third-party delivery app. A burger and fries costs $12. The consumer might pay up to $20 because of the service fee, tip, tax and a delivery fee (which may or may not be waived right now).

From that $12 sale, the restaurant might get to keep $9 if the commission fee is 25%.

A struggling local business — one that may be considering laying off cooks, hostesses and servers if it hasn’t already — would have likely made $15 if it were allowed to serve a diner that same burger in its restaurant. Call it $25 if the customer ordered a cocktail and gave a generous tip.

“The only reason we do these is 1, to get the word out about our restaurant, and 2, we already have the labor here,” says John Schmitz, who owns the Lake House. Every restaurateur is struggling to find enough work for chefs for fear they’ll have to lay them off.

“If we solely focus on that model — and try to survive off of that small percentage — it’s not good for us,” Schmitz says.

One option is for restaurants to offer curbside service or delivery independently. Bradley Anderson, who co-owns Veritas Wine Room and several other Dallas restaurants, says third-party delivery is “difficult for many, even during good times.”

His shop is offering curbside wine sales, which is a huge change for the business. Retail wine sales ordinarily make up just 15% of Veritas’ business. The remaining 85% — now gone — was made up of customers who’d come into the wine bar, order a glass or a bottle and tip their server.

He’s opting to pay staff members to handle curbside wine sales, and he might add a staff-run delivery service. “We don’t need a third party in the middle of the transaction,” he says.

So why do so many restaurants use third-party delivery? They offer perks that most restaurants don’t have. Third-party delivery services create slick apps, provide drivers and secure their own insurance policies.

“The short answer is we do it because the customers want it,” says Jay Jerrier. He operates eight Cane Rosso pizza shops, six of which are in North Texas. “It’s where they look to order food.”

He calls third-party delivery “a necessary evil, I suppose.” But he hopes customers will call his stores instead because he’s paying servers to deliver food themselves so they can earn an hourly wage and tips.

“It’s better for the restaurants for customers to order direct — but these days we really need the orders,” Jerrier says. “We are getting destroyed. Maybe when we get through this we’ll be smarter and learn a lot and be able to do it ourselves.”

Now’s the time to grab customers’ interest

Incentives are key right now. Many restaurants are offering free delivery to convince customers to buy.

Consumers should pause to understand these incentives are sometimes marketed as being good for the small business, but free delivery is really just helpful to consumers. Restaurants still have to pay commission fees, in most cases.

It’s worth restating that exceptions exist, and some companies say they’re waiving restaurants’ commission fees as they struggle to stay afloat. They don’t affect every restaurant, however, and rules can be complex.

Favor’s offer lasts through through March 31 and is for “independent restaurants with up to five locations.” DoorDash waives fees for 30 days for restaurants that just signed up. Grubhub’s founder and CEO Matt Maloney says in a statement his company is “deferring commission fees for impacted independent restaurants.” When asked for clarification, a spokesperson says “eligibility is based on a variety of factors that we are re-evaluating every day.” A deferred commission means it’s postponed until later, not eliminated.

Who’s the hero?

Companies like Grubhub are positioning themselves as a friend helping family-owned restaurants.

“Without delivery and pickup, restaurants across the country will close, putting tens of thousands of Americans out of work,” the company says in a recent statement. “Therefore, delivery and pickup are essential to keeping restaurants open, not to mention feeding our communities during this extremely challenging time.”

Favor has announced that it won’t hike fees during high-demand times like it usually does.

Uber Eats is offering its own set of perks. Those include waiving delivery fees; offering restaurants daily payouts instead of weekly payouts; pledging to give free meals to health care workers; and spotlighting small businesses in its app and online, in hopes that consumers might choose to eat local.

David French, executive director of the National Council of Chain Restaurants, said in a statement that he applauds Uber Eats’ latest efforts to waive fees and offer quicker payouts. He says “the efforts by Uber Eats to help mitigate the impact on businesses during this time of uncertainty is an example of leadership and empathy.”

So we asked local restaurateurs: Is it really?

Commission cuts will help. Quicker payouts are good. But in general, third-party delivery will not save a restaurant in this time of “armageddon,” says Fort Worth chef Tim Love. He’s still trying to figure out what to do with his 14 restaurants that employ 540 people, and third-party delivery may be a small part of the solution. But he isn’t hopeful.

“I just know that’s not a viable source of income,” Love says. “Businesswise, it’s a slow bleed.”

———
©2020 The Dallas Morning News
Visit The Dallas Morning News at www.dallasnews.com
Distributed by Tribune Content Agency, LLC.
———