Ordering delivery? How companies like Grubhub take a bite out of restaurants’ profits
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, one, to get the word out about our restaurant, and two, 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.