Our Restaurants Are Failing. How Are Food Delivery Apps Thriving?

Our Restaurants Are Failing. How Are Food Delivery Apps Thriving?

"Our Restaurants Are Failing. Why Should Food Delivery Apps Thrive?" - A Column by Lucas Kwan Peterson In The Los Angeles Times

It was the invoice from hell.

Many of us saw the viral social media post from a couple of weeks ago, when Chicago restaurant owner Giuseppe Badalamenti posted his March invoice from food delivery app Grubhub. After being docked for commissions, fees, adjustments and promotions, all that remained of his pizza joint’s $1,042.63 in pickup and delivery sales: a measly $376.54.

Badalamenti’s example, while extreme, sheds light on what is becoming an increasingly onerous problem for restaurants as we enter the third month of the coronavirus shutdown: crushing delivery app fees that can hover around 30% of the total cost of an order.

Leveling such steep commissions on an industry with notoriously thin profit margins does not help restaurants in the best of times. During a pandemic, it is hastening their demise.

Los Angeles must follow examples set by San Francisco and New York by setting caps on the commissions that delivery apps can collect from restaurants until they are able to resume full dine-in service. It should also adopt similar legislation to that passed in Chicago, which requires the delivery apps to present a clear and transparent breakdown of fees to diners.

At the very least, delivery apps should be forced to cap their fees on small, independent restaurants and chains. Ordering from McDonald’s or Taco Bell? Sure, charge them the full amount.

My capitalist brain works as well as anyone’s, and I get that delivery apps are businesses with money of their own to make, investors to answer to and employees to pay. But services like Uber Eats and Grubhub are serving a record number of customers during a time when many struggling restaurants are seeing barely any.

Restaurants have little recourse but to play ball: Tapping on a smartphone to order dinner is easy, and many diners don’t feel comfortable leaving their homes to pick up food right now. Most restaurants, meanwhile, don’t have their own drivers in house: Besides the cost to employ them, it’s also a legal headache. (App delivery workers have their own problems — they’re struggling to make a living wage while trying to keep safe during the pandemic.)

Before the shutdown, Anca Caliman, co-owner of Lemon Poppy Kitchen in Glassell Park and Parsnip in Highland Park, said that less than 15% of her restaurants’ revenue came through apps. Now it’s more than half, which means her profit margins are thinner.

Caliman called dealing with the delivery apps a “necessary evil.”

“Even before the madness, it was just a terrible deal no matter how you slice it,” she said. “The fees are just too high. Restaurant profit margins are maybe 5% on average.

“Then to have a delivery service charge between 20% and 30% is just crazy. And the way they present themselves: ‘You’re going to get so many more orders.’ 1,000 orders at 30% off does not help.”

Lack of transparency in the fee structure is an additional frustration. Caliman said that when she first spoke to Grubhub two years ago, she was quoted a 10% fee. “When you talk to a salesperson on the phone, they promise you everything,” she said.

She estimated the actual amount she pays on Grubhub orders is between 25% and 27%.

“Nothing that they do seems like it’s in the best interest of their customers.”

Caliman wants to ditch Grubhub but feels pressure to maintain a presence on the apps, despite the way their fees can often eliminate her chance of making any money on what she’s selling.

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