How meal-delivery apps are hurting your favourite restaurants

ANALYSIS: Not only does the food often arrive cold and cost more — when you order through food apps, restaurants take a hit, writes Corey Mintz
By Corey Mintz - Published on February 12, 2018
a person on a bike delivering food for UberEats
The convenience that food apps bring to consumers comes at a high cost to merchants, who pay upwards of 35 per cent commission on every sale. (iStock.com/BalkansCat)

Comments

X

​We live in a golden age of golden ages — premium cable TV series, kitten cafés, cheekbone contouring, and restaurant meal delivery. In a sector where pizza and Chinese food once held a near duopoly, mobile apps have streamlined the ordering process, allowing hungry diners to get food from a wide variety of restaurants that don’t provide their own delivery, shipped straight to their front door, without having to talk to another human being.

But the convenience that these apps bring to consumers comes at a high cost to merchants, who pay upwards of 35 per cent commission on every sale.

These are popular services — UberEATS, Foodora, DoorDash, Just Eat, and Ritual (pick-up only), plus smaller players like Tasteaway, Skip the Dishes (recently acquired by Just Eat), Maegan, Chan Mao, Food.ee, Ffetch and Mealsy. And I figured they’d be popular with restaurateurs, too, making new customers available at a reasonable cost without the need to hire and manage delivery drivers.

How naive of me.

While writing a series of reviews for another publication, focused on the consumer’s perspective, I asked restaurateurs what they thought of these apps, curious to know whether there was any downside.

I heard from restaurateurs around Ontario, and I did encounter a few who were happy with these services.

“UberEATS has really improved things on our end, at least in Hamilton,” says Pokeh owner Salar Madadi. “We've gotten busier, and drivers have been on-point and reliable lately, with no more lengthy delays causing us to have food sitting longer than it should. We signed on at 24 per cent. Our experience has been positive so far.”

Most restaurateurs, however, seem resentful, feeling that these companies have poached their customers, and that they can’t afford not to pay the ransom in the form of a sales commission. They’d rather not trust a third-party company with delivering their food hot and on time. But they feel they can’t say no, as these companies gobble up market share by transforming diners into delivery customers.

“If it wasn't for the massive amount of people who use Uber and Foodora for takeout, I would love to drop them,” says Ben Chateau, head chef at Farm’r Eatery & Catering in Toronto. With few exceptions, he’s had negative experiences with the major app services and wishes he could quit them.

“I would have less of a problem with it if the charge was passed onto the customer rather than the restaurant,” says Grant van Gameren, who co-owns a half-dozen restaurants in Toronto. “Restaurants often feel forced to join in order to remain competitive even if they know that Uber will take any bit of profit. I hope for a day when everyone on Uber revolts and gets off it. Uber’s new rate takes 35 per cent from the restaurants now and takes customers out of the seats.”

Again and again I heard restaurateurs describe being on the losing end of the disruption-technology industry’s strategy — getting between successful businesses and their customers, then charging the businesses to access their former customers.

I contacted UberEats, Ritual, DoorDash, Foodora, and Just Eats to ask how much their services cost restaurants. DoorDash did not respond. Of the others, only Ritual and UberEATS would say.

The range runs from 10 per cent to 35 per cent. Though there is always room for negotiation, UberEATs starts the highest, usually defaulting to 35 per cent plus a $500 fee for the terminal.

“Uber is 30 per cent for us,” says Mollie Jacques, executive chef at Lambretta Pizzeria in Toronto. “And the app gets worse every time they upgrade; we now have no control over anything, and it is definitely losing us customers. Foodora is 25 per cent and DoorDash is a bit lower. Foodora has the best service. Doordash, we don't make the food until the driver is in the door, as they are often so late the food is cold and we have to remake it.”

According to a recent story in The New Yorker, “How delivery apps may put your favourite restaurant out of business,” making a profit on delivery alone is not possible, as the labour cost of the delivery is too high (also, these companies are themselves as-yet unprofitable tech ventures). So the profit margin has to come from somewhere else: the pockets of restaurateurs. Meanwhile, according to a survey by Morgan Stanley, “forty-three per cent of delivery patrons said that a meal they ordered in was replacing one they would have otherwise eaten at a restaurant” — suggesting the problem is only going to get worse.

A lot of restaurateurs say they use these apps strictly for marketing purposes, hoping to break even on the high commissions while exposing their product to a larger audience. But I spoke with a former salesperson for multiple delivery apps, who, in addition to confirming the rates I was hearing from restaurateurs, also told me that the average customer doesn’t use these platforms to discover new restaurants, but instead orders repeatedly from the same half dozen.

In 2015, California chain In-N-Out Burger went so far as to sue Doordash in order to have their restaurants removed. And I’ve heard the same complaints from restaurants in Ontario.

However, everyone seems happy with Ritual. It’s pick-up only. But the system has a feature called “Piggyback,” which can prompt coworkers to add on to your order by alerting them that you’re going to grab lunch from a favourite place. Ritual CEO Raymond Reddy tells me that about a third of the orders in Toronto end up piggybacking, which effectively creates a network of free delivery while increasing order sizes for restaurants. Ritual also (sorry to sound like a Ritual shill, but it is the only company that no one complains about) has much lower fees of 10 per cent, which restaurants can negate entirely with their regulars, if they get them to sign up as customers of the restaurant.


Related:


It wasn’t always this one-sided. In 2015, when UberEATS launched in Toronto, it was a good deal for everyone. But it was a different system. Back then, UberEats had only a handful of options every day. Restaurant partners would prep hundreds of orders of one or two items and load them into Uber vehicles, to be delivered over the lunch period. Consumers got meals out of orbiting cars within minutes. And restaurants were able to maintain food waste and labour cost by pretty much guaranteeing large-volume sales on a dish of their choice. But within a year UberEATS had transformed into a more traditional, “We’ll pick up food from a restaurant for you,” service. At the same time, they drastically reduced payment rates for their drivers.

One driver told me that to make any money, it’s necessary to work for multiple companies. With UberEATS, which prompts customers for tips after delivery instead of while ordering, he only receives a tip about 10 per cent of the time. We tend to think that it’s not necessary to tip for delivery because there are no servers. But there is just as much work for the kitchen, with no share of tips that would be collected from orders in the restaurant.

At the middle and high-end range of restaurants, dining out is about an experience. So people are going to keep going out to eat, because it’s more for entertainment than sustenance. But the lower range, where customers will always choose what is easiest for them, is ripe for automation of labour and exploitation by parasitic tech companies. The convenience of phone app delivery makes even quality and price less important. A Just Eats spokesperson told me they guarantee the same prices as ordering directly from the restaurant. But my Burger’s Priest bacon double cheeseburger was $11.99, instead of the $9.99 in the restaurant. DoorDash similarly marks up prices. Pad Thai from Sukhothai, ordered through UberEats, is the same price as in the restaurant, but the portion is smaller. Meanwhile, delivery ramen becomes less than the sum of its parts, the wow factor of hot broth over springy noodles lost to winter chill. And it is simply not possible to keep fries hot and crispy for delivery. In an open container they go cold. In a closed container they steam.

“It blows my mind that a restaurant would work so hard, only to put the finished product in the hands of someone on a scooter,” says van Gameren. “I once had a delivery served to me completely upside down.”

But people don’t care that the food is bad, or small, or expensive. We know that the food might cost more or arrive cold, that it would be quicker and easier for us to walk to pick it up. But we are suckers for the instant gratification our phones provide. It might take an hour to get a disappointing lump of poutine. But that’s a whole hour we get to enjoy our unrealistic expectation in the form of anticipation. Just like fast fashion, the ease of access helps us turn a blind eye to the quality of the product, and who might be exploited for us to get our hands on it.

Author

Most recent in Food