Delivery Platforms Need to Give Restaurants a Break
Apps like Grubhub and Uber Eats are still taking 30 percent commission fees per order.
Delivery is now the sole life line for many restaurants, as they shut their doors voluntarily or through government mandates to stop the spread of the novel coronavirus (COVID-19). Many chefs and owners have had to lay off their staffs, liquidate their meat and wine inventories, and figure out how to pivot to a delivery-only model if they choose to keep operating.
But as restaurants are desperately figuring out how to survive the pandemic, major delivery platforms, like Grubhub (Seamless), DoorDash (Caviar), Postmates, and Uber Eats, are refusing to throw the restaurants a lifeline and instead remain engaged in what many chefs are calling “predatory” behaviors.
Most customers remain relatively unaware of how much delivery platforms actually charge restaurants for the use of their services. Chef Eli Sussman, who owns Samesa, a fast-casual Middle Eastern restaurant with two locations in Brooklyn, says that his contract with Seamless requires him to pay a 25 percent commission fee per order to the delivery company.
He adds that the company would charge him an additional 10 percent to per order to deliver the food, so instead he works with another company, which does the deliveries for a flat fee. Other chefs across the country are reporting similar numbers. Deepak Kaul, who owns Bhuna, an Indian restaurant in Portland, Oregon, says that he pays a 27 percent commission fee to Caviar, a 30 percent commission fee to Grubhub, and a 30 percent commission fee to Postmates.
Uber Eats notes on its website that it charges restaurants a 30 percent fee for delivery and a 15 percent fee per order for pick-up, unless a restaurant negotiates a different rate. It is possible for restaurants to negotiate a lower rate, though even those rates tend to be between 20 to 30 percent.
Reem Assil, who owns Reem’s in Oakland, California, and just opened another location of her bakery in San Francisco, says that because she exclusively partnered with a delivery service, they dropped the commission percentage, though she still pays over 20 percent per order.
Caviar appears to be the most generous of the delivery platforms. Samir Mogannam, who owns Beit Rima in San Francisco, says that Caviar approached him and offered him a contract with an eight percent commission fee. (Another chef in NYC revealed that his contract with Caviar has a 10 percent commission fee.)
A 30 percent commission average is hard for owners to swallow, even during normal circumstances. “A lot of times these companies take 30 percent from restaurants that often only can afford 10 percent,” says Mogannam. But given the extraordinary situation the restaurant industry is finding itself in, the percentages are painful.
“It’s horseshit,” says Kaul. Assil echoes these sentiments. “It’s highway robbery. There is just something so wrong about it.”
Most restaurant owners don’t feel like they have a choice but to work with these platforms to survive.
“These delivery companies were never something I wanted to work with, but we have to,” says Sussman. “We are a fast-casual restaurant. We are dependent upon volume to make any money. And most people eat dinner on their couch these days.”
He breaks down the math on how much he might make per order in the current system. “Say I charge $13 for a schwarma sandwich and $1.99 to the customers to offset my delivery costs," he says. "I will maybe make $2 to $3 in profit at the end.”
Now, with no dine-in business cash flow, the margins are getting even harder to swallow, especially when many of these delivery companies are worth hundreds of millions of dollars. As more and more restaurants pivot to delivery-only and rush to join these platforms, they will often encounter other fees. Uber Eats, according to its website, currently charges each new restaurant a $350 “activation fee.”
When asked if the company would be waiving that fee during this pandemic, Megan Casserly, head of communications for Uber Eats, would not offer a clear answer. She wrote, via email, “We’re doing everything we can to help as many restaurants as possible to come board.”
This is somewhat true. As of yesterday and today, delivery companies have announced concessions they are rolling out to help the struggling restaurant industry, but are they enough? Uber Eats unveiled a plan on Monday to let restaurants on the platform get paid out for their orders daily instead of weekly to help with daily cash flow.
The company has also said it is going to launch “dedicated marketing campaigns—both in-app and via email—to promote delivery from local restaurants, especially those that are new to app.” DoorDash and Caviar announced on Tuesday that they are waiving the sign-up fee for new restaurants and will also waive commissions for 30 days. But the latter is for restaurants that are signing up for the platform for the first time. Current restaurants on the platform will not pay commission fees for pick-up orders and might get a “commission reduction,” if they are an “eligible merchant,” per a press release. But it is unclear what makes a restaurant eligible or not.
Postmates announced Tuesday that it has also launched a pilot program, per a press release, where they are waiving commission fees in San Francisco only. Again, this only applies to new restaurants that sign up for the platform. They have not announced any plans to reduce commission fees for restaurants that already use the service. Just this past Friday, Kaul was sent an email from Postmates offering to give free delivery to customers if he paid the company $4 per order. The email reads, “Entice new customers to try your brand by offering free delivery!”
Grubhub and Seamless are perhaps offering the least generous packages to restaurants. The company announced on Sunday that it would defer commission payments (of up to $100 million) for “eligible” restaurants. Deferring, however, is not the same as waiving fees; it just means that restaurants will have to pay the commission at a later date.
According to terms laid out in an email, Grubhub will not collect commissions until April 13 and will collect the payments in four weekly payments. Assil is skeptical: “Deferment doesn’t work for a small business. We live week to week. The margins are way too thin.”
These high commission fees have made some restaurant owners avoid these platforms all together. Mogannam says that even though Caviar offered him one of the more generous fee structures, he would rather do things in-house.
“We get to keep more of the money this way, and we have more control over the experience,” he says. Assil is also hoping to move her delivery and take-out operation in-house at Reem’s. “We rely on them, but I don’t feel great about it,” she says.
But not being on the delivery platforms can still lead to problems for restaurant owners. Alpana Singh, who runs Terra and Vine in Chicago, revealed in an Instagram post that her restaurant is currently listed on Grubhub even though she never signed up for it. She found out about the situation from an angry Yelp review a customer posted yesterday that the platform also increased the prices of items on her menu for customers. Singh says, via Instagram DM, that she emailed Grubhub immediately asking to be removed from the site. The company responded that it would take down the listing in 48-72 hours (or two to three days), but that Grubhub also lists “non-partnered restaurants on its site.”
Chefs are hoping that these delivery platforms will step-up during this crisis to help the businesses that they benefit from, by capping the commission fees at 10 percent for all restaurants, not just new ones—that is, if they aren’t able to waive the fees all together.
This is something the NYC Hospitality Alliance is also calling for, asking in a letter that the governor and mayor “mandate that fees charged by third-party delivery platforms … be capped at a maximum of 10 percent.” The letter notes that “many restaurants lose money on their deliveries during normal market conditions,” adding that “we must preserve some profit for restaurants” so that they are able to serve people who need food during this crisis.
For now, restaurants recommend customers order delivery (here is how to do it safely) directly through the restaurants' websites, or by calling the restaurants, so that the businesses are able to keep 100 percent of its profits. “At this point every penny counts,” says Kaul.
Assil adds that while these delivery companies aren’t going to be able to save the restaurant industry—only the government can do that at this point—they need to lower the commissions they take. “This is our livelihoods.”