Like much of the dotcom boom, it started in the late ’90s. That’s when some New York City lawyers got fed up with paper menus and limited restaurant delivery and officially founded the web-based Seamless. The service first enabled companies to easily order delivery from restaurants, then extended the same ability to everyday diners. The rest is history.
Recognizing the massive potential of coordinating deliveries to consumers who were increasingly hungry for convenience, other apps entered the game: Grubhub (which merged with Seamless in 2013), Postmates, DoorDash, and Uber Eats. As more people bought smartphones, more downloaded these apps, and in 2015 online ordering overtook phone ordering for food deliveries.
Even before “coronavirus” entered our lexicon, third-party apps had changed the restaurant industry, eating into dine-in’s portion of a restaurant’s sales. Demand for delivery is only expected to increase, with online food delivery revenues projected to reach $200 billion per year by 2025. With so many scrolling to see what’s for dinner each night, is there a way for restaurants to escape the major third-party delivery apps? Would they even want to?
“It’s that whole familiarity thing psychologically—once you’ve done an online order through a specific portal, you’re more likely to do it again. Like that first Amazon purchase. It’s all too easy to go back to Amazon and do it again and again,” says Katie Lazor, executive director of EatDenver. The apps, of course, know this, which is why they’ve created subscription programs to ensure their customers are of the repeat variety. Yes, this means that participating restaurants get new customers who may have never heard of their spots, but they also get the exorbitant fees, the uninvested drivers mishandling their food, and the sometimes unscrupulous practices (like selling restaurants’ food without permission) that come along with them.
Those are just a few of the reasons that Big Red F Restaurant Group (The Post Brewing Co., Jax Fish House & Oyster Bar, Lola Coastal Mexican, West End Tavern, and Centro Mexican Kitchen) started doing its own delivery. That way, it can control the guest experience all the way through delivery, keep its own people employed, and capitalize on to-go alcohol sales. Even so, the Boulder-based restaurant group still uses the third-party apps, “but obviously it works best if [people] order from us,” says Dave Query, founder of Big Red F. On the apps, the restaurant group ups the price of items that require extra packaging, which isn’t an uncommon practice. Some restaurants raise prices across the board on the delivery apps to try and recoup the commissions.
“Long before DoorDash and Grubhub and Uber Eats, people were delivering food.“
Dave Query, Big Red F
For its in-house delivery operation, Big Red F delivers for free or for a nominal $2 fee, depending on the day and delivery location. Because the delivery area is so small, employees sent out for deliveries are usually back in the restaurant within 10 minutes. “A busboy can dash out and take a delivery, pantry cooks can dash out—we’re able to use multiple people,” says Audrey Quistorff, chief operating officer for Big Red F. “It serves our labor model better than having someone on standby.” It also serves the restaurant group’s culture.
“Long before DoorDash and Grubhub and Uber Eats, people were delivering food,” says Query. “This brings someone from our group, and our hospitality and culture, right to the front door. It’s an extension of what we do in the restaurants. The third-party apps aren’t going to do that.”
To get started, Big Red F used its existing Toast POS software, which Quistorff describes as having a robust delivery platform. While the majority of the restaurant group’s delivery orders come via the third-party apps, Big Red F hopes to increase its piece of the delivery pie by making it free at all of its locations shortly. But Query also recognizes the importance of the apps in getting his restaurants’ names in front of diners, which is why Big Red F still uses them. “You’re staying in the guest’s mind, and they’re not writing you off. Smaller groups have to be on that DoorDash platform or people forget,” he says.
“It’s very hard to just all of a sudden stand up a delivery business at your restaurant,” Lazor says. “Because of scale, because of insurance, and maybe the biggest reason, because pre-COVID the four major delivery platforms controlled about 95 percent of delivery orders and have spent millions of dollars building up their brands. They really are at a point where they’re synonymous with delivery. Picture an independent restaurant trying to compete with that marketing power and that technology. It’s not something you can stand up overnight.”
“I don’t think being a farm-to-car-to-table restaurant is feasible.“
Eileen Warten, Potager
But that’s exactly what Eileen Warthen and her partners at Potager in Denver attempted to do in March when restaurants were shut down. To keep everyone working, they revamped the menu to be more delivery friendly and had servers answering phones and bagging orders. “We felt like we had to make the decision [to offer in-house delivery] in 24 hours,” Warthen says.
At first, the three owners made all the deliveries themselves for insurance reasons, but once the governor relaxed auto insurance requirements in late March, others began driving. When dine-in started up again in summer, however, everyone was needed back in the restaurant. With capacity restrictions and revenue down, Potager didn’t have extra money to hire delivery drivers, so it discontinued its free delivery, choosing to focus on dine-in business. Potager hasn’t used the third-party apps, and can’t imagine doing so because of the fees. “Giving a percentage, no matter how small it is, to a third-party app doesn’t seem like a feasible option,” Warthen says. “Every time I look at the numbers I’m like, ‘We’re not making anything right now.’ We don’t have the money to spend.”
Warthen says the team is considering starting delivery up again in winter when they won’t be able to serve as many in Potager’s dining room.But running orders themselves came with downsides: Managers were often out delivering food instead of being in the restaurant during a challenging period, and the entire process was time consuming. “I don’t think being a farm-to-car-to-table restaurant is feasible,” Warthen says.
Tommy Lee agrees that delivery works best for a certain kind of restaurant. Lee started doing restaurant-run delivery at Hop Alley and his two Uncle locations to keep people employed during the spring shutdown, but he says it was kind of a bust at the higher-priced Hop Alley. Even though the eatery’s food is takeout friendly, diners didn’t seem nearly as willing to spend their money on delivery. The more modestly priced Uncle had a healthy takeout and delivery business going into the pandemic, with about half of its deliveries being handled by Postmates and half by the restaurant. Lee grew up running deliveries at Peter’s Chinese Café in Congress Park, so implementing restaurant-run delivery came naturally, albeit reluctantly.
“When I opened Uncle in Highland originally, I wasn’t doing takeout and delivery because I thought ramen wasn’t meant for takeout,” Lee says. “Ultimately, we embraced it. If it’s going to be another revenue stream that doesn’t mess up our operations, we might as well exploit it and work it to our advantage. It helped us survive half of a pandemic so far.”
Lee also uses Toast’s POS and built-in delivery platform. While he says that’s been “seamless,” he also says in-house delivery is still inefficient, and that his employees’ delivery tips can’t compete with their dine-in tips. In an attempt to bring their wages up, he’s considering adding a 15 percent gratuity to in-house takeout orders this winter, as well as raising prices on Postmates orders and giving that difference to staff. (Customer tips and fees on third-party apps don’t go to the restaurant or its employees, so his employees’ wages take a hit with each third-party platform order.) “I think ultimately the customer has to understand that you’re paying for a service and there’s a cost associated with that service. If the restaurant isn’t willing to give up that commission, there’s a premium to be paid for it.”
These apps do have a presence outside the Front Range, but they’re not quite as pervasive as they are in Denver and its surrounding areas. Twenty-two-year-old Grand Junction restaurant Il Bistro Italiano uses just one of the third-parties (Grubhub) and owner Brunella Gualerzi isn’t exactly looking to increase that. “If we were to do most of our to-go through third-party companies, I don’t know that the money would be worthwhile for us to do so,” she says. “We’re not a chain, we’re not a franchise, the food doesn’t come in pouches that you pop in hot water to heat up. We make everything from scratch. While some people might think our prices are high (for this area, anyway), when you consider the amount of labor and quality of products we use, our margin is not very high. So every time we give away a third of what we charge for something, it’s significant for us.” In smaller areas like the mountain communities of Glenwood Springs and Steamboat Springs, the major third-party services haven’t even moved in—yet.
But Are They Worth It?
While there’s a lot of grumbling about delivery platforms’ commissions and fees, there are also benefits to using them. There’s the obvious value of exposure to loads of new customers who may never hear of your restaurant otherwise, but there’s also the advantage of focusing on the food and not worrying about delivery. Creating your own in-house delivery fleet is expensive, and it can make sense to partner with experts who manage the drivers, mobile ordering system, and logistics. “Merchant fees help pay for a variety of business costs to support all three sides of our marketplace,” says a spokesperson from DoorDash. “These fees help provide the level of quality customers expect from a delivery provider, pay Dashers meaningful earnings, and drive volume and sales that are so important to restaurants right now.”
Daughter Thai’s Ounjit Hardacre doesn’t like the high commissions the third-party services charge, but says she doesn’t have the staffing or the technology to compete with the services they offer. The scarcity of parking and lack of a curbside pick-up area at her Platte Street location forces her hand even further.
Pre-COVID, Hardacre focused exclusively on dine-in, but with capacity restricted and diners reluctant to go out, she’s had no choice but to sign up for the major apps. But this new delivery business and jump in to-go orders has been hard to manage, and she worries her original dine-in business model will be adversely affected if too much of her time and resources are directed toward these new avenues. Without the resources to provide in-house delivery, she’s willing to pay the high commissions to keep this vital part of her revenue stream coming in. “It’s too much,” she says. “I have to focus on dine-in. I need to give that priority. I don’t want to worry about the delivery. Thirty percent [commission] is a lot, but compared to having my own, it may cost less. The third party, it’s more convenient.”
For Siri Tan, owner of Urban Burma inside Aurora’s Mango House food hall, the delivery apps are worth the fees for the promotion his restaurant gets in return. “I put it this way—it’s advertising we don’t have to pay for,” Tan says. “We’re giving them a percentage, and we’re getting the advertising.” Tan uses most of the major apps, in addition to doing a little in-house delivery when it’s not busy. He says if he had a bigger, more well-known restaurant he could be less reliant on the third-party services, but right now he needs them for both the marketing and efficiency. “I wish they took less,” he says. “The commission is pretty high, but there are no good options.”
But what if there were?
There Are Other Ways
It doesn’t necessarily have to be all or nothing: using a major corporate app or going it alone. Aspen has had an independent restaurant delivery service for 25 years, long before the iPhone was a glimmer in Steve Jobs’ eye. Tom Engelman started à la Car back when Windows 95 came out, which allowed non-computer geniuses to write code. Today, the company coordinates delivery for 30-plus independent restaurants in Aspen. We’d call it a disrupter, but it predates what it’s disrupting.
“We just developed an efficient way to execute orders from independent restaurants,” Engelman says. “We don’t like working with corporate restaurants. They’re cumbersome because there’s no last word. When you work with an independent restaurant, you’re talking with the decision maker.” Engelman stresses that independent delivery services, much like independent restaurants, can provide a better service. Just like deep-pocket chain restaurants aren’t necessarily the best option for diners, deep-pocket third-party delivery services aren’t necessarily the best option for restaurants. “Why we’re successful is the human element. I know and respect the restaurants.”
Edwin Zoe, owner of Zoe Ma Ma and Chimera Ramen, thinks an independent delivery service could work in Denver or Boulder, too. “What I have in mind is more of a restaurant community-based solution,” he says. “Without sounding too crunchy, [it’s] more like a co-op model, where restaurants group our resources together and have that delivery service.”
Zoe broke up with the delivery apps after several bad experiences, including Postmates not picking up and delivering orders made via Zoe Ma Ma’s portal, instead prioritizing the ones made on its app. “One of our customers got back to us saying they waited two hours and never got their food that they ordered from our site. [They] ended up going on Postmates and got it within 30 minutes,” Zoe says. “[Postmates is]charging us and we had to refund the customer, and they still got the sale.”
“What if the restaurants got together and did a community-based delivery service? Cost-wise, it would not be anywhere near what we have to suffer through with these other companies.“
Edwin Zoe, Zoe Ma Ma and Chimera Ramen
That nudged him to start in-house delivery, using one person to run orders for his two side-by-side Boulder restaurants. The restaurants charge a $5 delivery fee, and since the delivery area is tight, the food arrives quickly and customers are happy. “Instead of one person doing two restaurants, why not four or five restaurants? It could basically be West Pearl Street. And what if the restaurants got together and did a community-based delivery service? Cost-wise, it would not be anywhere near what we have to suffer through with these other companies,” Zoe says.
Whether it’s an independent third-party, corporate giant third-party, or the restaurant itself running orders, delivery will continue to be big business. Educating consumers about what they’re paying for and who gets the money is one way to rattle the delivery status quo, but, like the delivery apps themselves, it comes at a cost. Marketing, logistics, food runners, and keeping up with ever-evolving technology is expensive, and ditching the apps isn’t nearly as easy as it is for diners to install them and start scrolling for dinner.
Cap the Apps!
In October, Denver City Council passed a temporary ordinance limiting third-party delivery commissions to 15 percent. The measure, which is set to expire February 9, 2021, also stopped the companies from listing restaurants without their approval and required them to itemize all fees and commissions paid, but it’s that 15 percent cap that’s turning heads around the state.
Dave Woodruff, president of the Colorado Restaurant Association Durango Chapter and general manager at El Moro Tavern, wants to bring a similar measure to Durango. “I saw what Denver did and it piqued my curiosity,” Woodruff says. “We have a very vibrant culinary community down here, and we’re mostly all independently owned. That 30 percent just doesn’t work. If we can limit it temporarily, then that will benefit everybody.”
In Denver and still paying that 30 percent? To file a complaint about a third-party delivery app not adhering to the new ordinance, visit the Third-Party Food Vendor Transparency Program section of the City and County of Denver’s Department of Finance website.
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