After the coronavirus pandemic shuttered dining rooms across the country, restaurant owners quickly began relying on delivery and pick-up orders as their primary sources of income. For many dining establishments that don't have a fleet of drivers, food delivery apps can introduce small businesses to a wider range of customers.
But partnering with third-party services can also be incredibly costly. Long before the pandemic, many restaurateurs had been trying to shed a light on how expensive customer convenience can be when it comes to getting food delivered in the modern era. Now that these platforms have become the only way certain restaurants can continue operating through the pandemic, that harsh reality has more apparent than ever.
In late April, Chicago Pizza Boss owner Giuseppe Badalamenti shared a photo of a March statement from Grubhub, one of the country's biggest food delivery apps. The now-viral post revealed one of Badalamenti's restaurant clients brought in $1,042.63 worth of orders during the month — but only pocketed $376.54 after all of Grubhub's fees were deducted.
“Stop believing you are supporting your community by ordering from a 3rd party delivery company,” Badalamenti wrote in the post.
"I shared the post out of outrage for the client. There has been a silent rumbling for at least three years and restaurants have been suffering in silence," Badalamenti told TODAY Food about his decision to post the invoice. He added that he generally advises clients who want higher margins not to use third-party platforms.
But do most apps really rake in nearly 65% of restaurants' profits?
A representative for Grubhub confirmed the statement's authenticity and then broke down the various costs for TODAY, saying that while most of its restaurant partners end up paying between 15-25% in fees, this particular business opted to have $231 deducted from its profits to apply towards promotions, which are optional sales coupons a restaurant may offer customers. This restaurant was also charged a 10% delivery fee (also optional), plus it opted for a higher-end marketing package at 20%. The "7 Order Adjustment" fee of $131.19 was deducted from the total due to restaurant error, which happens when customers report missing items or incorrect orders.
Still, even before the promotions fee was deducted, this restaurant's take home pay would have been $607.54, about 57% of the original orders.
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Grubhub confirmed that all of its partner restaurants are subject to the following fees: a processing/fraud protection fee (4%); a marketing fee (the average rate is 15%, but business owners can opt to pay up to 20%) and an optional delivery service fee, at 10%.
“Restaurant owners select the services they want and only pay a commission to Grubhub when we help generate sales," the representative said. "Grubhub is happy to work with restaurant partners to help them manage costs and grow their business."
Badalamenti's post still raised a lot of eyebrows and several important questions: Are delivery services a practical option for struggling restaurants during these unprecedented times? And should they be allowed to operate, largely unregulated, when restaurants have no other option to stay in business?
Delivery services in the age of coronavirus
Over the past several weeks, many restaurants struggling to make ends meet have been relying on delivery services like Grubhub, Uber Eats, Doordash and Postmates to serve diners who can no longer patronize their eateries in person.
"We’ve seen nearly 10 times the amount of merchants sign up to be part of Postmates (since March). That’s restaurants, retail stores, even bookstores wanting to deliver goods to their customers," a Postmates representative told TODAY.
But are these seemingly convenient services really worth the investment? It's hard to say since each business is different, but restaurants should always thoroughly review an app's service fees before making any decisions.
Here is a breakdown of some of the most common fees associated with third-party apps. While all fees are not publicly disclosed, CNBC recently reported that many company's commission fees can be as high as 30%.
- Restaurants partnering with Uber Eats typically pay a marketplace fee between 15-30%, depending on the services they select. This fee supports operational costs such as payment processing, customer support, credit card and marketing services, as well as employee onboarding and wages.
- Restaurants that use their own delivery team for Uber Eats orders pay a 15% marketplace fee. Those that use Uber's delivery service pay a fee that's capped at 30%.
- The minimum commission fee a restaurant pays when working with Postmates depends on which services the restaurant selects. Those fees are privately negotiated between the restaurant, or consumer goods business, and Postmates. A Postmates spokesperson declined to share a percentage range with TODAY, but did reveal that marketing and delivery services are included in the commission fee.
- According to the Postmates' website, there are no upfront costs for restaurants partnering with the service and "partners only pay Postmates a commission on the pre-tax subtotal of goods sold via the Postmates Platform."
- According to a DoorDash representative, who declined to share specific rates with TODAY, the company's commission structure is personalized for each restaurant and those rates depend on what merchant services each restaurant selects. Restaurants that use DoorDash delivery services pay a percentage of the order subtotal, but delivery services are optional.
- Like similar services, DoorDash commission fees cover courier wages, background checks, insurance and credit card processing fees.
Are delivery services supporting restaurants during coronavirus?
As the old adage says, "You have to spend money to make money." However, as restaurants across the country continue to struggle during the coronavirus pandemic, the fees associated with these services are coming into focus and, in may cases, facing mounting criticism.
Recognizing that restaurants (and all of their employees) have become dependent on delivery services during the pandemic, some cities and states are looking to place a cap on how much commission third-party apps may collect.
On Thursday, Steven Folop, the mayor of Jersey City signed an executive order capping all commissions on third-party delivery apps to 10%. In Washington, D.C., San Francisco and Seattle, similar orders have passed, capping commission collections at 15%. Last month, Los Angeles Councilman Mitch O’Farrell proposed a motion that would require delivery apps to charge "no more than 15% of the purchase price per order in fees during the COVID-19 pandemic," according to the Los Angeles Times.
The state of New York along with cities like Boston and Chicago are also considering implementing similar guidelines, but no legislation that would apply to companies nationwide has been introduced.
Delivery services across the pond are also catching criticism for high fees. In the United Kingdom, restaurant owners are requesting that Deliveroo lower its commission (it typically charges 35%, plus tax), according to CNBC. Forbes also recently reported that Uber Eats, Grubhub, DoorDash and Postmates are facing a class-action lawsuit over their fees.
Amid the pandemic, some third-party services have developed relief programs for their partner restaurants to help counter any criticism associated with their business practices.
"DoorDash knows that doing our part during this unprecedented time, when delivery is an essential service, is vital, which is why last month we announced that we are reducing commission fees for eligible local restaurant partners by 50% on both DoorDash and Caviar," a DoorDash spokesperson told TODAY, adding that the relief program will benefit more than 150,000 restaurants throughout the U.S., Canada and Australia through the end of May.
In mid-March, Uber Eats temporarily started waiving marketplace commission fees for all pickup orders. The company says it will continue to do so through June.
A Postmates representative said the company has explored various ways to help its partners. "At the beginning of this crisis, we introduced a pilot program where we temporarily waived commission fees for businesses in the San Francisco Bay Area, Los Angeles, Sacramento and Detroit," the rep said. "We've also monetarily matched merchants on promotions to help bolster demand."
Grubhub temporarily deferred (but did waive) the collection of its marketing commissions to assist restaurants in March. However, despite the fact that thousands of restaurants nationwide are still operating at limited capacity, the company is no longer allowing its partners to defer paying any of their fees.