- With 17% of US restaurants shuttering in 2020, diners ordered meals in hopes of keeping doors open, not realizing that purchasing via corporate apps is actually driving restaurateurs out of business.
- Spurious practices and delivery fees averaging 30% are unsustainable for eateries, as is massive Wall Street backing for DoorDash, Grubhub, Postmates and Uber Eats while they all post losses.
- Local delivery alternatives are emerging to support cherished restaurants, not undermine them, and can be developed to meet the diverse needs of unique communities.
Food and corruption make an unappetizing pairing on dinner plates.
Having personally lived through the spectacle of Uber, Lyft, Doordash, Instacart and Postmates slathering more than $200 million over California Proposition 22 in order to deny their drivers the state’s minimum wage guarantee, protections and benefits, I found myself hungry for Special Delivery, a new report on the state of restaurant delivery from The Institute for Local Self Reliance (ILSR).
The good news is that America doesn’t have to eat this way; we don’t have to be chefs, delivery workers and diners scrambling for crumbs from corporate tables. But we do have to know what’s really on the menu to make choices that keep independent local restaurants open and our communities thriving.
To me, it may be handmade butternut squash ravioli from the little Italian place down the road. But for my neighbors who own that restaurant, for the cooks preparing my meal, and the driver delivering it to my door, I may have just ordered up a world of worry if I purchase my dinner via a corporate third-party service.
According to ILSR, local restaurants live lean on margins of just 3%-6% of gross sales. If consumer demand either before or during the pandemic drove restaurateurs to scramble for delivery solutions, choosing a corporate partner has not served them well. A small establishment formerly bringing in $500,000 in gross revenue will find itself paying out an unsustainable $150,000 (30%) if they’ve joined up with Grubhub, Doordash, Postmates, Uber Eats or a similar giant.
Roughly 110,000 of America’s restaurants went out of business in 2020 and 2.5 million restaurant industry workers lost their jobs. According to ILSR, these neighbors who cooked for and served us may have experienced a variety of depredations at the hands of the third-party services before favorite restaurants were gone forever. Unsavory tactics by third party delivery services have allegedly included:
- Listing local restaurant menus on their platforms without permission
- Listing non-partner restaurants on their platforms and claiming they aren’t accepting orders or are outside the delivery radius
- Buying near-match restaurant website URLs to capture leads
- Capturing diner data for the purpose of setting up ghost kitchens to undercut local establishments
- Setting lawsuits following accusations of stealing drivers’ tips
Prop 22: The New California Cuisine?
Meanwhile, if my delivery person is now working under the shadow of CA Prop 22 (possibly coming soon to a state near you), their homelife likely consists of severe financial hardship. If the imposed block on the state’s minimum wage resulted in their eviction down the block from me, they may now be living in their car, or be among the one-in-four drivers who are hungry enough to be eating part of my supper.
Thanks to the big third-party delivery apps pouring more money into Prop 22 than any other ballot item in my state’s history, my neighbor, the delivery driver, is classified as a "gig worker" rather than an employee. This means they are locked into engineered poverty, with no right to worker’s compensation, sick leave, or unemployment benefits if they fall ill or meet with accident while bringing me my ravioli.
How did Prop 22 pass? Incredibly, drivers were reportedly forced to read and "okay" Prop 22 propaganda in order to use workplace apps. Simultaneously, customers were bombarded with in-app messaging, TV ads, and billboards to vote "yes" to "benefit" workers and avoid long wait times and price hikes. Misleading scare tactics coupled with massive funding won the day for the delivery apps, but the "victory" is one many in my state already regret and labor-backed lawsuits are being filed and refiled.
A Free Lunch From Wall Street?
You might suppose that with all the cash shoveled into the passage of Prop 22, the third-party delivery services must be trying to protect massive profits. After all, DoorDash, which controls 45% of the restaurant delivery market, experienced a 241% YOY revenue increase in 2020, bringing in $2.9 billion. But as ILSR reports,
Despite more than $26 billion in revenues in 2020 -- dollars taken directly from the cash registers of local restaurants -- DoorDash, Grubhub, Postmates and Uber Eats continue to post sizable losses...it’s a standard monopolistic strategy: By using Wall Street’s backing to expand rapidly and lock in market-share, the big delivery apps are trying to become permanent toll booths between restaurants and their customers. The goal is not creating value, but extracting wealth.
Nearly all of us want to live in communities where all members can live dignified lives. But economies of scale run amok in the restaurant delivery industry have become like a case of systemic food poisoning in America. Happily, if we can lose our collective appetite for the major third-party apps, an alternative menu of options is emerging.
Local Delivery: An Improved Food Pyramid for All
I’m a strong advocate for in-house delivery, whenever possible, because it’s the only scenario that gives local brands complete control over the entire customer journey, safeguarding invaluable reputation. That being said, when a restaurant isn’t yet equipped to staff a fleet of drivers, partnering with local delivery services is almost always the next best thing.
ILSR’s extremely valuable report showcases nearly twenty of the inventive local delivery startups that have begun to pop up across the US, which they categorize into five general types:
- Delivery services that generate revenue from customers instead of charging restaurants
- Member-only delivery services
- Delivery services with lower commissions
- Online ordering platforms
The profiles of these experimental delivery businesses are both varied and invigorating to peruse. For example 937 Delivers in Dayton, Ohio charges restaurants a $300 a month flat fee while customers pay a $6 fee for services rendered. Delivery Co-op’s drivers in Lexington, Kentucky make about $20/hr, receive health benefits after three months on the job, and become co-op owners after one year of service. It’s great food for thought to consider all the different approaches to local delivery, and I’d suggest a good recipe for most communities would look something like my pyramid.
Local B2B relationships are based on old-fashioned trust and performance, rather than monopoly. Moreover, when restaurants and local delivery services partner up, money spent by both businesses and customers recirculates within communities rather than disappearing into distant corporate pockets.
Ideally, drivers should be given employee or co-op owner status, with as many protections as possible and a living wage that removes the deeply distressing scandal of customers being served by hungry neighbors. Because the reputation of all parties will be at stake, excellent customer service can be a sincerely-shared goal. And, at our pyramid’s apex, customers benefit from the ethical satisfaction of supporting a local business when such a choice is available.
This last point brings us to our final consideration.
What Should Your Restaurant Do if No Local Delivery Service Exists Yet in Your Area?
If your current relationship with a corporate third-party delivery service is driving your restaurant out of business, but a local B2B option isn’t available, you have three main options:
I previously calculated that switching from third-party to in-house delivery would represent a savings of about 10% for one restaurant in a state that has passed a $15 minimum wage. Each restaurant will need to do its own math on how it can beat the 30% charges of the corporate delivery services. If the numbers work, there are numerous hidden benefits of staffing your own establishment with drivers:
- Your customers' full experience will be controlled by you
- You will "own" your customers instead of renting them from someone else
- You can treat your drivers like family, which multiple restaurateurs have told me matters a great deal to them
- It will be your advertising on delivery vehicles around town
- You will control all of your marketing, both online and offline
- You will not be associated with the public scandals of corporate providers
Need more inspiration to take it in-house? An Oracle survey found that 77% of customers prefer to order directly from restaurants instead of remote apps. That’s a big appetite!
Launch a delivery startup
A local lack you’ve identified could be the opportunity of a lifetime. If your city has no local delivery service, you could be the one to develop it, as several restaurateur couples featured in ILSR’s resource have done.
There's a good primer from TRUiC, covering some of the steps you’ll need to consider if you determine the time is right to found your own local food delivery business.
Join with colleagues for collective advocacy
Sometimes, partnerships are the key. For example, ILSR cites the Collingswood, NJ Business Improvement District teaming up with an electric bike-based delivery service called BLOC. Another example showcases local business advocacy groups picking up delivery tabs for the benefit of the community.
Talk to your peers to discover if they’re ready to bring pressure to bear on local governments to cap third-party delivery fees, or even escalate your advocacy up to the level of Congress and the FTC for investigation of prohibited practices.
You and Your Customer, At Your Table
The Oracle survey, cited earlier, is calling 2021 “the year of opportunity” for restaurants, and any good news is extra welcome these days in the hospitality industry. I would suggest that the greatest untapped opportunity exists within your restaurant’s customer base.
However you plan to challenge the unsustainable fees and outrageous behavior of the delivery monopolies, take a page from one independent bookseller who has taken on Amazon, no less. Bring your own customers to the table via your digital marketing outreach and tell them a really strong story over that plate of ravioli. It may be the first time they’ve ever heard that Grubhub, or Doordash, or Postmates is casually driving you out of business. Be vocal, intentional and inclusive in bringing each patron into their part in the story, and then roll out your alternative and the reasons why you’d like your customers to make the switch.
If the pasta and the plan B for better delivery are tasty enough, you have what it takes to turn an uninformed eater into an ultimate evangelist.
Local search marketing columnist, Miriam Ellis, has been a local business consultant and advocate since 2003. She is the local SEO subject matter expert at Moz.com.