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Chook Charcoal Chicken is just one of the local restaurants to sign on with a delivery service in recent days, despite hefty fees on each sale. Photo courtesy of Chook

Are Delivery Services Saving Restaurants—Or Hastening Their Demise?

Apps like Uber Eats, Grubhub, and DoorDash are charging restaurants 15 to 30 percent of customers’ tabs for every meal delivered.

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When Justin Brunson opened Masterpiece Delicatessen in 2008, Uber hadn’t even started driving people around, let alone delivering food. But by late 2019, delivery services like Uber Eats, Grubhub, DoorDash, and Postmates ate up 85 percent of the deli’s business, making an actual restaurant space next-to irrelevant. Brunson closed down Masterpiece and moved it inside his fine-dining restaurant up the road, Old Major.

Now, amid the mandated dine-in restaurant closures, actual restaurant spaces are only relevant for preparing food to-go, and consumers are more dependent on food delivery services than ever before. Sure, there’s a lot to feel good about when we support our local restaurants by ordering prepared meals that appear on our doorsteps with the touch of a screen. But are we actually hurting our favorite restaurants by relying so heavily on food delivery apps? According to many in the industry, the answer is yes.

“The food delivery apps are basically luring restaurant customers away from restaurants, and then charging the restaurants access to those customers,” says Dan Fogarty, a branding executive who helped build Chipotle and Noodles & Company, among other mega-brands.

One of the problems, Fogarty and others say, is the business model. While diners only see service, order, and/or delivery fees added to their bills, the apps are actually profiting far more from a less-visible fee: For every meal delivered, those services charge restaurants a percentage of the entire order, typically ranging from 15 to 30 percent.

“The delivery fees aren’t how they make money—it’s the commission on the total order,” Fogarty says. “If you buy something on Amazon, FedEx picks it up and delivers it for a flat fee or whatever the cost is of doing business. They don’t charge 30 percent on the whole order to make the delivery. Consumers don’t know about this. Logistically, it makes sense to have a service that serves all restaurants like FedEx does, but at a fixed cost.”

An increasing number of restaurant owners are speaking up about what they view as a predatory model, with some cities trying to pass measures limiting the commissions food delivery services can charge. New York City is considering a bill to cap the fees at 10 percent.

Another pain point is that some delivery services sell restaurants’ food without their consent. That’s what happened to Hosea Rosenberg at Blackbelly in Boulder. “Grubhub and Postmates were selling our food without our permission, without our knowledge. It was really upsetting,” Rosenberg says. “They were posting menus that were out of date and promising delivery in a certain amount of time, and people would call the restaurant and complain that the food was cold and we told them, ‘We don’t do delivery.’”

Rosenberg asked the companies to remove his restaurant from their sites. Grubhub complied—at first—but before long, Blackbelly’s menu was reposted online. Postmates ignored his request, but eventually did acquiesce. “They were still doing it without our knowledge. It’s hard enough for everyone in the restaurant business to survive, and then you have companies leaching off of you, trying to make money off of our hard work,” he says. “I just hate it.”

Finally, there’s the new food delivery culture these services have promoted—consumers want meals brought to them as quickly as possible—which keeps customers from physically going to restaurants; dine-in business was already on the decline before the age of COVID-19. Having less full-priced, dine-in business and more delivery orders that are marked up to 30 percent by a third party is terrible for a restaurant’s bottom line.

But these are desperate times, which is why Chook Charcoal Chicken’s Adam Schlegel, and many other restaurant operators, have found themselves signing on with DoorDash and its competitors. Schlegel says he never intended to work with one of the big food delivery apps, but sales have dropped so much at Chook as a result of the coronavirus crisis that he registered with DoorDash last week. “If this was three months ago, I’d be saying I do not agree with this model. Now, every sale is a survival sale. I need business, and if that is where the business is, I need to go there,” he says.

“This situation has definitely underscored the importance of and demand for food delivery infrastructure,” says Katie Lazor, executive director of EatDenver. “Many operators are just grateful that there’s existing infrastructure to plug into right now, and any income—even with up to 30 percent fees from third-party delivery companies—is helping them keep the skeleton teams they are down to.”

Brunson agrees and has seemed to find a way around those fees: Charge 20 percent more for his delivery menu, passing the delivery service’s commission onto the diners. “We’re at such small margins, we have to,” Brunson says. “It’s the consumer’s choice if they want to pay the extra amount to get food delivered.”

We reached out to four of the biggest food delivery services on the Denver scene to find out what commission the companies charge to restaurants and whether they’ve lowered those standard fees during the coronavirus crisis, as some have advertised. While DoorDash wouldn’t disclose its exact commissions, it is waiving commissions on deliveries for newly joined independent restaurants for 30 days, removing commissions on all pick-up orders, and adding many independent restaurants to DashPass, the service’s subscription program, free of charge. Uber Eats said its service fees range from 20 to 30 percent, depending on the market and restaurant. It is offering free delivery for customers, waiving activation fees for new partners, and removing fees on pick-up orders. Grubhub wouldn’t comment on figures but sent along a statement about deferring commissions from restaurants to help them increase short-term cash flow. Postmates did not respond to our request for comment.

Translation? Food delivery companies are booming right now and restaurants are barely hanging on.

What should diners do to support their favorite local restaurants during this trying time? If you can, and you’re comfortable with it, Fogarty and Schlegel recommend carry out or delivery ordered directly from the restaurant. “If you’re really trying to provide the biggest bang for your buck, go straight to the restaurant,” Schlegel says. “Order from its website, or do some sort of pickup or curbside, whatever is comfortable for you. Anything helps right now.”

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