As Diners Flock to Delivery Apps, Restaurants Fear for Their Future
As Diners Flock to Delivery Apps, Restaurants Fear for Their Future. While the apps say they are saving them in the pandemic, many restaurateurs say the opposite.
Before the coronavirus lockdowns, Matt Majesky didn’t take much notice of the fees that Grubhub and Uber Eats charged him every time they processed an order for his restaurant, Pierogi Mountain.
But once the lockdowns began, the apps became essentially the only source of business for the barroom restaurant he ran with a partner, Charlie Greene, in Columbus, Ohio. That was when the fees to the delivery companies turned into the restaurant’s single largest cost — more than what it paid for food or labor.
Pierogi Mountain’s primary delivery company, Grubhub, took more than 40 percent from the average order, Mr. Majesky’s Grubhub statements show. That flipped his restaurant from almost breaking even to plunging deeply into the red. In late April, Pierogi Mountain shut down.
“You have no choice but to sign up, but there is no negotiating,” Mr. Majesky, who has applied for unemployment, said of the delivery apps. “It almost turns into a hostage situation.”
Complaints about the fees that the apps charge to both restaurants and consumers are longstanding, but the issue has become heightened as many restaurants have shut down in-room dining. Even as they begin reopening, delivery is likely to remain a bigger part of their business than before the pandemic.
Several restaurants have also publicly worried that if Uber’s talks to acquire Grubhub succeed, small restaurant owners will have even less power in pushing back against the fees.
The gap between the success of the apps and the pain of the restaurants is striking. Spending at restaurants in recent weeks dropped about 35 percent from a year earlier, while revenue for the delivery services rose about 140 percent, according to data from M Science, a firm that analyzes transaction data.
At the heart of the issues is some basic math. For the typical restaurant, fixed costs such as labor, food and rent eat up around 90 percent of the money coming in. That leaves little room for the base fees that the large delivery services charge small restaurants, which generally are 20 percent to 30 percent of what customers pay for each order.
Chicago, Los Angeles, New York, Seattle and San Francisco have recently put into effect legislation or emergency rules to cap the apps’ fees until the lockdowns are over. But even with the caps, 62 percent of local restaurants in San Francisco said in a survey last month that they were losing money on delivery and takeout.
The fees have taken on a particularly bitter taste as delivery apps have begun campaigns proclaiming they will help save local restaurants. One ad proclaimed: “Grubhub believes that together, we can help save the restaurants we love.”