3rd Party Delivery Alternatives
As the COVID-19 pandemic continues to wreak havoc on the restaurant industry, many establishments have been forced to quickly adopt new business models or die. For restaurants in Nevada and many other states, in-person dining capacity has been limited to 50% on paper, though in practice, this is often closer to 30% due to social distancing requirements. In response to these limitations, restaurants have turned to third-party delivery apps to provide delivery and takeout options to make up for lost business. In a time where every single cent means the difference between staying open or closing for good, many restaurants are reevaluating their relationships with Silicon Valley and their ubiquitous 3rd party delivery apps.
But what does it look like for operators to use third party delivery service apps like GrubHub, UberEats, Postmates and DoorDash? For many small and independent restaurants, their lack of negotiating power results in being charged up to 30% per order between delivery, marketing and numerous processing fees. While each delivery app provider varies in their classification of pricing percentages, their exorbitant costs cut equally into the business’ bottom line and take away what little revenue they currently make.
Third-party delivery apps have a reputation for not disclosing a breakdown of the commissions they charge, claiming that the totals are based on several outside factors that are included in their negotiated contracts. In some cases, restaurants have been listed as partners with 3rd party apps without giving explicit permission to do so. Due to the lack of billing transparency, excessive processing charges and unauthorized listings that are associated with 3rd party apps, operators are looking for delivery alternatives that are more economical and straightforward.
Some restaurants have developed their own in-house delivery options; however, the challenges that accompany small businesses providing their own delivery comes at a high price. In-house delivery is often too great a cost and many restaurants do not have the scale to manage it efficiently. This is why more operators are choosing to look to local delivery alternatives that charge more reasonable rates or deciding to join collective groups of restaurants to construct their own delivery cooperatives.
There is a growing focus on localized delivery options among restaurant communities across the country to fill the increased demand for delivery service. These concepts are not revolutionary. In fact, they often mimic many aspects of the third party delivery app models, but run as collective ventures that are co-owned and managed by area restaurants or are hyper-localized and tailored to the restaurant community. The local delivery business alternatives are highly customizable and their pricing is determined by the community that creates them. The variation that mirrors the needs of the particular restaurant market is what many operators say is part of the appeal of these delivery alternatives.
In Los Angeles’ Koreatown, a business called Runningman provides a delivery alternative to local Korean restaurants, many of which are family-owned by first-generation immigrants. Modeled after the delivery services in Seoul, South Korea, Runningman charges the customer a fee based on the distance the food travels from the restaurant instead of a commission determined by the price of the food or additional marketing fees. Although the service is highly localized and small in scale compared to the traditional apps, it has built a symbiotic relationship with local restaurants and has grown to meet the needs of Los Angeles’ Koreatown community.
Iowa City restaurateurs, meanwhile, built a food delivery cooperative called CHOMP where each restaurant owner contributing to its establishment becomes a partial owner. This collective of local restaurants charges no more than a 15% commission, less than half the cost of traditional app-based delivery. According to their website, drivers are independent contractors who earn up to $25 per hour. This locally-based delivery approach allows restaurants to recirculate the money charged for delivery fees back into the community.
This is an opportune time for restaurants to reevaluate their delivery models and decide if 3rd party companies continue to serve their business well. As the demand for delivery remains increasingly important, restaurants are beginning to create more options that suit the needs of their businesses. Independent and collective delivery models that foster cooperation and community among local restaurants and encourage a commitment have made the delivery alternatives a success. Whether through a communal co-op or by a highly localized delivery approach that values sustainability and community over pure profit, more restaurants are taking this opportunity to decide what delivery model works best for them.