By Preetika Rana and Heather Haddon
Apps like DoorDash and Uber Eats have provided restaurants a
flood of customers in the pandemic. Now a host of food-ordering
tools, along with some restaurants, are finding ways around those
apps and the commissions they charge.
DoorDash Inc., Uber Technologies Inc.'s Eats and Grubhub Inc.
can charge restaurants up to 30% of every order -- a chunk many
owners say dents profits even as more orders come in.
A new crop of services is promising online ordering at a lower
cost to eateries, by letting the restaurants arrange more
deliveries themselves.
Chipotle Mexican Grill Inc., Shake Shack Inc. and a growing
number of chains have acknowledged the cost of app-based delivery
orders, and many say they intend to address it. Local governments
from New York to Seattle have enforced rules capping delivery-app
fees, in an effort to rein in restaurants' costs while the health
crisis keeps people home.
"The pain over app commissions is not new... the pandemic just
exacerbated it," said Andrew Wang, the founder of Spread, a website
that charges restaurants $1 per order and markets itself as a
cheaper and more restaurant-friendly alternative to the big
apps.
Mr. Wang says restaurants give Spread lower prices for menu
items. Restaurants say they typically mark up on popular apps to
make up for the commissions that those services charge.
Delivery is an expensive logistical undertaking. DoorDash and
Uber Eats have trimmed their losses as orders have surged, but have
yet to post a yearly profit. Grubhub has incurred new losses, in
part as commission caps weighed on its bottom line.
Some new players say they can steer enough orders to make it
worthwhile for the restaurants to organize their own deliveries --
as pizza shops and takeout businesses have long done -- or to
outsource deliveries to a partner. Lyft Inc. has said it is
exploring such partnerships with restaurants.
Whether these alternatives can grab market share, or turn
profits, is an open question. Makers of the new crop of services
say they save both restaurants and consumers money, because
restaurants aren't marking up menu prices to offset commissions and
they can charge customers smaller delivery fees.
Sales on third-party food-delivery services are more than double
what they were prior to the pandemic, with levels of demand staying
high, according to an analysis of credit- and debit-card data from
Earnest Research. DoorDash, Uber Eats and Grubhub have registered
the biggest growth, though smaller delivery companies such as
Chowbus and Ritual Technologies Inc. logged year-over-year
increases in December and January, the data shows.
Long John Silver's LLC, the nearly 700-unit fast-food chain,
plans to introduce a system later this year for customers to order
directly on the company's website, with delivery handled by a
third-party delivery service.
"We didn't want to continue to deal with these companies,"
Stephanie Mattingly, the chain's chief marketing officer, said of
the big delivery apps. "They are the necessary evil for us right
now."
The bigger apps say they are taking steps to help. DoorDash
recently started building websites for small restaurants that
enable customers to order directly from eateries. Rather than
taking a commission, DoorDash charges restaurants a flat fee to
deliver orders placed via those sites. Consumers also typically pay
apps for the cost of delivery. Uber Eats has started a similar
feature. Grubhub said it is building apps for chains and will make
similar services available free to independent restaurants in
coming months.
All three apps say they have spent millions of dollars to
support small restaurants through grants and free promotions.
DoorDash said it waived commissions for eateries with five or fewer
outlets in the early months of the health crisis. Grubhub said it
suspended commissions for independent restaurants for the first few
weeks of the pandemic. Uber Eats said it has halved commissions for
restaurants doing their own deliveries through mid-this year.
Spread's Mr. Wang, who helped Groupon Inc. launch its delivery
service, has tried to surf growing consumer sentiment against
commissions, designing cartoons and stickers that show the
downsides of the bigger apps' practices. He's encouraged restaurant
partners to pack them into orders.
Half of the 150 restaurants on Spread make their own deliveries,
Mr. Wang said. They set their own delivery fees for customers, he
said, often pricing lower than the big apps to encourage more
orders. The New York-based company works with a partner to complete
the other orders.
Fare, a New York-based delivery service started by catering
company CaterCow, offers diners a limited selection of eateries to
order from -- a play to drive volume. Fare's restaurants deliver
themselves, with owners and managers doubling up as delivery
drivers. Deliveries are made at preset times during lunch or
dinner, which helps restaurants keep costs down.
"It isn't the best if you want your food in the next 20
minutes," said Chief Executive Sean Li. The service is a better bet
for people who like ordering their meals in advance, he added.
Similar to Spread, restaurants on Fare often display lower
prices for menu items than on other apps because Fare doesn't
charge them a commission. It does charge customers a service fee,
similar to the big apps; Mr. Li said customers still pay less
overall than they would on apps such as DoorDash and Grubhub.
Fare has partnered with about a hundred restaurants since
launching in June last year, Mr. Li said.
Some restaurants are taking on more online business in an
attempt to bypass the apps.
Portillo's Hot Dogs LLC struck a delivery deal with DoorDash in
2017, but began steering some business toward its own app during
the pandemic. The 63-unit chain put some idled workers on delivery
duty and started handling larger to-go orders.
Drivers arrive on customers' doorsteps in Portillo's uniforms,
and workers are tipped directly. "There is a benefit in controlling
the entire experience," said Nick Scarpino, the Chicago-area
company's senior vice president of marketing.
Large restaurant chains can negotiate better commissions with
delivery apps but say they are feeling the pinch of order-handling
fees.
Chipotle is among restaurants introducing new pickup services
designed as an alternative to third-party deliveries. Customers can
pull into a parking spot at the restaurant, tap an app and an
employee brings the order to their car. CEO Brian Niccol said many
customers prefer to pick up their food themselves.
"It's faster and by the way, you can avoid the delivery fees,"
Mr. Niccol said in an interview this month.
Write to Preetika Rana at preetika.rana@wsj.com and Heather
Haddon at heather.haddon@wsj.com
(END) Dow Jones Newswires
February 21, 2021 05:44 ET (10:44 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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