How Restaurant Delivery Services are Eating into Restaurants’ Revenue

COVID-19 has been devastating to all businesses, but especially for restaurants and bars. Many might not come back after things return to a relatively normal state. Those that are open depend heavily on restaurant delivery services to keep income flowing and customers happy. When done well, they can be a lifeline. Unfortunately, some of the practices in restaurant delivery aren’t great for restaurant revenues. While a number of delivery services are a boon to the restaurant industry, it’s worth watching out for areas where they don’t help.

The current situation with restaurant delivery services

Faced by dire circumstances at the beginning of the COVID lockdown, restaurants and bars needed to keep income flowing fast. Enter delivery apps. Soon apps like Grubhub, DoorDash, Uber Eats, Bite Squad and Delivery Dudes became a regular part of people’s meal planning. Restaurants could keep their customers and employees happy.

Unfortunately, there’s a hefty price. Some have commissions as high as 40% on every order. They’ll often tack a delivery fee and/or service charge on top of that as well. The fees for most restaurant delivery services can be between 15 and 30 percent per order, but some charge as much as 50 cents on the dollar.

One of the bigger names in restaurant delivery, Grubhub, has come under close scrutiny for some of these practices. Seamless – a partner of Grubhub – has a sort of pay-to-play system with their services. Restaurants can choose between different commission rates, but their ranking in search results goes up with the higher commission percentages.

Their “Supper for Support” promotion has also received criticism. This gives customers discounts for patronizing particular restaurants. Unfortunately, those costs are covered by the restaurants themselves, not Grubhub.

Response from restaurant delivery services

Restaurant delivery services have listened to these criticisms and some have taken steps to amend them.

A class-action lawsuit was brought against Grubhub by a number of restaurants. In it, it states that Grubhub charges restaurants for non-order calls in addition to orders. Grubhub has responded with some changes to their practices, such as suspending close to $100 million in commission fees in March. 

Doordash and Uber Eats have also waived or reduced commissions in similar programs.

…and from restaurants

A number of large cities (such as San Francisco, New York City, among others) have passed emergency orders to limit those restaurant fees to 15-20%. That helps but still cuts into revenue.

One direct way that restaurants have fought back is by not using any restaurant delivery services that charge heavy fees. Some use apps like Sixdots charge nothing to restaurants and have no hidden fees. 

How can you help restaurants?

As a consumer, there’s a lot you can do to help your local restaurant.

  • Check with the restaurant and see if you can do delivery entirely through them. That way you know all money is going directly to the restaurant without a middleman.
  • If your restaurant doesn’t offer delivery, get takeout. 
  • If you do need to use a restaurant delivery service, look for services like Sixdots that don’t charge the restaurant a fee.

FAQs

Do delivery apps hurt restaurants? 

It depends. Restaurant delivery services do provide an income stream when restaurants can’t provide on-premise service and have helped keep businesses alive. Unfortunately, some also cut heavily into a restaurant’s profits through fees and commissions.

How much do restaurant delivery services charge restaurants? 

Most fees are between 15 and 30 percent per order, but some services charge 50 cents on the dollar.

What can consumers do to help? 

Ordering directly from a restaurant is the best way to ensure they get maximum profits from your order. If you do need to have food delivered, look for a service that doesn’t charge fees or commissions to the restaurant, such as Sixdots. And of course, ask at the restaurant if they have a preferred service. 

There is 1 comment
  1. Thanks for the tip to see if you can get delivery entirely through the restaurant you are getting food from. My wife and I still don’t have our vaccine, but we want to try new foods and support our local community. We will look for local restaurants that provide delivery so we can support them.

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