Three’s a Crowd: How Third Party Delivery Apps Impact Restaurants

Image credit: Clay Banks

Keeping a small business afloat in the Bay Area is no easy feat by itself, but it’s become especially challenging during these unprecedented times. As city and state governments ease off on restrictions for businesses, local restaurants are still struggling to keep up with the cost of rent and utilities while serving at a limited capacity. To compensate, almost every restaurant in the bay has relied on third party delivery services to keep in business and continue selling their food.

As people began practicing social distancing and stayed indoors, third party delivery sales through apps like DoorDash and Grubhub skyrocketed. Data analysts recognize a more than double increase in year-over-year sales for delivery services through the month of May alone.

The Bay Area was, of course, no exception to this trend. John Espejo, owner of Uncle Boy’s Burgers in the Richmond district, says his third party orders went from forty percent of his sales before shelter-in-place to nearly eighty percent of his sales during lockdowns.

At a glance, you might see delivery apps as the restaurant industry’s saving grace. After all, local restaurants were able to keep in business despite not being able to serve guests in their space, right?

A closer look at the numbers, however, suggests that this situation has instead put local businesses between a rock and a hard place.

A Tale of Third Parties

Delivery apps have long been criticized for price-gouging restaurants that do business through them. The commission they take from the sale of one order can be as much as 25 to 30%. That’s a lot of money that would otherwise have gone to the restaurant, tightening an already small overhead window. 

Grubhub, especially popular in metropolitan areas, charges a 10% base commission, plus a processing fee. Prepaid orders tack on an additional 20% for marketing! All together, Grubhub’s charges can take as much as 35%  percent out of an order, an enormous chunk of a small business’ sale.

In response, San Francisco imposed a cap on commission fees to try and circumvent any exploitation earlier this year. The San Francisco Gate reported recently that Grubhub was still hiking fees beyond the commission fee caps during the shelter-in-place orders, charging upwards of 22% for marketing commissions alone.

In the midst of a pandemic that’s threatened the restaurant industry entirely, this practice of exorbitant charges only helps the delivery apps. Chef Pino Spinoso of the acclaimed Café Tiramisu in Belden Alley observed that “the only people making money right now are the delivery services.”

Arnaud Goethals, co-founder of Vive la Tarte in SOMA expressed a similar exasperation, saying, “The restaurant industry [is] making everybody rich except themselves.”

While restaurants have seen an uptick in delivery orders that’s kept them busy, it’s apparent that they end up taking home far less than they used to. Especially during a pandemic with restaurants already treading water, these practices add yet another hurdle to vault over in order to stay afloat.

You Can Make a Difference!

As customers, we can take action with the most powerful tool we have: our buying power. How we spend our money informs the market. The way we order our food shapes the way that businesses grow and how the industry molds itself.

We’ve already mentioned that ordering takeout helps support our local restaurants, but now more than ever it’s essential that we find ways to directly support our small businesses. By skipping the apps and ordering straight from our favorite local spots, this helps them keep all of their sales rather than paying huge commissions to a third party.

Some restaurants already offer their own in-house delivery options, while just about everyone has takeaway or carryout available. Buying straight from our local restaurants means they get to take home the profit and sustain themselves in these hard times.

In the end, it helps customers out, too. Ordering directly from a restaurant saves both on additional delivery and service fees that third parties would charge customers.

Restaurants are an integral part of our communities, and when we make it through tough times together, our communities come out even stronger. So what are you waiting for? Head to your local restaurant today, order-up, and enjoy your meal while supporting their hard work!