If you think that your Uber and DoorDash orders keep neighborhood eateries afloat, you might want to think again. That is at least according to some restauranteurs.
Third party delivery companies’ profiting from suffering restaurants might come to an abrupt end as some cities are putting caps on rampant fees and starting to exercising some control.
As coronavirus shut us all indoors and closed most restaurants across for dine in, almost all establishments started relying solely on food delivery apps, such as UberEats, Grubhub, and DoorDash. And this reliance came at a cost, a pretty steep one. While it’s definitely better than nothing at all, your favorite bar is not seeing much of your financial support when you order that burger and feel good about helping.
Even before the pandemic hit, many restaurants were complaining about the payments they are slapped with from food delivery apps. Unfortunately not many eateries had their own fleet of drivers, so collaboration in modern food ordering times was needed. Now it’s vital.
Giuzeppe Badalamenti, the owner of Chicago Pizza Boss, started the avalanche by posting an invoice from Grubhub for March. In that statement you can see that one of the clients of Chicago Pizza Boss ordered $1,042 worth of goodies during that month, but the pizzeria only saw $376 after all the taxes and fees were collected by Grubhub.
Can it really be that GrubHub pockets 65% of what restaurants make? As it turns out – yes. The company confirmed that this particular receipt is real. It seems that silent suffering of restauranteurs and shareholders might be finally heard and understood. Or will it?
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This is how the invoice breaks down, according to GrubHub representative:
- Most restaurants pay between 15% and 25% in fees, but Chicago Pizza Boss opted to pay $231, which includes extra promotions, such as coupons for customers
- 10% delivery is not mandatory, but this business opted in
- 20% optional high end marketing deal
Even without promotional fee, Chicago Pizza Boss would’ve taken home just $607, which is just 57% of the profit. In short, all restaurant owners pay 4% processing fee, 15% marketing fee (or 20% if they want more), and 10% non-mandatory delivery fee.
While every business will charge fees and will try to make money, which is totally a part of life, food delivery apps are relatively new and work without regulations charging restaurants fees that really seem excessive. The question is should they be allowed to do that not during normal operations, but during the age of pandemic, when restaurants have no choice but to use them?
As eateries and cafes got shut down, they turned to Door Dash, GrubHub, Postmates, and Uber Eats in never before seen numbers. Postmates say that they increased their partnerships tenfold since March. Besides restaurants, the company serves book stores, retail stores, and similar consumer businesses.
If you own a bar or a restaurant, before you sign up with any one of them, take a look at what you will have to pay for each one of them:
There is a marketplace fee of 15-30%. This fee takes care of employees, their salaries, HR, processing, customer care, advertising, and card payments. If you have your own drivers, it will cost 15% just to advertised on Uber Eats. If you also need their delivery, you will pay up to 30%.
Postmates does not disclose their fees and says that they are agreed upon with each business separately. While no official number is known, Postmates says that marketing and delivery fee is included in the commission charge.
The payment is calculated on pre-tax total of goods bought by a customer, no upfront fees are collected.
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Again, no specific rates are shared, but all food providers pay custom commission on goods and voluntary delivery fees. This fee is needed to cover credit card fees, driver’s salary, background checks, and insurance.
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Given today’s climate, those mounting fees are facing more serious judgment. Sure, money makes more money, but restaurants are at a real disadvantage these days.
Fortunately, many states and cities are beginning to debate if some caps are needed on what third party delivery services can charge. Jersey City has recently signed an order to cap such commissions at 10%. San Francisco, Washington D.C., and Seattle cap profits at 15%. Los Angeles is also getting on board with proposed 15% limit. Boston, NYC, and Chicago are also talking about enforced limitations. Sure, profit making is great, but there is no reason for Wild West in 2020.
The US is not the only country recognizing that some limits are needed. The same companies and local delivery businesses in Europe are facing the same fate.
Many companies understand that some sort of face saving is needed and are beginning to announce relief efforts. DoorDash is reducing its commission fees by 50%, which will support close to 200,000 partnering restaurants all the way through May.
Uber Eats is not charging marketplace commission fees for all delivery orders and will continue that through June.
Postmates tried reducing fees in San Francisco, Los Angeles, Sacramento, and Detroit as a pilot initiative. While it didn’t expand everywhere else, the company is at least matching businesses on their promotional offers to drive the demand.
Grubhub is doing the least – it allowed its merchants to defer their payments in March, but is requiring full fees since then. The company never waived anything. Talk about greed.