As restaurants struggle to stay afloat during the coronavirus pandemic, many have turned to delivery apps to serve customers until it is safe to return to dine-in service. But the fees these companies charge have left restaurant owners reeling.
City councils in New York, Los Angeles, San Francisco, Seattle and Washington, D.C., have recently voted to cap delivery companies’ fees at 15% of the price of each order. But Grubhub, which has recently been approached by Uber with a takeover offer, opposes the measures.
New Mexico based restaurateur Erin Wade, owner of Vinaigrette, has scoffed at third party delivery services for years, and has personally protested them because of their unfair business model. Last month, Wade penned a powerful open letter to GrubHub’s CEO, calling out their years of shady behavior towards small independently owned restaurants.
Wade says that during the pandemic, GrubHub has taken advantage of the industry’s downfall, tailoring their marketing and ads to make it look like they are here to support and uplift small businesses. Meanwhile, they continue charging 30% fees to restaurants, which is usually more than the profit margin of the order. Through her letter, Wade hopes to shed light on what she considers a bully behavior that has been hurting restaurants for years.
“Dear Matt, your recent ad is very good. It is also very wrong,” Wade’s letter begins. “You show us real footage of real people working in corner joint restaurants. You remind us that restaurants are our family. These are the places and workers that enrich every city and town in America, and they need our help now. But telling us that we can save them by ordering from Grubhub? Matt, you helped make this crisis.”
Wade says that, with delivery and curbside being the only options for restaurants nationwide, GrubHub’s model continues to be dangerous for the industry in order to survive this grim situation. Mandatory shutdowns have been crushing because independent restaurants they had thin profit margins to begin with, often 10% or less. Grubhub charges restaurant “partners” more than they make per meal, and thus they are part of the reason why restaurants are so vulnerable to the shock from this pandemic.
“If we don’t sign up for this ‘partnership’ you pirate our menus off our websites and take orders from customers anyway,” continues Wade in the letter. “The pre-charged payment cards sometimes don’t work and everything we made languishes, unpaid for. We field angry calls from customers who think it’s our fault they didn’t get the food they ordered. When my manager called customer service to tell you how unfair it is that we are paying for your mistakes, he was told “Well, none of this would happen if you would just sign up with us.” Which sounds a lot like what the mob boss says after they burn down your house.”
“In a time where dining rooms are closed and take-out and delivery are our only source of revenue, this is an important topic to be discussed,” says Starr Bowers, general manager of Santa Fe’s Joseph’s Culinary Pub. “Just over a year ago we began receiving emails and phone calls almost every day about Grub Hub, Door Dash and Uber Eats. I didn’t give them much thought and never signed up. Joseph’s food isn’t made to travel well; it’s very creative and artistic and the presentation is part of it.”
However, Bowers says the companies don’t care if the restaurants sign up. “You get calls from a call center in who knows where and they’re reading from a menu that is sometimes over a year old trying to order dishes we no longer serve. It became increasingly annoying to field the calls and answer all the questions.”
She states that, due to system flaws from DoorDash, dinner service was getting clogged, so she decided that maybe it was best to sign up if they were going to be able to call in anyway, and perhaps use it as a tool to drive business. But she was shocked to find that GrubHub wants about 30% and DoorDash 20% per order.
“That’s more than the margin we make,” says Bowers. “Average it all out and we are losing money. The uptick in orders doesn’t offset the loss. Small local restaurants in general are running with razor thin margins. If you’re sourcing your food locally as we do, you’re already paying higher than average prices for food. But you’re serving farm to table food in which you believe, and you’re supporting your local farmers and ranchers. This means your profit margin is even smaller. If you’re giving 30% of that away a month, there’s no way you can survive.”
Wade believes that restaurants misunderstood the long-term intentions of Grubhub and other delivery apps because they looked at them like a technology providing a service, such as reservation software or credit card processing. “We underestimated the power of network effects,” says Wade. “These platforms are growing exponentially and have developed a primary relationship with customers. They are not providing a service; they are growing a network. If you ‘own’ the customer, you can charge whatever you want, which is what they are doing.”
After Albuquerque station KRQE ran the story, GrubHub tepidly replied to Wade’s letter. “Even Grubhub’s boilerplate response to my letter shows that they see themselves as a network with access to customers,” says Wade. “The irony is that many restaurants helped build these networks by encouraging their customers to use the convenience of delivery.”
“This was a time when these platforms should have shined,” says Bowers. “Instead, they saw an even bigger opportunity to take advantage of a very weak industry. They could have employed more drivers and stepped up to help communities instead of taking advantage of our dining room closures to take even more money from us. [The behavior] is predatory, and it has to stop.”
Wade believes that these platforms may alter the landscape of dining for generations to come. “Eating will become more digital, it will have less friction, but the food will probably not be very good, as the freedoms once available to a small restaurant owner disappear,” says the restaurateur. Increasingly, she says, we will see more talented chefs working for ghost kitchens owned by the very companies who have been mining data about top-selling items and trends from quality independent restaurants for years.
“You hope people will not stand for that, but if customers are already willing to put up with the diminished quality that comes from food that sits for up to an hour, which is the average delivery time for Grubhub, then maybe they won’t even notice.”