Are DoorDash, UberEats Good For Restaurants?Jun 15, 2021
I was crying every day, I was crying, I'm not, I'm not even going, I'm not even a front. She was crying every day. She was sitting in the kitchen crying. The pandemic has shut down many industries, but
restaurantshave had an especially challenging year. Before the pandemic, more than half (51 percent) of all food spending in the United States was allocated to
restaurants. During the second quarter of the pandemic, that figure fell to the high 30 percent range. Now it's about 46 percent. But while food service has decreased considerably, food delivery has increased considerably. DoorDash and Uber Eats, the two largest delivery apps by market share, doubled their sales from the end of 2019 to the end of 2020.
As of February 2021, DoorDash had by far the largest market share in the US. But Some cities have other favorites, like Uber Eats in Miami and Grubhub in New York City. Restaurants are relying on these delivery apps more than ever. It was fifty percent before dinner and the walk-in and our personal website obviously took the lion's share of the share. After the pandemic, it was... No, I think it's close to 80 now. It's 80 percent. It's definitely 80 percent. DoorDash alone delivered 543 million orders between January and September 2020. The pandemic has been a huge challenge for all of us, DoorDash, the industry, and everyone.
And I think it was both a challenge and an opportunity. And in an economy with about 9.5 million fewer jobs in February 2021 compared to February 2020, the flexibility of food delivery as a job can be beneficial. Of all the industries in America today, the restaurant industry has been hit the hardest in terms of sales and employment declines. At the height of the pandemic, we... almost 2 million new dashers joined the platform, which was incredible. So I started working full time at DoorDash in March of last year. So yeah, that's how I got in: closing a restaurant and then working full time once the pandemic hit.
I don't know, I just really enjoyed it and the money was
good, as long as you're very motivated. And some of these guys have like three phones, you can see them. It's crazy. They have three phones, one from Grubhub, one from DoorDash and one from Uber Eats. It is fascinating. It's a completely different world. Yes, it's a completely different world. Although increased delivery has created new jobs for drivers, there have been some challenges for restaurants. Delivery apps charge restaurants fees to make money. Uber Eats charges a one-time fee of $350 for setup and equipment, plus a 15 to 30 percent fee for each delivery.
Grubhub charges a 20 percent marketing fee, a 10 percent delivery fee, and a $0.30 processing fee, plus 3.05 percent. DoorDash told CNBC that the company does not disclose specific fee amounts as they vary, as the company offers a variety of services for providers. Delivery like for my business is 80 percent. So I can understand that before, as a 30 percent delivery restaurant, charging a 30 percent commission for my 30 percent delivery was not a lot of money. But when your delivery is now 80 percent and you're taking 30 percent of my 80 percent. That is a significant amount of money. The average profit margin is 41 to 58 percent across all platforms, Gene?
Melissa makes it and that usually excludes a 15 percent tip that they put, the three major platforms put in, you have to back up that tip. These tariffs also result in higher food prices for consumers. There is the price of the food you would receive if you physically went to a restaurant. This handy guide from Loup Ventures pegs that price at $18.58. That price usually goes up when a restaurant lists items on these apps. Then there's the shipping fee, which is sometimes covered by subscriptions like DashPass and Grubhub+, and a service fee. There's also a regulation fee that companies including DoorDash and Uber Eats added to their bill after cities like New York capped delivery fees at 15%.
We always use these apps as consumers and not the other way around, where we say, okay, we'll pay the extra five or six dollar convenience fee, but you don't see what happens on the other side. And that was amazing. We are both engineers by training and our careers were in engineering, and then we met our previous company where we worked as sales engineers, and then a month before the pandemic, we bought Uptown Poké and became the new owners. By the time we had a feel for how things worked with the business and made those little adjustments here and there, it was already closed.
After cities and states banned indoor dining in March 2020, restaurants across the country had to find new ways to stay in business. In the pandemic environment, one of the most important components of maintaining sales is dealing with what the industry calls the off-premise market, and that includes, for example, takeout delivery, drive-thru, curbside, trucks food and catering. . The only thing the pandemic has done for the industry is basically accelerate more use of that off-premise market. Most online orders come from third-party apps like DoorDash, Grubhub, and Uber Eats. An analysis by Second Measure shows that nearly half of American consumers have used one of these food delivery apps as of February 2021.
Dana and Eric started using these apps as soon as they took over Uptown Poké, a month earlier before the New York shutdown began. It was a move they felt they needed to take to remain relevant and in business, especially in New York City, which is home to more than 20,000 restaurants. We feel like very small fish in that area. How many restaurants participate? Third party delivery companies have a customer base. Good? People scroll up and down trying to figure out where to order food. My restaurant is based on the working class people of New York. Working class people like me used their parts delivery companies.
Now, maybe as we get more familiar with the restaurant, we'll start ordering directly from them. But there are some restaurants in our community that we don't know about. So for us at Feildtrip, we use third-party deliveries to let new people discover who we are. There's a saying in the restaurant industry that demographics are destiny, and that's totally true. And demographics continue to trend toward pickup and delivery. Before the pandemic, more than 60 percent of all restaurant traffic was off-premise. That 60 percent pre-pandemic in the second quarter of 2020 actually increased to around 90 percent and has currently fallen back a bit to around 80 percent.
He's a cool guy. Sometimes he comes in a suit. I was like, are you working? He said, no, it's my day off. To help businesses in the early months of the pandemic, Grubhub waived fees for independent restaurants in certain major cities, UberEats waived delivery fees for more than 100,000 independent restaurants in the US, and DoorDash offered zero commissions on pick-up orders and established a $20 commission. multi-million dollar merchant marketing program, among other initiatives. Many platforms offered some concessions. There were promises of concessions, especially for New York City, but this is not something we saw right away, which might have helped us in the beginning because the first few months of the pandemic were just hitting our pockets.
It was difficult. We were really thinking that maybe we should close. Uptown Poké continued to use multiple third-party delivery apps to expand its consumer base, including Grubhub, DoorDash, and Uber Eats. And they realized how much they were paying in fees. When you look at your take-home pay and compare it to what you actually earned on that order and they take 20 or 30 percent off, you feel like it's a pandemic. I wish we didn't have to pay these fees. But on the other hand, you are telling yourself that we are exposed to a much larger area. Hopefully, thanks to our ratings and reviews, people will see an order from us.
It is much more difficult to advertise directly to attract people to your website. But still, at the end of the day, during a pandemic, after a lockdown, you're trying to pay your rent and you see that they're taking your money, they're taking it from you... Yeah, and you're counting. every penny, you are becoming more in tune with your finances. And you have to be because it's either you close your doors. Before the pandemic and at the beginning of the pandemic, restaurants in the US could pay up to 30 percent in commissions for these delivery apps, in addition to other fees such as marketing and delivery fees.
DoorDash decided to reduce its rates. Some cities and states cap the fees delivery apps could charge. So I'm curious how DoorDash feels about that fee cap. Yes, I would say the pandemic is obviously a challenging time for restaurants and businesses locally and in general. But some apps found a solution. It turns out that they are simply adding what is called a regulatory service charge. If you look when you go out tonight, you'll see this. So it's more expensive than you think. So they can cap the commission rate, but they say, well, you know, we're just going to increase the marketing and order processing fees.
And we can't afford marketing because the amount of money we spend on marketing, just for one platform (not all platforms, it's just one platform) completely eliminates that profit margin and, in fact, we are having negative results. of these platforms. Dana and Eric also say there are some difficulties connecting with customers. We would like everyone to place orders with us. The thing is, when people order directly through us, we can solve problems like that. We can solve it very quickly. Now, when they place orders through third-party delivery, that distance is so great that sometimes we can't even reach the customer to resolve an issue.
We are not even able to change something or offer them anything. So that's a little difficult. I would say I prefer Grubhub because they have that phone number, they have the customer's phone number that we can call them if there is a problem. Yes, your driver arrived on time. We want them to have that conversation and we will evolve the technology to allow more and more interactions between merchant and consumer as we move forward over time. But despite the expense, the restaurants we spoke to still need these apps and say there is a positive side to using these platforms.
There are definitely a lot of positives. And one of them is like knowing that there is a delivery person nearby to pick up the food and we don't need to have anyone on staff. We would need about 15 guys here at all times. We looked at restaurants that were off the DoorDash platform and those on the DoorDash platform and those on the DoorDash platform were 8 times more likely to still be around and ready to thrive post-pandemic. And that's something we're all very, very proud of. It's hard to speculate what the new normal will be for restaurants post-pandemic, but there could be a lasting avoidance of dine-in restaurants.
J.D. Power and Associates basically did a survey that said 71 percent of consumers say they will continue to get food delivered from restaurants as much as they have or even more when the pandemic subsides. According to the National Restaurant Association's 2021 report, only about half of adults say they plan to eat at a restaurant or fast food location in the coming months if that option is available. 36 percent of adults would sit inside at a restaurant and 25 percent of adults would sit outside. Uptown Poké used to have indoor seating, but after closing, Dana and Eric converted the space to accommodate a larger kitchen for more off-premise orders.
They hope to have people return indoors once it is safe to do so. But it's not impossible to imagine a future in which many restaurants only exist for delivery. I feel like every time they place an order on Grubhub, DoorDash, Uber Eats, or any of these third-party platforms, we distance ourselves from them, from having that connection. We are just a store on Grubhub, like an item on Amazon. In fact, many restaurants have no dining options and the popularity of these ghost kitchens, as they are called, is on the rise. Ghost kitchens could create a $1 trillion global market by 2030.
They mayYou're ordering from a ghost kitchen on DoorDash, Uber Eats, or Grubhub and you don't even know it. Many ghost kitchens are four restaurants in one with the same staff preparing the food. So you reduce labor, you reduce all your expenses. You will still be able to prepare delicious food. The world of ghost kitchens fascinates me. I think it's a
goodplace for diverse talent. People who don't have much money to start a business. And then from the ghost kitchen world, they can open a brick and mortar later. This is a completely new environment that is definitely a long-term trend.
It is not a passing fad. That doesn't mean all restaurant operators will choose to go here. It just means that in terms of how the industry has adapted, not only has the pandemic environment changed, but also the way it will operate in the post-pandemic environment. It's important to note that while these delivery apps are much larger than any restaurant (New York City Councilman Mark Gjonaj compared them to David and Goliath), these companies are actually suffering losses net for 2020. Grubhub lost $155.9 million, DoorDash lost $461 million, and Uber Technologies lost about $6.8 billion in 2020, although the company doesn't break out its Uber Eats profits or losses in a usable way.
We recognize that there is a balance for restaurants between growth and profitability, and not all restaurants can afford to pay the same amounts, right? Because shipping costs money, right? The Dasher actually has to be incentivized to make the delivery, right? Therefore, our strategy has been to offer a range of options for merchants. But I get it, it's a business, right? They are running a business, they are not doing us a favor. So we understand what they are trying to do. However, that doesn't mean it's not difficult for restaurants. It can be an easy decision for customers to use apps like DoorDash, Grubhub, and Uber Eats.
The decision for restaurants is not so easy. There is a lot to consider and it is not a one-size-fits-all solution. As a restaurant owner or entrepreneur, there are always questions about any decision you make. Is this right for me? And what might be right for me might not be right for my peers or my friends. And those are some decisions I had to make. There's more for us and there's more for other small businesses that are on these platforms, we just have to adapt a little bit. If you really like food, I would just say meet them in person.
Even though it's a pandemic, there are all these ways to approach and learn about restaurants, and I'm sure restaurants would prefer that, you know, to just seeing your name.
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