Small restaurants hunger for alternatives as complaints about platform abound
By Cara Eisenpress
Complaints of fake websites meant to divert orders through Grubhub’s platform, charges for phone orders not even made through its app and the increasing fees the company charges to complete every delivery have attracted the attention—and ire—of politicians.
Yet the delivery business has grown to be so accepted that some eateries believe they can’t live without Grubhub—which has captured two-thirds of the market share in New York City—and its competitors, such as Postmates and Uber Eats.
Eating profits
For years restaurants begrudgingly have paid higher and higher rates to Grubhub on every order, now starting at 23% for marketing and processing and adding up to 33% or more if restaurants also use the company to fulfill deliveries or if they want to rank highly in Grubhub’s search results.
The delivery market accounted for just 6% percent of restaurant sales in 2017, but some analysts expect the $30 billion market to grow to around 11% by 2022, according to a 2017 report from Morgan Stanley. Meanwhile, digital ordering, which includes both delivery and orders for pickup, has grown by 23% since 2013. Across the board, of the 20 most-used restaurant apps, third-party aggregators such as Uber Eats and Grubhub/Seamless account, in sum, for 40% of orders, according to recent research from NPD Group, a market research firm.
Slice, a tech, marketing and data partner for local pizza shops, is one of the platforms that have entered the fray as a restaurant-friendly alternative. For the city’s 1,666 pizza places—pioneers of home delivery—Slice’s greatest selling point is that the shops pay a flat fee of $1.95 on every order.
“Their margins are 20%,” Ilir Sela, Slice’s founder, said of pizzerias. So paying that same 20% to a third party like Grubhub or DoorDash decimates profit.
At Sofia Pizza Shoppe in Midtown East, Matthew Porter and his partner set the minimum delivery order at $21, which means Slice’s flat fee comes out to 10% at most.
“We get orders for $200 on Slice,” said Porter, who noted that, at 15%, the fee on a similar order taken through Grubhub would be $30. “Anything that helps keep a little more in our pockets is of great interest.”
When the fees for delivery rise as high as 35%, restaurants raise prices. So ultimately the flat fee keeps prices down for customers too.
“When you make digital a core part of your business over time, if an aggregator is a core partner, you’ll run out of margin and go out of business,” Sela said. His company has grown to 450 employees in nine years, with nearly one-quarter of all business in the New York metro area.
A flat fee is how Olo operates as well. The 14-year-old, Financial District–based digital ordering provider serves restaurants with 10 or more outposts. It charges about $100 per month per store to gross about $100 million annually from 300 brands with 80,000 locations total.
“The more business they do, the effective cost per order goes lower and lower,” Noah Glass, Olo’s founder, said of the customers worldwide that have built their ordering platforms on top of Olo’s software.
With third-party ordering apps, restaurants also forgo direct access to their customers, whose habits and details are shared with the aggregators but not necessarily the restaurants themselves.
Having one’s own website or app would give a restaurant full control of its customer data. But building an app from scratch is expensive for smaller eateries. Until recently most of the players that could afford to control their own apps were behemoths like Domino’s and Starbucks.
For Anil Bathwal, co-owner of Kati Roll, an Indian fast-food spot with six locations in New York, it wasn’t until the company began to expand that he realized how much losing out on customer data was costing him.
“We were getting into things like marketing and customer relations,” he said, “and with the customers that come through these platforms, I had no way to build meaningful relationships with them.”
ChowNow, based in California with more than 700 clients in New York City, tries to help smaller restaurants build their own web presence instead of turning to the aggregators. Restaurants pay ChowNow between $100 and $150 per month to use its software to create branded apps and allow ordering through their websites. Restaurants get a full-service dashboard that lets them control all delivery functions, including hours, zones and fees. Most important, through ChowNow, a restaurant owns its own customer information.
The actual cost of delivery is around $5, said ChowNow’s founder, Christopher Webb. “All restaurants need is the food picked up and then delivered,” he said. The higher percentages are because restaurants have to pay for aggregators to “cover the customer acquisition cost on behalf of the platforms”—over and over again.
Bathwal ended up working with ChowNow to avoid spending a fortune on software.