For Restaurants Trying To Ditch Delivery Apps, The Struggle Is Real
For more than 60 years, Casa Vega, an old school Mexican restaurant in Sherman Oaks, had never bothered with delivery. It didn't need to. "We were always very busy," says owner Christy Vega, whose grandparents started the business when they immigrated to Los Angeles from Tijuana in the late 1930s.
Before coronavirus, fans came to Vega's restaurant as much for the atmosphere as for the food, lingering over margaritas in the red, leather booths. In mid-March, when L.A. County ordered all restaurants to close their dining rooms, Vega realized the lack of delivery options was going to be a major problem. She and her team were, she admits, "completely unprepared" to reinvent the wheel.
In late April, after Casa Vega had been closed for more than a month, she reluctantly started contacting delivery apps. Although she had never cared for their business model -- apps commonly take between 15% and 30% commission on every order -- these were desperate times.
For better or worse, the apps were so overloaded with sign-up requests they didn't have the necessary hardware (specifically, the ordering tablets) to add Casa Vega to their rosters. The restaurant had to figure out its own system. Vega now sees that moment as a blessing in disguise.
Casa Vega reopened for drive-through pickup on May 2, just in time for Cinco de Mayo.
"We opened with a great demand, more than we ever anticipated. We were completely overwhelmed with orders, much more than we could possibly handle. I looked at everybody that night and said, 'Thank God we didn't do those delivery apps.' It kind of saved us," Vega says.
Casa Vega is one of a growing number of restaurants that have chosen to ditch delivery apps because of high commission rates, safety concerns or both. Although restaurants had complained about delivery apps long before coronavirus, the pandemic has intensified their issues, especially in L.A. County, where 80% of restaurant jobs vanished almost overnight due to COVID-19.
Vega compares food delivery apps to piranhas, cannibalizing the industry they are supposed to serve. "It's not right," she says. "They take too much money. The fees are ridiculous."
HOW MUCH MONEY DO DELIVERY APPS REALLY TAKE?
We contacted each of the "Big Four" food delivery apps for this story: Postmates, Grubhub, UberEats and Doordash (which owns Caviar). Combined, these apps control 95% of the food delivery app marketplace, according to an analysis from Second Measure.
During this process, one thing became clear: Some of these companies aren't transparent with the public about the commissions and fees they charge restaurants -- and they don't have to be.
To be fair, there isn't one standard commission rate for delivery apps, even within the same company, which is part of the reason the situation is so confusing. Every restaurant in the United States negotiates its own contract with whatever app or apps they choose to use. If restaurants decide to use multiple services, apps often charge them higher commissions but if they sign an exclusive agreement with one app, rates will typically go down. Postmates for example, is the only app that offers delivery from L.A. hot spots Moon Juice and Howlin' Rays, whose ordering pages feature an #onlyonpostmates hashtag.
Those contracts often include non-disclosure sections that prohibit restaurants from publicly disclosing the apps' commission rates, making an already opaque process even less transparent.
We reached out to the top delivery apps to ask how much they take from each order. Here's what their spokespeople told us:
- UberEats: A company rep said commissions vary based on the package a restaurant chooses. For restaurants that use the app only for ordering, meaning they have their own drivers and/or vehicles, the commission rates are about 15% on average. To use the UberEats platform and the UberEats delivery fleet, commissions range from 15% to 30%, according to the company. In an email to Vega, which she shared with LAist, UberEats said their standard commission rate is 30%. (In July 2020, UberEats acquired Postmates in a $2.65 billion deal. Both apps remain active.)
- Doordash/Caviar: In August 2019, Doordash acquired high-end delivery app Caviar for $410 million in cash. Since they're a private company, a spokesperson from Doordash declined to tell us their average commission fee or give us an average range of fees, saying the rates are confidential and vary by restaurant.
- Grubhub: A spokesperson from Grubhub said their platform is "free," but if restaurants want the company to provide delivery drivers, it will cost them 10% of the total order. If restaurants want to use the app for "marketing" purposes, meaning their menus appear or are featured on the app when users in the area search for available delivery and pick-up options, that costs them another 15%. Two restaurateurs told LAist that forgoing the marketing fee isn't realistic. They say that if you do, it's unlikely users will be able to find your restaurant, let alone order from it. That would mean using Grubhub, on average, costs restaurants approximately 25% commission on each order.
- Postmates: When we asked, "What is your average commission fee?," a Postmates spokesperson said they took issue with the word "fee." "Commissions are not 'fees,'" the representative wrote via email, "they are the main source of revenue for our company and they are how we pay for the services that we provide to businesses and our customers." The spokesperson said that the commission rates are decided privately with each restaurant and that "arbitrarily setting on-demand delivery prices has real consequences that undermine our ability to operate... and kills the whole industry's ability to provide the services restaurants need to stay open." They did not provide any numbers. (As of June 2020, Postmates is the most used food ordering app in LA, trailed closely by DoorDash, according to the Second Measure analysis).
When the coronavirus pandemic forced restaurants to stop dine-in service, delivery apps released statements of concern and support for local businesses. But most of them did not significantly lower their commissions or fees.
DoorDash and Caviar made some temporary changes to relieve local restaurants during the shutdown. On April 10, both apps offered half-off their commissions through the end of May, and zero commission fees for new restaurants during their first 30 days with the service. Those relief programs ended on May 31, a DoorDash spokesperson told us.
In July, DoorDash and Caviar launched "Main Street Strong," an initiative that allows restaurants to set up a digital "storefront" on their own website, so they can sell directly to customers without a commission. That service is being rolled out slowly and there's already a waitlist to sign-up. The DoorDash spokesperson said although the program does not have traditional commission fees, it does have set-up, subscription and delivery fees. She declined to share those figures with us.
UberEats told LAist that at the start of the pandemic, they announced they would waive all commissions on pick-up orders made through the end of 2020 via the app. (Yes, most delivery apps also take commissions for pick-up orders.) The company also says that between March 15 and the end of April, they waived "eater-facing" delivery fees at "independent restaurants." It was a good deal for consumers, temporarily reducing their delivery charges, but it didn't reduce the cut that restaurants paid to UberEats.
Grubhub, for its part, offered consumers a $10 off promo around the time stay-at-home orders were first issued. Restaurants who opted into the "Supper for Support" promotion received a $10 credit for the first 25 orders. After that, they could decide if they wanted to continue running the promotion at their own expense while still paying commission on the full, pre-discount cost of the order.
Joseph Badaro, who owns Hummus Labs in Pasadena, told LAist that the company repeatedly asked him to sign up for the promotion: "They're like, 'We're here to help you,' but it doesn't do anything to help the restaurant -- other than sell food that eventually will lose 30% commission."
Grubhub strongarming client restaurants into giving customers a discount, but charging restaurants their platform commission fee on the pre-discount total. Totally cool, not dickish, not predatory in a time of crisis at all. A++ @Grubhub nice work, totally defensible https://t.co/VBiQPbtmyk— Hot Tubs Rosner (@hels) March 30, 2020
Meanwhile, food delivery apps were flooded with so many new restaurants itching to sign up, they couldn't keep up with the demand.
UberEats told LAist that since the coronavirus pandemic hit the U.S., they've seen self-sign ups decuple (i.e. increase tenfold; we had to look that up). If you're wondering how much money that is, in 2019, UberEats made an estimated $337 million in adjusted net revenue. Now, multiply that by ten.
'WE WOULD LOSE MONEY ON EVERY DELIVERY'
Restaurants prepare and sell a physical product that can quickly spoil. Most of them, unless they're part of a chain, are small businesses operating on thin margins -- about 6%, according to one financial statement analysis.
Food delivery apps, by comparison, are larger, more centralized tech companies that benefit from economies of scale. When a bunch of their clients go out of business, so what? New restaurants will open to meet consumer demand. If delivery apps don't care about the survival of individual restaurants, it's because they don't have to.
During her negotiations with delivery apps, Vega says the lowest fee she received was from UberEats, which pitched her a commission of 22%.
"I was just shocked, ethically and morally, that they weren't lowering the rates for restaurants [during the pandemic], yet they had so much business they didn't even have the hardware to sign us up," Vega says. "We're not going to give 30% to companies that show no compassion for our industry at this time. It's just crazy. We're in a fight for our lives right now."
Vega is far from the only restaurateur who's fed up with delivery apps. Burgers Never Say Die, in Silver Lake, recently started charging extra on every order placed via Caviar to make up for the commission taken by the app. If you order one of their regular cheeseburgers in the restaurant or by phone, it'll cost you $7.50 (before tax). Order it on Caviar, and it'll cost you $9.50.
"Why are our delivery app prices so much higher than our in store prices? Well, it's because we're being charged 21% on every order, which means we're barely making any money on delivery app orders," owner Shawn Nee wrote in an Instagram post.
"Every time a delivery app service contacts us, I respond with the following: 'If you can give me [a] 10% [commission deal] on every order, we can continue this conversation,'" Nee told us. "We either never hear back from them, or we get some spiel about 'corporate' and how they won't let us go that low."
Burgers Never Say Die still offers delivery via Caviar but Nee told LAist that he encourages customers to place their orders directly by calling or walking up to the restaurant.
Wirt Morton, co-owner of Tito's Tacos in Culver City, told LAist that his restaurant's profit margin, despite its cult following and 60-year track record, is about 3% to 4%. But the lowest commission the delivery app companies offered him was 17%.
"We would lose money on every delivery. It just didn't make sense," Morton says.
Instead, he and his wife, who co-owns the business, decided to start offering delivery, something they've never done during their six decades in business. They chose local courier service StreetSmart Messengers, which requires its delivery drivers to complete the National Restaurant Association's food safety program. They deliver all items in "tamper-proof" packaging, according to Morton, so "no one puts their grubby hands on the food."
It doesn't come cheap. Customers who order delivery from Tito's Tacos have to pay a $10 fee for delivery within a 5-mile radius of the restaurant and there's an extra $2 to $3 per mile charge for customers who live farther away. Morton knows the steep figure means he'll lose some customers, but he says it's worth it to know his patrons won't catch COVID-19 from one of his delivery orders.
Tito's is lucky to have a legion of hardcore fans, many of whom are willing to pay extra for their favorite hard-shell gringo tacos. "When it was announced that we were going to start delivery, we had people in Texas, Colorado, Connecticut and even overseas saying, 'Can you deliver here?," Morton says. (Sadly, he can't.) Restaurateurs who lack that kind of name recognition aren't so lucky.
BETWEEN A ROCK AND HARD PLACE
May Matsuo-Rose, who grew up in Orange County, started Don Don Curry, a Japanese deli business, in 2016 in New York City. She started by selling Japanese comfort food such as curry, chicken katsu and egg sandwiches at farmers markets and pop-up events. When she moved to L.A., she rented space in a commercial kitchen near Exposition Park, planning to expand to food delivery and catering.
Of course, after COVID-19 hit, catering was out of the question. Delivery was the only way Matsuo-Rose could make a living, so she signed up with four of the apps. She offered to share details about commission rates with LAist. (Although Postmates and UberEats had confidentiality clauses in their contracts, since she has ended those contracts, she can speak freely.)
Here's what each app was charging her:
- Postmates: 25%
- UberEats: 30%
- DoorDash: 30% (cut to 15% when the pandemic hit)
- Grubhub: 33% (30% commission plus a 3% "processing fee")
At the end of May, Matsuo-Rose closed Don Don Curry. Relying solely on delivery apps to distribute food, she and her partner couldn't make enough money to pay the rent on their kitchen space and keep the business afloat.
"It's been really difficult because they take so much commission. It's not a sustainable way to do business. You're losing money feeding people," Matsuo-Rose says.
For restaurants that have been open for years and built a dedicated client base, Matsuo-Rose says she could see their delivery business thriving, even with the apps' commission fees. But for a new business, she says it's nearly impossible.
When thousands of restaurants joined delivery platforms during the COVID-19 pandemic, the competition was so intense it was nearly impossible to find newbies like Don Don on these apps. If restaurant owners couldn't pay the extra marketing fees, like the ones Grubhub charges, Matsuo-Rose says their businesses got buried by a glut of more established restaurants.
"Our rep at the kitchen even encouraged us to order from ourselves on these apps so we could trick the algorithm to make it seem like our restaurant is busier and more popular than it is," Matsuo-Rose says.
At the same time, trying to make a go of it without delivery apps, especially as a new restaurant, means you might not be able to attract any customers at all.
"If you're a brand new business, you have to market yourself just to let people know you exist." The apps, she says, "are a necessary evil."
"Postmates charges us 30%. Grubhub charges us 27%. It's a huge amount but there's nothing we can really do about it because we need the service," Mok says, adding that he has no other choice because he can't afford to hire his own driver.
Mok says on a $10 dollar order, for example, he pays about $3 in commission, $1 in sales tax and at least $2 on ingredients. After paying his rent and labor costs, he says, "I'm probably making $2 or $2.50 on that order."
"Right now, I'm able to survive," Mok says, "but the future is pretty uncertain. I don't know how much longer I can last." In April, he started a GoFundMe to raise extra money to keep his business alive.
Matsuo-Rose says restaurant owners who lack the English language skills to negotiate a better contract or the technical wherewithal to optimize their presence on apps are at an even greater disadvantage.
"It's hard because a lot of small restaurant owners are immigrants," Matsuo-Rose says. "Some are older and don't have the tech savvy to partner with these apps successfully. I'm in several Facebook groups where they're just like, 'I can't even navigate this dashboard to set up the menu and then take the pictures.'"
DELIVERY APP ALTERNATIVES: WHAT ELSE IS THERE?
On June 8, the L.A. City Council unanimously approved a motion temporarily capping third-party delivery app fees at 15% and limiting marketing fees to 5%. In the original motion, councilmember Mitch O'Farrell called these fees "exorbitant" and argued they made it harder for restaurants to survive during the ongoing "international emergency."
It wasn't an original idea. Several cities including San Francisco, New York, Chicago, Seattle, Washington D.C. and Jersey City had already capped delivery app fees in an attempt to dull the pandemic's blow to their respective dining scenes.
L.A.'s ordinance, which is set to expire 90 days after in-person dining is allowed to resume (this time, hopefully for good), also requires food delivery apps to provide an itemized rundown of all costs to customers. That includes the price of the food, the delivery fee charged to the restaurant, any other commissions or fees associated with the delivery and the tip.
All of the major delivery apps insist they are abiding by L.A.'s ordinance but in early July, two local restaurant owners told Eater LA that some delivery apps were still charging them between 25% and 30% commission on orders. The owners said when they asked Grubhub, DoorDash and Postmates about the new law, the companies either sent them generic statements, confusing messages or nothing at all.
A spokesperson for councilmember O'Farrell said, via email, that the city is currently surveying restaurants to gauge whether or not the ordinance is being followed.
"It is my understanding that restaurants can file a written report justifying when the ordinance was violated on the delivery application," the spokesperson told LAist. "The delivery app has 15 days from the written notice to make the necessary changes."
If the app doesn't make those changes, "civil action may be taken." The spokesperson said the City Attorney's office is "working on a plan" for what that might look like.
Even with a cap on commissions and fees, some restaurant owners are still ditching third-party apps. Morton says the city council's efforts sound good, but a 15% to 20% commission is still way too high for him. At those rates, he believes Tito's Tacos wouldn't be able to stay in business.
Other businesses aren't waiting for politicians or local ordinances to save them. They're looking for alternatives to the well-known delivery apps.
At the onset of the pandemic, Tock, a restaurant reservation system serving several cities across the country, has recast itself as a take-out (and, in some cases, delivery) platform. The company has less name recognition than Grubhub or DoorDash but its platform, which includes a website and an app, has become the go-to option for many of L.A.'s upscale restaurants.
Tock's Director of Marketing, Kyle Welter, told LAist that Los Angeles is "by far and away" one of their largest growing markets. More than 100 local restaurants now use the platform. Many of them, especially the ones that used to book reservations weeks in advance, are now offering prix fixe dinners or special menu items only on Tock. Bestia has a six-course "Bestia at home" menu that changes every three days while Republique offers family-style dinners, Bar Henry makes five-person craft cocktails and n/naka creates elaborate, two-tier bento boxes, all for pick-up. Wolfgang Puck told the Los Angeles Times that Tock helped him make take-out at Chinois worth it.
The site isn't as easy to navigate as the Big Four apps, likely because it wasn't originally designed to be an online ordering system. But Tock has a major upside for restaurants -- its most basic plan charges restaurants a $199 monthly fee plus a 2% commission on prepaid reservations. If a restaurant doesn't want or need the reservation feature, the commission increases to 3%, with no subscription fee. For Tock's core clientele of high-end and midscale restaurants, where a dinner tab for two easily runs between $75 and $150 (without alcohol), this fee structure is likely a bargain compared to the steep per-order commissions most third-party apps charge.
Perhaps unsurprisingly, one of Tock's founders is a restaurateur.
"We are passionate about helping restaurants, and as a restaurant owner, I know how it works," Tock CEO Nick Kokonas told LAist via email. He owns four restaurants and two bars in Chicago.
Kokonas told us that since March, Tock has added about 60 restaurants a day, in 28 countries, but it isn't the only option for food businesses.
Joseph Badaro, owner of Hummus Labs in Pasadena, went a different route. He had spent months planning the opening of his Mediterranean restaurant, but when the pandemic hit, his landlord wouldn't let him cancel his lease. So he figured he'd try to make it work, at least for a month, and opened on April 1.
Badaro signed up for Grubhub, which kept him afloat for a while but he realized he was making nearly 70% of his profit through the app -- and the app was taking 30% of it back. He started looking for options and decided to try ChowNow.
"What they do is just put an order platform on your site, and the customer is the only one that pays a delivery fee," Badaro says.
Instead of paying a commission, restaurants pay ChowNow a set fee. Badaro says for him, it's $150 a month. Although he still uses Grubhub for pickup (at a 15% commission), he stopped using the app for delivery in July and hasn't looked back.
"It was just simple math. My sales have been increasing, like week over week. I've literally talked to every single restaurant in my building about signing up with them," Badaro says.
That flat fee is part of ChowNow's ethos. "We are anti-commission," CEO Christopher Webb told LAist via email, adding that since March, the company has added more than 8,000 new restaurants to its platform. "Every restaurant in the country wants to, and needs to, move off predatory marketplaces like Grubhub if they want to survive the pandemic," Webb says.
Unlike many third-party apps, Toast is transparent about its prices. The company generally charges restaurants $50 to $100 per month to use its system for orders and sales, both online and in-person. Aside from that, restaurants pay no other fees to the company. The ordering system is usually embedded into the restaurant's website.
For Stanley Morris, director of operations for Sightglass, the decision to use Toast rather than any of the Big Four delivery apps was a no-brainer. "With delivery companies, unless you're doing a huge volume of orders, it's expensive. And I didn't see any consistent behaviors around sanitation and how they were handling everything," Morris says.
Sightglass had spent more than a year planning the debut of its first L.A. outpost, a 13,000-square-foot roasting plant with a 150-seat restaurant and a to-go coffee window near La Brea and Melrose. Opening day, on March 14, was a success. The next afternoon, Mayor Eric Garcetti issued a stay-at-home order. The restaurant had to pivot; it became Sightglass Provisions, a boutique provider of high-end prepared foods, farmer's market produce and, of course, locally roasted coffee.
When it did, Morris was able to quickly train his seven-person staff on Toast. Aside from that, all he had to do was create a menu for pick-ups and pre-orders and voila, the digital marketplace was born. Toast allows him to fill orders without paying steep commissions or using outside delivery drivers. For health and safety reasons, he prefers only Sightglass employees handle the restaurant's food. Everyone who enters the premises gets their temperature checked, all items are carefully sanitized and pick-ups are entirely contactless. It's all part of the carefully choreographed quality-control system Morris has implemented to prevent COVID-19 transmission.
But even with the speedy reorganization, Morris says Sightglass is probably making less than 20% of its projected profit. "We're just trying to get through this. In the meantime, we're going to be the best business we can be, under the circumstances. Everyone's making this up as they go along," he says.
RESTAURANTS ARE DOING IT FOR THEMSELVES
For food businesses that don't have the capacity to hire a delivery staff or create complicated ordering systems, solving the food delivery issue can be like a high school group project -- sometimes it's better to just do it yourself.
Sara Valdes runs Sara's Market, in City Terrace, with her husband, Steven. The shop is a neighborhood convenience store with a bit of a glow-up. Alongside the usual bags of M&Ms and bottles of Tabasco, you'll find Kernel of Truth organic tortillas, bottles of natural wine, craft beer and oat milk.
The store didn't start making deliveries until May, when Sara and Steven outfitted a truck and started bringing their goods directly to a set location two days a week.
"People have expressed to us that they are still a bit hesitant to come into the store, so we give them the option to pick up from the truck," Steven Valdes told us in August.
The Sara's Market truck isn't like a typical food truck. You don't order at the window and wait until your number is called. Instead, you place and pay for your order in advance via Toast. For Sara Valdes, the best part is that she doesn't have to pay any commissions or rely on third-party apps.
"It's always been a family-owned business, so whatever we do, we can do it ourselves," she says.
They charge a $5 delivery fee per order, a number they can keep low since they don't have to pay steep commissions. Valdes says they also use the truck to help generate revenue for other businesses in East L.A. Their pickups usually occur at local businesses such as George's Burger Stand on Cesar Chavez, where their patrons might be tempted to grab a pastrami burger or some chili cheese fries. Valdez wants to share the wealth with neighborhood restaurants that might not have the resources to deal with delivery apps or online ordering platforms.
At the start of the coronavirus pandemic, Valdes says business was slow. Now, the shop is generating about the same revenue as it did pre-pandemic -- not something you hear often from people in the food industry.
"We are getting big support from the community, which we really, really appreciate," Valdes says. If you want to support your local restaurants, bars, convenience stores and markets but aren't sure how, she has a piece of advice: Call them and ask.
"Just straight ask them, 'What is the best way I can order that would benefit you the most?'" Valdes says. "I always tell everyone to shop local, support local, even if it's just a gallon of milk. That's still a sale for that person and that's still income coming in. I feel like everybody's in the same boat right now, struggling in one way or another. But I think as long as each community sticks together, we will all actually get through this."
As more restaurants close for good -- pour one out for Dong Il Jang, Broken Spanish, Baco Mercat, Jun Won, Swingers, Here's Looking At You, Trois Mec along with the countless small establishments that will never see their names mentioned in a media outlet -- and the timeline for a full reopening remains murky, many restaurant owners realize that if they want to survive, they'll have to reimagine their businesses for the long haul.
"We're not going back to what we thought the restaurant business was, maybe ever," says Morris, of Sightglass. "You can't make it on a few tables on the sidewalk or with just takeout. It's sad and it hurts and it's painful, but it's reality."
At Casa Vega, Christy Vega knows she won't be able to rely on the same business model she's used for more than half-a-century but she's not sure what comes next.
"The future of the restaurant industry is completely up in the air," Vega says. "Sadly, I think the landscape will look much different in 2021. That said, restaurateurs by nature have amazing heart and passion. Resilience in times of chaos is second nature for us. So I still have hope."
Correction: A previous version of this story inccurately described Tock as soley a a web platform instead of a web platform and an app and misstated the number of restaurants Nick Kokonas owns. It also did not explain that Grubhub's "Supper for Support" promotion was voluntary and that participating restaurants received a $250 credit, spread out over 25 orders, from Grubhub. LAist regrets the errors.