A new report claims delivery apps charging up to 30% per transaction. While the pandemic has made food delivery services more essential than ever for millions around the world, independent restaurateurs and business owners are crying foul over the high commission rates charged by delivery apps like Deliveroo, Just Eat, and UberEats. The outcry follows an estimate by industry expert Peter Backman that these services are capturing a staggering £1 billion in fees in the UK annually, leaving many business owners concerned about the cost of participating in these marketplaces.
The pandemic has hastened an already growing trend towards delivery service in the most of the restaurant industry. Said Backman, “Many operators, who have previously steered clear of delivery, are having to switch to a takeaway and delivery only offer. It’s not an ideal model in terms of the bottom line but it puts cash in the till and businesses will take anything they can get in this unprecedented time,”
Not only are businesses increasingly forced to accept takeaway custom despite the onerous fees, there are additional, hidden costs to doing business with services such as Deliveroo and UberEats. While a restaurant may have a loyal, established clientele, directing customers to order via mobile delivery marketplace providers exposes them to other competitors in the area, or (increasingly frequently) one of the marketplace’s own brands.
Playing against the House
The use of “dark kitchens” owned or run directly by UK takeaway marketplaces has significantly increased over the past few years, buoyed by the enormous amounts of order, sales, and customer data harvested by the platforms. Dark kitchens (also known as “ghost kitchens”), conduct no in-person sales with customers. Instead, these businesses exist exclusively to sell food for delivery, taking advantage of the huge user bases of delivery apps.
Often operating out shipping containers or large, segmented warehouses, these businesses are able to undercut traditional “brick and mortar” restaurants due to their low overheads and staffing cost. To independent restauranteurs like James Chiavarini of West London, this poses an existential threat. “We can’t make any profit on the sale [of a meal] as their [Deliveroo and others] commission is ridiculous.”
Mr Chiavarini claims major takeaway apps capture customer data through existing restaurants and pubs, which allows them to sell directly by way of their own food brands. “I don’t trust them,” Mr Chiavarini added. “I think they see us as competitors, not partners. Only major chains seem to benefit.”
A number of owners in the industry have made similar complaints regarding fees and what many fear amounts to a huge corporation seeking to undercut and muscle out the business they’ve spent years building. Spokesmen from Just Eat, Deliveroo, and UberEats all responded to the study by Backman citing a range of measures intended to support independent restaurants in the UK using their marketplaces, though none directly addressed the high fees or allegations of unfair competition against low-cost imitators benefitting from vast swathes of user data.
A further study commissioned by Flipdish found that while 60% of delivery customers have tried to “actively support” their favourite restaurants during lockdown via a marketplace like UberEats or Deliveroo, nearly 48% of all buyers were unaware of the level of commission charged by these marketplaces. 70% said the level of commission means they would now prefer to order directly if it helps save their favourite independent restaurants from closure. Nearly seven in ten consumers (69%) are “worried” that their local restaurants will close permanently because of the lockdown.
Is it Worth it?
Restaurants sign up for these delivery apps in order to gain access to their large user base and delivery network, but constantly reducing profits, ‘house-owned’ competition cannibalising their business, and other reductions in support call into question the value of the entire arrangement. For some perspective, here are some basic global benchmarks for operating a restaurant. According to 7Shifts, a leading employee scheduling software vendor for restaurants, the following monthly operating costs are typical:
- Rent and utilities (electricity, water, internet, cable, and phone): 5% – 10% of revenue
- Food cost: 25% – 40% of food sales
- Labor cost: Roughly 30% of revenue
iChefClubSG says “The 3 major costs (i.e. manpower, rent and cost of goods) should not exceed 70% of overall revenue.”
Now throw in branding and marketing, packaging, IT, maintenance, training, etc. and many restaurants are very likely running below 10% profit. Apply that math to the food delivery service model and many restaurants are losing money just to be listed on these delivery apps. It’s clear that the restaurant industry must increasingly participate in the takeaway industry for the foreseeable future, the stage is set for a more ethical marketplace.
Kayana is just such an app- dedicated to providing a food & beverage marketplace for restaurants and bars that doesn’t take the lions share of the net revenue. It’s 100% free to list your business and start gaining visibility, and our onboarding team is here to help you with everything from registration all the way up to accepting payments and table reservations. Visit our Food Partners page today for more information!