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Use of delivery apps a tough decision for restaurants weighing pros, cons

Some delivery app fees put restaurants in the red
Posted at 9:10 AM, Dec 10, 2020

For many restaurants, like Sam's No. 3 in downtown Denver, the experience is part of what they serve.

“We were built to serve people inside,” said Sam Armatas, owner of the restaurant.

But with ever-changing COVID-19-related dining restrictions and winter looming, delivery is becoming a more enticing option for customers. And for Sam’s No. 3, delivery apps make that easy.

“We’re able to continue to serve our product, try and stay relevant as far as people eating our food,” Armatas said.

The diner has three locations. At two of them. 90% of orders are now made through delivery apps. This can be convenient for customers, but costly for some of the restaurants. Exposure to consumers has it's price.

“There are negatives. I mean they take a commission but those commissions are now capped,” Armatas said. “You're pretty much at the mercy right now of the delivery services hoping to get your food out hot, tasty and attractive still.”

He chooses to stick with the apps to get his food out there to people, while for other restaurants, the cons of delivery apps outweigh the pros.

“At the moment, we will not use any third-party services at all for delivery,” said Giles Flanagin, Co-founder of Blue Pan Pizza.

Blue Pan relies on their team of 17 part-time in-house delivery drivers, instead.

“In-house delivery can work cost-wise, if the restaurateur is willing to put in the time and the effort to build that specific revenue stream,” he said. “If I use Doordash, Grubhub, or Postmates and I pay a 25% commission, not only am I losing all of my profit, but I’m in the red.”

Flanagin said Blue Pan has been using their own delivery since they opened in 2016. They tried a delivery app to serve areas farther away, but too many bad experiences led them to cancel.

“When a customer gets a pizza from a third-party delivery and it’s a poorly delivered experience, they don't look at Grubhub or those businesses. They call us and they're upset,” he said.

For him, the reputation of his business and their food is important.

“I think the best way I can summarize making a decision to use a third-party delivery service is buyer beware. This is our experience and I’m not saying it's everyone's experience,” Flanagin said.

It’s a balancing act for these apps like Uber Eats and Grubhub. They have a business to run, but they also have to consider the restaurant and the driver.

“Restaurants are just trying to find any possible ways to break even or minimize their costs,” said Alexandre Padilla, an economist and professor at the Metropolitan State University of Denver. “It’s a very complicated issue where the apps are providing a service where they are trying to attract drivers to meet the increase in demand due to the pandemic.”

As potential customers opted to stay home in March when lockdowns began, the demand for drivers went up.

Gig economy workers like Julian Rai almost completely switched from rideshare apps to delivery apps backs in March.

“Remember that we are basically waiters on wheels, we’re servers on wheels,” he said. “If it weren't for tips, we’re making less than minimum wage just from the delivery fee. Like a waiter, it’s very similar to what a server would make before tips. So at the end of the day, well over two thirds to three fifths of my income comes from tips.”

Rai explained they may spend 20 to 40 minutes on one single order so, reasonably, they ask for some compensation for that.

It’s a tough balancing act between restaurant, app, and driver.

“I don’t know that that balance has been struck yet,” Rai said.

For now, delivery is a means to an end for these restaurants that thrive on providing quality food and a great dine-in customer experience.

“Our business model isn't built to survive this way,” Armatas said. “We’re just trying to stay relevant, trying to survive. If we can get through winter great. That’s the hope, the dream, is that by March we’re still here.”