It used to be that if you wanted fresh dolmas or stuffed eggplant from Lebanese Taverna Market in Arlington, you had to pick it up in person. But today, smartphone apps like Postmates and DoorDash make ordering the market’s Mediterranean cuisine as easy as swiping right on Tinder.
That’s a wonderful thing for customers, says Grace Abi-Najm Shea, co-owner of Lebanese Taverna. But it’s not so great for her bottom line.
“My neighbors — they’re so excited to tell me that they ordered Uber Eats from the restaurant last night,” she says, “and I look at them like, ‘Don’t ever do that again.’”
When profit margins at full-service restaurants hover around 6 percent, according to financial information company Sageworks, that commission can be too much for some businesses to bear. Many customers don’t realize how much food-delivery apps charge businesses like hers, says Abi-Najm Shea. For her restaurant group — which operates seven establishments in the D.C. region — the apps’ commission can run as high as 30 percent per order, on top of the various fees they charge customers.
But it’s hard for restaurants to opt out of the apps, says Abi-Najm Shea. They expose eateries to new business and help them stand out from the competition. And most important is that customers really, really like them.
“You can’t deny that,” the restaurateur says. “Unless you’re delivering, you know they’re not going to be your customer that night.”
But some restaurants have begun to educate their patrons about the costs of tech-powered delivery. Their goal is to convert some of those DoorDash or Postmates users into direct patrons, whose spending goes straight to local restaurants — not tech companies based thousands of miles away.
‘A Necessary Evil’
When delivery apps first entered the marketplace, their pitch to restaurants sounded pretty great, says Chris Webb, CEO of restaurant software company ChowNow. In exchange for reasonable commissions — some around 6 percent — they offered a service restaurants weren’t willing or able to provide themselves.
“But now, restaurants are waking up saying, ‘Wait a second, this isn’t what I signed up for,’” Webb says.
As customers have come to depend on food delivery, some service providers have raised their commissions to as high as 50 cents on the dollar, Webb says. Third-party apps also hoard user data so restaurants can’t market to app customers themselves. But restaurant owners are hesitant to drop the apps, he says, because they believe doing so would hand business to their competition.
It’s reached the point where restaurants are calling the apps a “necessary evil,” Webb says — and he’s channeled that sentiment into a campaign ChowNow recently launched called Order Better.
Order Better, which encourages diners to order directly from restaurants rather than through third-party services, is part public service announcement, part jab at the competition. For a flat monthly fee, ChowNow provides software that restaurants use to manage their own takeout and delivery systems, so Webb stands to benefit if more people order direct.
Nevertheless, the CEO says, the public has a right to know where their money goes when they order dinner through an app.
“We talk to a lot of consumers out there, and when this subject comes up, most people have no idea the commissions that these delivery companies are charging,” Webb says. “When they find out, they feel very guilty.”
Restaurants have started to get the word out themselves, too, the CEO says, dropping notes inside takeout bags urging customers to place orders directly through them.
They’re saying, “‘Please come to us directly. GrubHub and others are really hurting us,’” Webb says.
‘Bring On The Incremental Sale’
Delivery services GrubHub, Postmates, Caviar, Uber Eats and DoorDash declined to comment on the record for this story, but DoorDash referred WAMU to Dan Simons, a local restaurateur who calls criticism of delivery apps “misplaced.”
A co-owner of Farmers Restaurant Group, Simons operates seven food and beverage establishments in the D.C. area, including four Founding Farmers restaurants. His businesses have used DoorDash, Caviar and GrubHub for about a year, he says, and so far, they’ve been a plus.
Simons’ app-powered delivery business “looks almost like a straight growth line” month over month, he says. “For me, it’s pretty clear that the demand exists.”
What’s lost in the criticism of tech-driven delivery, Simons says, is that it attracts customers that restaurants wouldn’t have reached otherwise. Those added transactions are called “incremental sales,” and they’re delivery apps’ greatest selling point, he says.
“In the restaurant industry, historically the term ‘incremental sale’ hasn’t been super common,” Simons says. “But I’m like, ‘Bring on the incremental sale.’”
The restaurant owner equates his delivery business to restaurants that hire catering salespeople to sell their food off-site. The salesperson takes a commission, he says, but they’re bringing in revenue the restaurant wouldn’t normally have gotten.
Before apps like DoorDash, consumers wouldn’t spend money at restaurants when they were tired or the weather was crummy, Simons says. Instead, they’d raid the fridge at home. Now they’re ordering delivery.
“I think who we’re competing with is the refrigerator, or the microwave, or the oven,” Simons says.
Justin Rosenberg, CEO of the salad and stir-fry chain Honeygrow, says he’s not convinced that delivery apps only bring him new patrons. They could be taking people out of his dining rooms and turning them into delivery customers — something the industry calls “cannibalization.”
But Rosenberg doesn’t deny that delivery apps keep business humming when weather turns bad.
“In the past, if it’s raining out or snowing, that’s like, forget it,” Rosenberg says. “But now we can maintain a little bit more of the sell side.”
Apps also help Honeygrow get its name out in new markets, the CEO says, something restaurant financial advisor MaryEllen Georgiadis considers a major advantage.
“I would say the No. 1 reason to use any of these delivery apps is more focused on branding and advertising than it is on significant profitability,” says Georgiadis, who owns the company Finance à la Carte. “It’s exposure.”
But Georgiadis says that doesn’t mean restaurant owners shouldn’t do their homework before jumping into delivery with both feet. “I’ve seen restaurants go all in,” she says. “[But] if you’re going to be part of this community, you need to make sure that what you’re offering you still have a profit on.”
Georgiadis suspects more eateries will be making that calculation as diners increasingly look to their phones when their stomachs start to rumble. App-driven delivery, she says, isn’t going anywhere.
“In today’s marketplace, it’s astounding the volume of delivery,” she says. “I think it’s just a lifestyle change that’s happening.”
But she doubts that delivery apps are a threat to the restaurant industry overall. People still love to dine out on Fridays — even if they’d rather order from their sofas on Thursdays.
“The people that are ordering delivery,” Georgiadis says, “are typically also the ones that will go out the next night.”
This story originally appeared at WAMU.
Ally Schweitzer