Third-party delivery services falsely boast success for restaurants

January 13, 2021 — by Kavita Sundaram

In the time of a pandemic, ordering takeout from any restaurant has never been easier. After pressing a few buttons, punching in the payment and waiting a few minutes, steaming hot food will arrive at the doorstep. It’s a simple process that ensures safety, comfort and success for all parties involved. 

Unfortunately, this process often isn’t the win-win solution it seems to be for consumers and restaurants. 

While some offer their own delivery and takeout services, over 70 percent do so through third-party providers, such as GrubHub, DoorDash and UberEats. These providers work together with the restaurant to offer delivery services for a stipend or a commission. 

While this seems like a mutually beneficial process, the costs that come with these providers often completely outweigh the benefits they provide constantly chipping away at the profit margins of small businesses and creating a more difficult business environment.  

The commissions that popular delivery services take from restaurants can range anywhere from 15 percent of the cost to a whopping 30 percent. This is a commission that is taken from every individual delivery, adding up to a huge chunk of most restaurant’s profits. 

With the pandemic in full rage, over 53 percent of restaurants are currently relying on third-party services to provide deliveries to their customers. Out of these restaurants, 70 to 80 percent of the total sales are made from deliveries through third-party services, according to The Guardian. As the article points out, the average American restaurant’s profit margins are a meager 8 to 10 percent, so with delivery services taking anywhere from 10-30 percent of the total, little or no profit remains for the restaurant. 

In fact, these companies often take such large amounts from existing businesses that city governments have taken action to support the businesses. Both San Francisco and Seattle have implemented laws pushing a 15 percent cap on commissions that delivery services take from restaurants. 

On top of failing to commit to their promise of supporting restaurants, third-party delivery services can also be detrimental for customers. 

To create larger profits, these companies often hike up the prices of regular items, creating over-priced goods for customers. The Washington Post cites an example where GrubHub increased a restaurant bill of $376.54 by nearly 300 percent, simply to cover the costs of delivery and labor. The resulting bill was a jaw-dropping $1,042.63. While this example may be extreme, it doesn't detract from the fact that customers of third-party delivery apps often overpay for what they buy. 

Third party delivery services often end up being a worse deal for the consumer, restaurant, and even the drivers. Known as “Dashers” in DoorDash, drivers in delivery companies get a higher hourly wage than restaurant drivers, yet they somehow end up making less money. Because restaurants treat their delivery workers as full-time employees, these workers often get reimbursed for the costs they spend on deliveries. Alternatively, drivers in delivery companies are not reimbursed for any costs, and ultimately make less. 

With all of these issues, customers should turn to in-house delivery services that are part of the restaurants, or even just do curbside pickup. When restaurants offer their own delivery services, it’s smart to use them, and for restaurants that are close by, it is often easier and more efficient to pick up the food. 

Third-party delivery services are not inherently evil: They were built off a smart idea but have been poorly executed to the point where they run their own business partners to the ground. There are instances where they can have mutually beneficial relationships with restaurants, but in most cases, ethical consumers would do well to seek other alternatives.

 

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