As restaurants ditch third-party delivery apps, companies like DoorDash and Grubhub are creating more incentives for small businesses
Nossa, a southern Brazilian restaurant in Los Angeles, opened in January when the city was still in lockdown. At that time, offering food to go was the only option, and director of operations Xandre Borghetti was happy to use big delivery companies to support the business’s launch.
“During the pandemic, I was talking to every single restaurant person I know across the industry, and I said you should always be optimizing for delivery and you should always be thinking about diversifying revenue streams,” he said. “And I still stand by that. But when I step back and look at the bigger picture, I’ve seen from an operational standpoint that it’s not quite that easy.”
Borghetti turned off DoorDash at Nossa a month ago. With two patios and indoor dining capacity that has expanded over the past month, the restaurant doesn’t need delivery right now. On a busy night, Nossa serves about 150 customers and is getting busier every week, Borghetti said. Plus, dine-in guests, fresh from a year spent literally outside of restaurants, spend more money than those who order food to go.
Nossa is one of many restaurants across the country ditching the third-party delivery they began offering during the pandemic to focus instead on expanded outdoor and indoor dining. In New York, restaurants including Carbone and Miss Ada have stopped delivery programs with an eye toward reopening, while in San Francisco, the Chronicle reported, upscale restaurants happily cut delivery programs amid a return to indoor dining with an eager, vaccinated clientele. At the same time, chain restaurants have leaned into their deals. Chipotle made $25 million in delivery revenue in the first three months of 2021, nearly tripling its revenue from the same period just one year earlier. Virtual brands that take advantage of delivery companies’ strengths and size have popped up overnight. MrBeast Burger, a concept backed by an internet celebrity, launched with 300 locations and quickly grew to over 500 in less than six months. @Pizza is a brand name that links just over 100 local pizzerias under one Uber Eats listing to help them compete at the same scale as large chains.
Big delivery is clearly working for big restaurants. For the smaller ones — those local eateries that delivery companies have hyped everywhere from blog posts to Super Bowl commercials — the story is more nuanced. But big delivery companies are pulling out all the stops to offer small businesses the right options right now — in an attempt, perhaps, to shift sentiment in their favor after months of industry backlash against creeping fees and diners’ overreliance on the apps. Responding directly to some of their biggest criticisms, they’ve begun offering new features to small and independent restaurants, from plans with reduced commissions to direct ordering and even custom websites.
In late April, DoorDash announced it would start offering independent restaurants different pricing options on its platform. Businesses with 75 or fewer locations in the U.S. can choose between three different plans with three different commission levels, starting at 15 percent per order for delivery. (A common complaint about these fees suggested they usually clocked in at about the 30 percent range, excluding areas with commission caps.) The company cut the commission rate for pickup orders from 15 to 6 percent and made its direct ordering feature available to any restaurant, whether or not they choose to pay to be on the DoorDash app.
Meanwhile, in May, Grubhub announced Grubhub Direct, a service that builds a custom ordering website for independent restaurants. Diners can place orders for pickup or delivery, and the restaurant pays no commission to Grubhub. It could, in theory, even replace a restaurant’s own website. The feature is also a 180 from Grubhub’s previous position: A few years ago, Grubhub came under fire for building microsites on behalf of restaurants to capture online search and ordering traffic, prompting Grubhub’s CEO to point out that this practice was a clear part of the company’s contracts with restaurants at the time. The company discontinued that practice in 2018, he said. Now it’s a feature, not a bug, and Theresa Dold, Grubhub’s vice president of agency service and products for restaurants, has indicated that the feature essentially comes with no strings attached, at least for the short term. Restaurants can access and control all customer data, and Grubhub says it won’t use it for marketing purposes. “That would run counter to the spirit of this offering,” she said.
These options speak to some of the problems that independent restaurants say they had with big delivery services. Worried about high commissions? Try this pared-down plan! Worried a third-party delivery service is getting in the way of your customer relationships? Here’s a website where you can accept commission-free direct orders! Most importantly, the companies say, these options are flexible; in DoorDash’s case, a restaurant can easily change plans as necessary. Grubhub Direct is free for Grubhub partner restaurants to use until next April.
But the apps might leave restaurants holding the short straw. According to DoorDash chief operating officer Christopher Payne, the company won’t take a financial hit based on the new plans’ structure: Instead, the 15 percent plan, known as DoorDash Basic, relieves restaurants of these fees by shifting “a higher portion of the delivery cost to the consumer,” as a press release noted. DoorDash has long argued that higher delivery fees for customers will actually hurt order volumes, and leaders of other delivery companies have said the same in pushes to maintain high commission fees for restaurants. Based on data that DoorDash has selectively shared, they could be right.
New tiered price structures are also an opportunity for DoorDash to upsell more lucrative plans with higher commissions to restaurants. The lower 15 percent commission rate comes at a cost — restaurants can offer delivery only within a limited radius, and the restaurants that choose DoorDash’s basic plan aren’t included in the group of businesses marketed to DoorDash’s DashPass subscribers, who pay a monthly fee in exchange for free delivery. (The company calls them “high-value customers,” and at the beginning of 2021 DoorDash reported that DashPass use was at an all-time high, doubling in size from a year earlier.) Restaurants that see a drop in business could ultimately return to a plan that costs them more — and do so after thinking the changes were “designed [for] restaurateurs learning what they need and providing options to meet their need,” as Payne said in a press call this April.
It would be disingenuous to say that third-party delivery apps are universally bad for small business. All of the big companies have made significant investments into initiatives meant to help local restaurants. DoorDash has committed to $200 million over five years for programs and initiatives that help local businesses. Uber Eats pledged $20 million in support for local restaurants by the end of summer. Grubhub created the Grubhub Community Relief Fund to support charities that help independent restaurants, and just announced its latest $2 million initiative. New product offerings are an attempt to give businesses more options and more of what they say they need. Plenty of independent restaurants use the apps and will continue to, not because they have to, but because they work. Others have built their own success around the new opportunity that third-party delivery presents.
Wolf Down is a two-year-old restaurant in Ottawa, Canada, with a second location in Las Vegas set to open this summer. Its owner, Joelle Parenteau, says she built the restaurant’s business plan with third-party delivery in mind. She’s also been a vocal supporter of Uber Eats, writing several blog posts about how delivery has helped her business.
“I honestly think that many restaurants underappreciate the value of the audience these services provide,” Parenteau wrote in an email to Eater. “I think the tiered pricing will be a way to truly show just how valuable that discoverability is. In my opinion, having access to consumers on these apps is a lot more valuable than me paying for ads. I also believe that if you have a great brand, unique product, great product imagery, and good ratings, you can definitely leverage third-party delivery to grow your independent concept. But you need to invest in standing out if you want to compete, just like anywhere else,” she said.
And while these recent changes are designed with the smaller, independent restaurant owners in mind, the companies behind the big apps pride themselves on their size — and that’s where a lot of investment is going. While any given delivery app could work just fine for a small and local business, signing up large companies at scale can really move the needle on growth. (It was a big deal in the business press when McDonald’s ended its Uber Eats exclusivity in 2019 to work with DoorDash.) On a recent earnings call, Uber CEO Dara Khosrowshahi touted the over 700,000 restaurants using Uber Eats around the world, and he doesn’t seem to think the company will have trouble signing on more. “We expect to grow our restaurant supply base really for the next five years, at least,” he said. DoorDash wouldn’t share specifics of how many restaurants were converting to the new lower-fee options, but said restaurants are signing on to all of the new pricing packages. For those small mom-and-pop restaurants, standing out on an app with tens of thousands of restaurants requires an investment — if not in money, then definitely in time.
In Los Angeles, Nossa’s Borghetti said he’s not writing off delivery services forever, though none of the new offerings have changed his current position. He initially participated in DoorDash’s DashPass program, but said it didn’t really move the needle on orders. Instead, he’s decided to spend his time building a traditional restaurant business.
“Right now I really want to focus on the people that are eating here. I’d rather optimize for the human beings that are in front of my face rather than just some digital world where I don’t really know what’s happening,” he said.
Kristen Hawley writes about restaurant operations, technology, and the future of the business from San Francisco. Carolyn Figel is a freelance artist living in Brooklyn.