Third-party delivery apps with billions of dollars have perpetuated a distorted business model rooted in consumer convenience — and it’s restaurants and workers paying the price
This is Eater Voices, where chefs, restaurateurs, writers, and industry insiders share their perspectives about the food world, tackling a range of topics through the lens of personal experience.
The restaurant industry is in crisis. And while delivery apps were quick to rush in and position themselves as a lifeline for restaurants at the start of the pandemic, one of the more surprising side effects of COVID-19 is how many consumers, restaurants, and even governments are finally realizing the destructive power of delivery services like Grubhub, DoorDash, and Uber Eats. There’s been consistent coverage of their detrimental impact on workers ever since the phrase “gig economy” was first uttered, but the pandemic has increased the public’s awareness of exactly how they harm the restaurant industry.
Over the past several months, restaurants, consumers, and even senators are protesting the apps’ common practice of charging punitive 20 to 30 percent commission rates for every order. City legislators around the country are stepping up to ease the burden, with New York City, Los Angeles, and others temporarily capping fees at 15 percent per order during the pandemic. (Some cities, like San Francisco, are considering making those caps permanent.) Many diners now see these services’ true colors: By deferring fees for restaurants instead of waiving them during COVID-19, keeping sole authority over when the waiver period ends, and imposing mandatory one-year contracts on those who defer fees, their interests are to maintain their ironclad grasp over restaurants.
In 2010, I founded my own delivery app, FoodtoEat. We provided a lower-cost online ordering platform, charging restaurants only 10 cents per order. Instead, we charged the consumer a flat fee for the cost of convenience. Restaurant owners were immediately on our side, and we quickly signed up hundreds with our message of a fair business model. But we found that the hard part was convincing consumers to actually accept higher prices on delivery.
After two years of unsuccessfully trying to get diners to pay fair delivery fees, we had to pivot our business to corporate catering or risk failing. We were edged out by large companies like Uber, DoorDash, and Postmates, which have raised (and spent) billions of dollars in their quest to own the market. That third-party model’s been rotten since the beginning, and the inequality it’s bred has been decades in the making.
I began researching an alternative to the traditional third-party model 10 years ago. I’d seen its impact on business first hand because my parents’ restaurant in NYC was one of the first on Seamless. At first, when online ordering was in its infancy, these services were a boon. But over time, as fees creeped up, my parents noticed how even though their revenue kept growing, their profits kept shrinking. Simply put, they started making less money as their reliance on these third-party services grew. Without any other material changes, the business they worked so hard to build starting slipping away from them.
To understand these companies at a deeper level, though, I spoke with hundreds of restaurant owners across the city. In all my conversations, I heard a pattern repeated over and over. In the beginning, the sales rep typically started by praising the restaurant owner about their business, and describing the demand they could expect on the delivery platform. If the owner resisted, the rep would then suggest that their restaurant would get left behind as the only one on their block not on the platform. (These days, if a restaurant owner still resists, the delivery platform will sometimes list them on their site anyway without telling the restaurant: The goal is to have the widest selection possible to offer the consumer the greatest level of convenience. The state of California has banned the practice; New York is considering similar legislation.)
One particular conversation with a Sri Lankan restaurant owner sticks with me. When talking through why he signed up for five separate third-party services, he recounted how convincing the platforms’ sales reps were, how they bombarded him with facts to justify their commission rates, and how they all promised a steady stream of new customers. Those aggressive tactics — and the lack of ongoing restaurant care and support after he signed — resonate in my mind a decade later.
When we launched FoodtoEat, we wanted to put the owner first. We walked around the city handing out flyers and talking with folks about how ordering via FoodtoEat was the best way to make the third-party model sustainable and actually support their local restaurants. Unfortunately, this only worked for a little while, as our launch coincided with the new era of mega food delivery platforms like DoorDash, Uber Eats, and Postmates.
As these companies raised hundreds of millions of dollars to fuel their expansion, they put their effort into spreading their gospel of ordering low-cost food. To bolster use of these apps, delivery platforms drowned potential diners in promotions, minimizing the costs to the consumer and making it easier to form the habit. They subsidized the “true” cost of delivery, making it cheap for consumers while squeezing restaurants with high fees and pocketing courier tips. They’ve used their money to fund a “convenience culture,” training us to expect what we want, when we want it: With millions of dollars in the bank, they perpetuated a distorted business model rooted in consumer convenience while also barring competitors from implementing models that were more restaurant-friendly.
By limiting a consumer’s contact with the restaurant, the consequences of those app taps are effectively out of sight and out of mind. You tap a button when you’re craving lunch, and in another part of the city, hourly (or gig) workers are dispatched to craft your order to perfection and deliver it in a well-packaged, efficient manner. And once the food arrives, consumers typically aren’t thinking about the care or experience of what went into making or delivering that food — all that’s on their mind is consuming what was just delivered.
What you have then are the makings of a new form of indentured servitude: essential workers who, as hourly workers, can’t really afford to stay home anyway and struggling small-business owners who for decades have been at the mercy of mega-funded tech platforms (even comparing their dependency on the apps to crack cocaine). They are the ones on the frontlines, and when it comes to the people literally running out and making those deliveries, they are disproportionately Black, brown, and Asian, and according to one San Francisco-based study, make an average of $26,000 a year.
Ultimately, that’s what the entire food delivery experience is about: minimizing the number of clicks we need to get meals into our mouths, while also minimizing any semblance of human interaction along the way. The pandemic has only accentuated the divide between those on the frontlines and those who can work from home. With the technology and habits bred by convenience culture, it’s easy to overlook that we are essentially asking those with the least to sacrifice the most. But that’s been the third-party strategy all along — squeeze the restaurants and couriers, no matter the cost.
This third-party delivery ecosystem has caused death by a thousand cuts for restaurants for the past two decades. As fees have ratcheted up, restaurants have been fighting a losing battle: What used to be a 5 percent per order fee for restaurants in the early 2000s rose to 15 percent by 2010 and stands closer to 30 percent today. It’s now at the point where Silicon Valley is dreaming up new real estate scenarios that would allow restaurants to actually make money on delivery — by housing them in separate ghost kitchen spaces, as opposed to in their brick-and-mortar restaurants — instead of actually fixing the underlying problems in the business model.
But consumers can help. It comes down to deciding whether we actually care about the things we purport to care about. Do we have it in us to pick up the phone? Or to go through the “hassle” of entering our email address and payment details when ordering directly from the restaurant? Are we willing to put in a little bit more work and overcome the barriers we’ve put between ourselves and our community?
I tried once (unsuccessfully) with FoodtoEat. I couldn’t convince consumers back in 2011 to make the switch to a more equitable model for food delivery, and needed to transition my entire business to corporate catering just to survive. It’s clear that there’s no silver bullet that will undo a decade’s worth of widening inequality.
Instead, we can start by recognizing how we got here. How our need for fast meals at low prices displaced an entire industry while pushing hourly workers to become our own personal couriers. Once we look in the mirror, we can start taking the right steps to restore some of the dignity and equality that’s been stripped away by a decade of growth and mass convenience.
Deepti Sharma is the founder of FoodtoEat, which recently launched #IMadeYourFood, a campaign to humanize the people behind every food order.