Food delivery apps say they're saving restaurants. Instead they're charging big fees
Ordering directly from a restaurant's own websites and apps is the best way to help it keep its profits, owners say.
Alison DeNisco RayomeManaging Editor
Managing Editor Alison DeNisco Rayome joined CNET in 2019, and is a member of the Home team. She is a co-lead of the CNET Tips and We Do the Math series, and manages the Home Tips series, testing out new hacks for cooking, cleaning and tinkering with all of the gadgets and appliances in your house. Alison was previously an editor at TechRepublic.
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A couple weeks ago, Giuseppe Badalamenti, a restaurant consultant and owner of Chicago Pizza Boss, posted a Grubhub receipt from an anonymous restaurant he works with to
. The restaurant earned about $1,043 from 46 orders through Grubhub -- but after various fees and promotions, it only took home $377.
The post went viral, with more than 6,000 shares on Facebook as of Thursday. "I had seen some GrubHub receipts from other clients, but this one was just outrageous," Badalamenti told CNET.
lockdowns and quarantines have led to spikes in food delivery services, including the use of third-party apps like Grubhub, DoorDash, Uber Eats and Postmates, as more people are staying in and trying to support local restaurants that have closed their doors except for takeout and delivery. However, many customers don't realize that these apps charge hefty fees for the restaurants -- typically between 15% and 30% of the total order price, according to several restaurant owners interviewed for this story.
Restaurants choose to work with third-party delivery apps to access their millions of users -- if a customer doesn't see a local restaurant on any of the apps, they might assume that it isn't open, or doesn't do delivery, and go with another option that is there. The apps can also free up staff and reduce order errors, and prevent customers from skipping out on a check, Badalamenti said. But especially amid the pandemic, delivery service fees are cutting into already-decreased profits -- even as apps have reduced fees in recent months.
"People use these apps under the assumption that everybody is getting a fair shake," Badalamenti said. "And a lot of people are being taken advantage of because they think that they need to play this game."
The truth about delivery fees
The top delivery apps like Grubhub, DoorDash,
Eats and Postmates charge restaurants commissions in different ways, often depending on the individual restaurant and what services they decide to use. For example, in the receipt Badalamenti posted, $362 of the charge to the restaurant was from promotion within the app and one offering $7 off of orders -- both of which the restaurant chose to do.
"Restaurant owners select the services they want and only pay a commission to Grubhub when we help generate sales," according to a statement from Grubhub. "Grubhub is happy to work with restaurant partners to help them manage costs and grow their business."
Fees collected by these companies cover costs for delivery people, operations and other customer service, among other things.
Amid the coronavirus pandemic, some of the delivery apps have made efforts to aid local restaurants. But some have been met with more praise than others.
In March, DoorDash reduced its commissions from local restaurants by 50% on both the DoorDash and Caviar delivery apps. From mid-March through April, independent restaurants could sign up on both platforms for free and pay zero commission for 30 days, without being asked to pay anything back. Existing DoorDash and Caviar partners were offered no commission on pickup orders. In April, the company announced that it would reduce commissions from all local restaurants by 50% through May.
For Uber Eats, commission is based on factors like restaurant volume. The company waived commission on all pickup orders, and reduced fees on orders where restaurants use their own delivery people to 15%.
GrubHub temporarily suspended up to $100 million in commission fees for independent restaurants in March. However, those fees are only those related to marketing (what restaurants pay to appear on the platform) -- other fees like delivery and ordering processing still apply.
"Even before coronavirus started, these third-party delivery apps were already hurting restaurants because the fees were so high," said Erin Wade, owner of six restaurants in New Mexico and Austin, Texas. "Customers love their community restaurants and think they're supporting them when they place an order [through a third-party delivery app]," Wade said. The fees "are a genuine shock to people."
The apps do provide a delivery service for restaurants that may not otherwise have one, said Antonio Ferraro, owner of Napoli Pasta Bar in Washington, DC. "On a rainy night or during the weekdays that I don't offer delivery, it might help a little bit," Ferraro said. "Your name is out there, and people know you're open."
Despite the commission fees, the third-party apps are sometimes worth using to keep the doors open, said Octavio Diaz, owner of Agave Uptown in Oakland. "At the end of the day, you may not be making money, but you have your staff working," Diaz said.
Restaurants seek other tech solutions to stay alive
Unless third-party delivery service fees drop to something between 5% and 10%, it will be difficult to sustain using them, several of the restaurant owners said.
In the meantime, many are seeking out other tech options to reach customers and keep doors open during the pandemic and beyond.
Diaz's Agave Uptown is a 149-seat restaurant in a corporate area of Oakland, where nearly every seat is full during weekday lunch hours. Before the pandemic, the restaurant used GrubHub and Caviar for delivery. Fees were "between 28% and 30%," Diaz said. "We basically are giving our profit away."
The restaurant has since started using Ordrslip, a service that designs an app to work with the restaurant's point of sale system for a flat monthly fee. Now, Diaz puts fliers in every bag picked up by third-party delivery companies letting customers know the restaurant has its own app and option for ordering.
Mark Mizer, owner of Seattle-based Thai restaurant, Buddha Bruddah, recently started using the service BentoBox, which helps create a website and take online orders directly from customers.
The restaurant saw more than $50,000 in online orders in April. "The community wants to help local businesses survive and will order from you directly for delivery if they have the option," Mizer said.
How to support your local restaurants
Every restaurant owner interviewed for this story agreed: The best way to support your local restaurants is to call in an order or place one directly through the restaurant's website or app, when possible. Local restaurants likely offer pickup, and may have an in-house delivery service. They also might have a wider selection and discounts that are not available on the delivery app, said Rena Dongparteep, co-owner and chef of Asian fusion restaurant Shiitake Bistro in Delray Beach, Florida.
Ordering directly can also save you some cash, since extra charges and fees typically get added to the tab when ordering through the general delivery apps.
When you do order, leave a review, and tag the restaurant on social media to help spread the word, Dongparteep added.
Of course, there are caveats for people who are sick or quarantining and cannot leave the house. But even then, you can check for local delivery services to keep money in the local economy, Wade said.
"When this is all over, what restaurants need most is for people to come back and eat at restaurants," Wade said. "That's what we are set up to do. We're not set up to be a McDonald's that serves wrapped food in volume out into the world."
Maintaining that direct relationship with restaurants again is important, she added. "It's the way the business has worked for a really long time," Wade said. "And now there's all these intermediaries between us and our guests. And that has made the business a lot harder."
Watch this: Coronavirus lockdown: Why social distancing saves lives