Should you really jump into food delivery service train?
Not long ago, Jimmy John’s sandwich chain launched a national ad campaign promising never to use third-party delivery. Jimmy John’s says its own drivers — which number around 45,000 at its 2,800 U.S. restaurants — can best ensure fast, quality service.
“We just don’t trust anybody else to deliver our product,” Jimmy John’s President and CEO James North told The Associated Press.
The market of third-party delivery is becoming increasingly crowded in Pittsburgh, with DoorDash the latest to join the fray last April, boasting service for 1,500 regional restaurants. The company follows market leader Grubhub, which came into the area in 2011 and caters to 500 area restaurants, a spokesperson said, along with Postmates, OrderUp and Lawrenceville-based Happy Bellies. The fast-growing delivery arm of Uber, Uber Eats, entered the market two years ago this month; today it employs “thousands of drivers” and works with more than 500 restaurants in the Pittsburgh region, a spokesperson said. Third-party delivery is changing the local restaurant landscape, especially for the city’s casual dining spots, but not always for the better.
There’s a lot for restaurants not to like. Delivery services eat into their profits. Grubhub charges them a commission of 12 to 18 percent per order; Uber Eats charges as much as 30 percent. Service can be haphazard; some drivers have coolers to keep food chilled, for example, while others don’t.
Delivery companies like DoorDash may tack on an upcharge — like $1.35 onto the $4.15 price of a venti latte at Starbucks — plus a $3 to $6 delivery fee. Then there’s a tip for the driver (but no tip for the restaurant or server). Uber Eats imposes surge pricing at peak times: On a Monday night order through Uber Eats, for example, an $18 food total increased to $24 before tip. But higher prices don’t just hit the consumer: They affect the restaurant, too, with companies like Uber Eats and Grubhub charging restaurants between 25 and 30 percent of the cost of each order. Some restaurants’ delivery menus list prices that are higher per dish than dining in to cover these extra charges.
As more casual restaurants embrace multiple delivery options, it’s becoming common to see half-empty dining rooms around town with a staff that’s trying to keep up as they fold in delivery orders. Multiple restaurateurs said that app delivery can account for as much as 40 percent of sales weekdays and 25 percent on weekends.
Chef and partner at BRGR Brian Pekarcik said he’s worried that delivery is affecting diners’ experience in house. But he doesn’t want to hire another staffer per shift because it would cut into his profits. As a result, especially when the restaurant gets busy, it can tax the staff.
That’s true over on the North Side at Legends, too. “I feel bad for the hostess,” said Dan Bartow, chef-owner of Legends. He cites one particular Friday six months ago when “we were getting crushed.” His employees were furiously packing up takeout orders — the restaurant both ties and tapes packages because they’ve had some delivery debacles — in addition to keeping track of orders in the dining room.
The restaurant was slammed that night because one of the delivery companies was promoting his restaurant. While he appreciated the attention, it doubled the workload for staff on what already was a busy night. For this extra work, “There’s no gratuity,” he said. When there’s tipping involved it goes to the driver.
But how much restaurants make on delivery can vary widely according to the delivery service and the night. The 25 percent to 30 percent fee that Grubhub and Uber Eats charge restaurants cuts into already slim profit margins. In restaurant metrics, 25 percent to 28 percent of restaurant expenses go to food costs; labor accounts for about 30 percent;, fixed costs like rent and dry goods clock in at around 30 percent; which leaves 10 percent to 12 percent net.
Dylan Bolden, a senior partner at Boston Consulting Group, expects third-party delivery services will probably consolidate over the next few years, leaving two or three big players with the scale to be profitable.
At the same time, he said, many big restaurant brands will probably follow Jimmy John’s lead and do their own delivery so they can control the customer experience and retain valuable order data.
“They may use third parties today because they want the demand, but in the long run they don’t want to be dependent on them,” Bolden said.