Outrage over online ordering
by: Ainslee Garcia
The pandemic has rocked the restaurant industry in many ways, but one of the starkest changes appears in the rise in online delivery. Following overwhelming fear over entering a potentially contagious environment, many restaurants were forced into prioritizing take-out and delivery orders. The Pew Research center studies show 32% of Americans order food online as a result of the pandemic. For those between the ages of 18 and 29, the percentage exceeded 50%. Off-premise dining, which is another term for take-out and delivery, mandated vast changes for every restaurant in the country. Owners sought to tailor the dining experience to the desires of their customers, meaning they invested in accounts on popular sites such as Grubhub, Postmates, DoorDash, and Uber Eats. These companies efficiently transport food to the comfort of consumers’ homes. However, they charge high commissions for both restaurants and consumers that many Americans find unacceptable. Restaurants and consumers comprehend the convenience and safety of third-party delivery services but simultaneously recognize a needed change in the exorbitant prices that threaten to plunge restaurants into the red.
In an age of consistent cleaning, consumer demand for food delivery skyrocketed the popularity of major sites like Grubhub and UberEats, allowing diners to frequent local businesses from the safety of their homes. Morgan Stanley estimates that the online delivery industry took in $45 billion in 2020, an impressive figure especially considering revenue was only expected to rise to $41 billion by 2021 in initial projections. Market Watch demonstrates a similar pattern: Uber Eats, DoorDash, Grubhub, and Postmates raked in $5.5 billion in combined profits from April through September 2020 over the year prior. Customers love the ease of finding restaurants and never having to walk more than a few steps to the front door. And with so many options for ordering, virtually every restaurant, cuisine, and the price range is represented through these sites. Additionally, restaurants witness astonishing benefits from online ordering. Through these websites, restaurants receive more press and exposure, allowing more diners to visit their restaurants. Furthermore, owners face fewer concerns over maintaining sales during a pandemic that sequestered many in their homes. As a result of virtual delivery services, restaurants observe higher traffic to their sites and consumers freely celebrate the security and satisfaction of delivered cuisine.
If there are so many benefits to online ordering, why is there controversy? If you haven’t used online ordering, here is an example. As I was writing this article, I grew hungry. I decided I would order a horchata doughnut from a local doughnut shop through a third-party delivery service. The doughnut itself is $4.25, which is already expensive. However, the primary problem comes with the additional fees. First, taxes and fees add another $3.34. On top of that, the delivery fee is $5.25. Not to mention the tip, which at the low end of 15% is about $2. My final total for my $4.25 doughnut is now $14.84. I have now paid a completely unnecessary $10.59 for food that I could have picked up myself. The last fee comes to restaurants. If you look at the little disclosure during check out, you can see that restaurants are charged a 15% commission on every order. This commission significantly lowers a restaurant’s margins as their already meager profits are being eaten away by fees from delivery sites. With high costs for both consumers and restaurants, delivery services and online ordering sites threaten the livelihoods of local businesses and neighborhood staples.
Commissions charged by online ordering companies consume large percentages of restaurants’ profits, leaving owners and workers to grapple with serving customers and protecting their profits. Many Americans do not recognize the full magnitude of the impact of commissions on restaurants. One extreme example of commission prices occurred in 2020 in Chicago. One restaurant had commissions and fees equivalent to approximately 64% of its total profits. By the end of the month, only a third of total revenue was available to pay for materials and to pay the paychecks of employees. This scenario has occurred across the country, with many restaurants diving into the red despite high levels of online sales. Cities and states have taken steps to protect restaurants, capping commissions taken by delivery service providers. These efforts improved the margins of many restaurants but stopped short of solving the underlying power disparities between businesses and delivery companies. Lastly, restaurants have very little negotiating power in talks regarding fee prices. Restaurants rely on delivery services to maintain some semblance of their previous sales, without which they may be forced to close completely. Delivery services rely on the needs of restaurants, charging high prices and knowing restaurants will pay whatever price is necessary. Governments have begun the difficult work of ensuring the success of restaurants but restaurateurs require greater power in negotiations to protect their workers and business.
After learning of the drawbacks of online ordering, many may ask how we can avoid these situations, lifting businesses instead of the CEOs behind the unnecessary fees? Third parties have made themselves extremely valuable and practically impossible to depose. Sites like Grubhub, Postmates, DoorDash, and Uber Eats face accusations of banding together to ensure separate businesses have priority sales in certain cities to mitigate competition between the brands. Furthermore, they keep prices at similar levels so restaurants have nowhere else to turn for lower prices. This phenomenon puts restaurateurs at a significant disadvantage. Furthermore, these sites charge additional fees for “marketing”. Essentially, restaurant owners must pay a premium to avoid becoming swamped within the depths of delivery sites. Additional costs drown many restaurants, forcing them to compete with delivery sites using their personnel for delivery or shutting down entirely. Delivery services are exceptionally beneficial; however, the tactics employed by these companies risk the viability of restaurants nationwide as owners weigh meager in-person sales with outrageous commissions.
Within only a couple of years, the swing to online ordering demonstrates how quickly American values shift the market focus. While we may have appreciated going into restaurants, the ability to sit on the couch and eat a perfect, chef-crafted meal is undoubtedly appealing to many diners. Many Americans now worry we will never return to how we conducted ourselves pre-pandemic. With this idea in mind, we must look at how we can support our local businesses. Help SOAR has provided reviews of many restaurants across several states to encourage our readers to visit these joints. Choose to get in your car or walk to a new restaurant and embrace the restaurant experience. Whether sitting indoors or outdoors, the support of local businesses is crucial in protecting the food industry from the fiscal struggles introduced by delivery services.
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