When Grubhub arrived in Iowa City in 2017, Jon Sewell received what he describes as a “call to action.” He owns a DP Dough franchise there and used a delivery service called OrderUp to deliver his calzones to students. But then Grubhub bought OrderUp and doubled the order commission to an astronomical 30%, plus fees. At those rates, Sewell says, he lost money on every order.
So in January 2018, Sewell partnered with about 25 Iowa City restaurateurs who helped launch their own delivery co-op called Chomp. The company, which now employs five to seven full-time people and around 100 independent drivers, caps commissions at less than 20%, redistributes profits to cooperative members and offers local customer service, which Grubhub had outsourced.
Sewell’s local experience has national implications. At the start of the pandemic, food delivery apps including the “Big 3” – Grubhub, Uber Eats and DoorDash – were hailed as saviors, facilitating a take-out boom meant to keep restaurants and their staff going. in activity. But the restaurants were soon faced with a harsh reality: These Silicon Valley and Wall Street-backed companies, which together dominate 93% of the national market share, are designed to extract money from local businesses. — sucking in a total of $9.5 billion in revenue in 2020 alone — and send it to shareholders. Meanwhile, with no customers in the restaurant, some restaurants have been trapped in a money-losing proposition; 110,000 of them closed, permanently or for the long term, in the first year of the pandemic.
“The majority of consumers really want to support local restaurants,” says Kennedy Smith, senior fellow at the nonprofit Institute for Local Self-Reliance (ISLR). “They think that by ordering food through the big delivery apps, they’re supporting them. That’s actually not the case, and it’s a real disconnect.
Brian Rorris, owner of five restaurants and two bars in Iowa, calls big apps “leeches.” He helped found Chomp and argues that the delivery co-op, with its lower commission rate and local customer service, is “better for the market”. Iowa City seems to reflect this: Chomp now works with nearly 200 local joints. Sewell helped start an equally successful delivery co-op, Nosh, in Fort Collins, Colorado, and followed it with LoCo Co-ops, an unaffiliated company that started five other businesses across the country and grew into now organizes in Chicago. Some of the new delivery initiatives are eliminating restaurant commissions altogether: an app-based service called Delivery Co-op in Lexington, Kentucky, charges restaurants a flat rate of $300 per month; customers subscribe for $25 per month and drivers receive $10 per hour plus tips and, after three months, health benefits.
Should Big Tech apps be worried about a full-scale restaurant uprising? A September 2021 McKinsey report detailed a recent shake-up in third-party food delivery businesses, as Uber bought Postmates and Grubhub was bought by Just Eat Takeaway. The report suggested that the current app business model rests on a shaky foundation, reminding investors that while they may have seen “explosive growth” during the pandemic, “delivery platforms, just a few exceptions, remained unprofitable” and that high commission apps were “unsustainable” for restaurants and long-term apps.
In the meantime, local delivery services are multiplying. A recent ISLR report looked at 20 startups offering local delivery services and found they could disrupt large apps by offering lower restaurant commissions, better pay for delivery staff, and better hospitality.
Startups are not the only threat. During the pandemic, New York, San Francisco and other cities have passed ordinances capping third-party delivery charges at rates ranging from 10 to 20 percent, which the companies are challenging in court as unconstitutional. A number of cities have used pandemic relief funds to pay for free local delivery, partnering with taxi companies and bike courier apps.
John Schall, a restaurant owner and former Yale economics professor, warns against excessive optimism. “I’m skeptical that co-ops or other small-scale delivery options will ever make a meaningful difference,” he says. “If they succeed, they will be redeemed. Everyone will have a prize and the Big 3 will pay it.
Meanwhile, the fate of independent restaurants may hinge on their ability to avoid delivery monopolies. “I believe the biggest threat to restaurants is the one they are least aware of,” says Sewell. Big Tech’s delivery apps have been accused of using local ordering data to facilitate or create competing entities, such as ghost kitchens, to increase their own business at the expense of restaurant customers. Amazon does this on a massive scale, marketing copycat products directly to customers, thereby undermining their own market customers. In 2019, DoorDash launched DoorDash Kitchens, a ghost kitchen operation in Redwood City, California. This concept has since spread to other cities.
“I don’t have anything positive to say about Silicon Valley and what technology has done to our society,” Sewell says. Local delivery cooperatives are “my way of fighting back”.
Correction: An earlier version of this story misrepresented Chomp’s commission cap. The cooperative caps commissions at less than 20%.
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