This story was produced in collaboration with the Food and Environment Reporting Network.
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 out 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 15%, 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 takeout 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 sending it to shareholders.
“The majority of consumers really want to support local restaurants,” says Kennedy Smith, senior research fellow at the nonprofit Institute for Local Self-Reliance (ILSR). “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.
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 report from ILSR looked at 20 startups offering local delivery services and found they could disrupt big apps by offering lower commissions to restaurants, 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. Many 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 stave off delivery monopolies. “I think the biggest threat to restaurants is the one they’re least aware of,” says Sewell: that the 3 Big 3 could harvest local ordering data to form delivery-only kitchens called “ghost kitchens.” Amazon does this on a massive scale, marketing copycat products directly to customers, thereby undermining their own market customers. In 2019, DoorDash launched a shadow kitchen operation in the Bay Area. 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”.