We have followed the trajectory of the food delivery industry for some time now. Last year we introduced you to Jon Sewell. He’s the former health care industry executive who began his journey in the food delivery industry by launching Chomp in Iowa City, Iowa.
Jon spoke at our virtual Localogy 202o event last September. During that session, he shared that he was embarking on helping other cities and towns launch similar local, cooperative initiatives.
Popping Corks Over Commission Caps
Earlier this week, San Francisco restaurants began popping the tops of beer bottles to celebrate a major victory over third-party delivery fees.
The San Francisco Board of Supervisors approved, by unanimity, a resolution that permanently caps food delivery fees at 15% per order. That’s as much as half (30%) as companies like DoorDash had been charging. It is really an extension of a preliminary provision that had been put in place last April and it does not speak to other costs which could include marketing costs.
There are other crumbs yet to drop. For instance, the supervisors are working to cap credit card fees at 3%, not a huge win for consumers as well as prevent companies like Grubhub from forcing restaurant operators to opt into the delivery platforms’ marketing agreements. As we say, more crumbs to drop down the road.
Amendments that are still to be introduced may allow restaurants and delivery companies to work out separate agreements on marketing fees, meaning restaurants that want to be featured more prominently on such apps could do so. The legislation also includes a provision to cap credit card processing fees at 3% and prevents third-party delivery companies from forcing restaurants to opt into marketing agreements. Those measures will be voted on at a later date.
Laurie Thomas, the executive director of the Golden Gate Restaurant Association said this “This legislation will ensure our San Francisco restaurants can continue to operate in a financially sustainable way as they recover from the past year-plus with limited capacity and lost revenue,” Well before the pandemic it, independent restaurant owners were complaining about the high fees charged by the third-party platforms.
Other large cities have taken similar temporary steps with the expectation that many will follow the lead of San Francisco. Of course, the other side of the argument is that putting caps on fees pushes down the earning potential of the drivers who are really the last mile and very much the customer face of the delivery company and the restaurant.
If drivers are unhappy, it could well impact the experience for every consumer using the platforms.
At the end of the meal, someone has to pull more money out of their pocket – it is either the restaurant owner, the delivery platform, the driver, or the consumer. In an ideal scenario, everyone in the value-added chain would chip in their fair share.
Save Your Tears
No one should be feeling too sorry for the big delivery platforms though. DoorDash’s market value is a cool $57 billion while Grubhub sits at $20 billion.
Interestingly, DoorDash appears to be trying to take a bite out of Instacart’s apple by agreeing with Albertson’s to offer on-demand grocery delivery from almost 2,000 of the company’s stores, including Safeway, Vons, and Jewel-Osco.
This move by DoorDash probably explains the considerable differential in the valuation of the two companies.
Local Alternatives Cropping Up
This leads us to a story that ties back to our coverage of hyper-local delivery systems like Chomp. As Jon explained at Localogy 202o, he was offering a playbook for other cooperatives to spring up and cities around the country. One of those is Nosh, in one of our favorite towns, Fort Collins, Colo. Sewell’s cooperative LoCo now operates in Las Vegas, Omaha, and Knoxville, Tenn., and with three more cities in the works.
And he said the following at our event and reiterated it in a Bloomberg BusinessWeek piece. “There’s nothing that DoorDash, Grubhub, and Uber Eats do that can’t be replicated locally and operated at a much lower cost, there’s no need to send all this money to a bunch of venture capital-backed firms in California and Chicago who managed to figure out how to get between restaurants and their customers.”
The delivery services that are springing up around the country usually charge less and pay drivers more. And they avoid some of the heavy-handed tactics that the larger players enact. One such practice, listing restaurants without their permission, has drawn particular ire.
And the local platforms focus on the independent restaurant owner. Not just the Chipolte’s of the world. And those independent restaurants represent about half of the roughly $700 billion restaurant industry.
The Slurpalicious Way
Also profiled in the Bloomberg BusinessWeek article were Candy Yiu and her husband Akshay Dua. They opened a Portland, OR restaurant just before the pandemic took hold. They began using Caviar – a DoorDash company – are were troubled by the economics of the platform.
To make a long story short. they founded their own delivery platform, called Slurpalicious in Astoria, OR. While the platform’s name doesn’t quite roll off the tongue like DoorDash or Grubhub, it does have an intriguing model.
Slurpalicious works like this. Restaurants sign up for free. Then the customer pays 7% for their order and $.60 cents per mile. In this model, the drivers can earn up from $15 to $30 per hour. It all depends on the time of day and distance.
Yiu says, “Our mission is to have affordable delivery and fair pay for drivers.”
While we can’t vouch for her cooking, Yiu is a former Intel engineer. So she probably knows a thing or two about how to help Slurpalicious extend and improve its platform. And now that she’s in the mix of things, we’d expect her and Sewell to begin having some virtual conversations as well.
Time will tell if the industry essentially splits into two segments – the big players focusing on the multi-location chains and the local cooperatives and local start-up platforms focusing on the independent restaurant owner. We have a feeling it just might.