One of the big storylines coming out of the COVID-19 is the devastation it has wreaked on the restaurant industry. Independent bistros and multi-location chains alike have had to scramble to convert from sit down to carry out and delivery establishments, virtually overnight.
Some have managed to hang on through this pivot. Others tried for a while then threw in the towel and either shut down or went into hibernation.
Another theme emerging from the crisis is how it has taken trends that were percolating before the crisis and accelerated them forward. For instance, remote work and virtual events. A third example might be the growing presence of food delivery aggregators. You know the list. UberEats, DoorDash, GrubHub, Postmates, and others.
These services were fast-growing (not to mention very unprofitable), and controversial before the crisis. Now they are ubiquitous and exponentially more controversial.
Boycotts, Rebellions, and Lawsuits
It’s hardly a new story that restaurants were bristling at the high cost of using the delivery apps well before the crisis unfolded. Another common pre-crisis objection was that the apps, while ostensibly partners, were, in fact, insidious competitors. The 1:1 relationship between the diner and the restaurant was becoming a 1:1 relationship between diner and the delivery app.
A related dynamic has been the “cloud kitchen” trend that we’ve covered extensively on Localogy Insider. These are essentially kitchens build exclusively for delivery apps, which could be read as another step towards disintermediating restaurants.
As the lockdowns started, many of the apps offered free delivery as a way to show their solidarity. However, restaurants have complained that these measures only help consumers. They do nothing to reduce the cost to restaurants.
Since the crisis began, existing tensions between restaurants and the delivery aggregators have started to boil over. Let’s look at some examples.
Example No. 1: No UberEats Wednesdays in Toronto
Toronto restaurants have begun a weekly boycott of UberEats. The boycott involves turning the app off each Wednesday in protest. A widely circulated cost breakdown singled out UberEats for its 30% fees. It encouraged consumers to use other apps when ordering food. In a show of Canadian pride, it added a shoutout to Winnipeg-based Skip the Dishes.
The boycott Wednesday effort, led by Nick DiDonato, CEO of Liberty Group, owner of several local fine dining restaurants, is aimed at pressuring Uber Eats to reduce its feels.
“A show of solidarity may help budge UberEats from its unconscionable position of not dropping commissions at this time of crisis for the industry – which is the core of its own business,” DiDonato told NOW, a local Toronto news and entertainment weekly.
Example No. 2: Dubai Restaurants Start Delivery App Competitor
Several times zones away, restaurant owners in Dubai have banded together to launch their own delivery platform. This came after failed attempts to get the popular delivery apps to reduce their fees.
The effort is in its early stages and doesn’t even have a name. Yet the fact that competing restaurants are willing to pool their resources to launch a competing service reflects their frustration. Also, it reflects their sense of powerlessness.
Example No 3: India’s #Logout Movement
Restaurant owners in India have engaged in what The New York Times called a “collective primal scream” against delivery apps. Among the apps drawing the most ire are Zomato, Swiggy, and UberEats. The resulting movement has formed around the #Logout hashtag, which encourages restaurants to just say no to the delivery apps.
A particular source of tension in India is the discounts that many of the apps offer, which come at the restaurants’ expense. The cost is not just the immediate price reduction, but also in the sense of entitlement it breeds among consumers.
“The consumer believes that a discount has been his right, not a privilege,” the movement’s leader of the insurrection, Rahul Singh, CEO of the Beer Café restaurant chain and the president of India’s National Restaurant Association, told the New York Times. “But all of this is coming out of the restaurants’ pockets.”
Example No. 4: Consumers Weigh in with Lawsuit
Back in mid-April, a group of New York consumers filed a class-action lawsuit against the major delivery apps. The suit’s core argument is that the apps exploit their dominance in restaurant meal deliveries to impose fees that consumers bear through higher menu prices.
Granted, consumers took this action, not restaurants. However, it’s spirit seems to be in solidarity with the restaurants. It refers to the “devil’s choice” restaurant owners are forced to make by raising prices in order to access orders from the apps.
“Plaintiffs bring this claim for relief on behalf of all Americans who would still [like] to enjoy a nice dinner out with their family before defendants make that impossible,” the complaint said.
What Happens Next?
As we’ve noted, the tensions between the delivery aggregators and restaurant owners aren’t new. And both sides have vulnerabilities.
The apps are involved in a bitter race to outdo each other, with consolidation looking inevitable. UberEats, in fact, has announced it will exit seven markets as part of a competitive retooling. And, as we enter a recession, the New York lawsuit may be a harbinger of a wider consumer revolt again the high cost of home delivery.
Still, it’s hard to bet on restaurants in today’s environment. In the long run, restaurants may need delivery aggregators more than the aggregators need restaurants.