Yes, that's right. I said it. Using the very popular third party apps like Door Dash, Grub Hub, and others are likely going to kill off your favorite local restaurants one by one in the coming years, including mine!
Sure, they're super convenient, but you probably don't realize the damage they are causing every day in a market that is so strained by day to day costs, with razor thin margins and one of the largest failure rates of any industry. I get the feeling from talking about this with customers and friends, a lot of people do not know how much of a cut these apps are taking from each order. I had tried to get some more data from fellow restauranteurs before writing this, but didn't get a lot of feedback beyond "We just don't use them, we can't afford to." For sit down places, that can definitely work. If they are busy enough, they don't need to waste time on to-go orders, but when it comes to something like pizza (in my case - a to-go only house), delivery is essential for us to stay afloat.
I resisted the thought of offering delivery for about maybe 6 months when we first opened in 2014 because I didn't want our thin crust pies dying in pizza boxes. Since we had emerged from a street food scene where you were handed hot pizza minutes after ordering I was sure the quality would suffer and people would lose interest. But I think we all know everyone orders pizza for delivery on the regular, it's just how it is. So after deflecting several hundred callers who wanted delivery, I said fuck it, and hired a driver, actually I hired several of them. The struggle was real, these kids didn't give a crap about the job, and they would turn over very quickly, or call out sick so often that I became the lead driver since I wasn't really needed on the line. I remember folks opening their door and saying, "Wait, aren't you the owner??" Yeah I am, and I'm out driving all over town in my giant fuel inefficient van spending more money on diesel than olive oil to make your fresh hot pizza dreams a reality. This went on for about two years, when all of a sudden - one of the first big delivery apps called Caviar was knocking at my door, finally.
Caviar was created by Square in 2014, the much loved mobile credit card processing company which we had been using for all of our mobile sales gigs. But at the time, Caviar was largely focused on San Francisco and only featured top notch restaurants. As they grew they needed to expand their presence and they spread to the East Bay. (I'm not totally sure how they rolled out this process or where they were operating BTW) I do know that when Caviar reached out to us, we were the ONLY restaurant this deep into East Oakland they were even considering. Mind you I still had in house drivers at the time, and Caviar came to me and said they'd love to partner with us, and here's the rub (the thing thats killing us all), they were going to take 25% of each sale, they would NOT have a tip the restaurant option, and they will add a delivery fee for the customer and an automatic tip for the driver. I was like, EXCUSE ME? on a $20 pizza, that's $5. Not to mention the added expense for the convenience of that warm fuzzy mobile app being at your fingertips 24-7. Keep in mind there is almost no way for you to tip the people that made your food with these services. Sure maybe you've seen this, some places have gotten around that part by adding in a button to send the kitchen a six pack, or give a little bit to staff too, but a lot of folks are looking at that $50 pickup order which is now close to $80 for delivery and are skipping that part. You really gotta dig to find this feature if restaurants are doing that at all.
Read that last part again, 25% of all third party app sales goes to them, not the restaurant. And from what I have gathered in researching all of the app options for delivery, that is about the average percentage, but I have heard that Grub Hub can be upwards of 35% which is simply insane. Now in our case, because we were so out there on their delivery maps of Oakland, they offered me a deal before I signed up. They said if we'd be willing to sell delivery related merch like pizza hot bags they could cut our rate to 17%. They were directing new drivers to come to our store as they signed on to get the proper equipment to fulfill orders, which had its own set of issues. These people were like wait what, I have to buy them? And yes, we had to ring them up through a specific portal on the tablet, and it caused a lot of headaches on busy Friday nights for my staff. Then when our supply would run down, Caviar would be slow to re-up and we'd have to turn away drivers. At one point maybe a two years into it, I was told that the factory in China where these bags were made had burned to the ground. We never got another bag to sell, but they at least honored the 17% deal we struck. At least that headache was resolved.
A side note here - why i really dislike all of this, most of these drivers are severely underpaid, and therefore lack any sort of compassion or enthusiasm for this side hustle economy. Many of the drivers we've encountered don't have proper hot bags for transporting food, even the ones WE SOLD THEM TO! So, in the early days of on-boarding with Caviar we still had our own drivers too. I wasn't convinced that this was going to work out, I just didn't like it at all. I was adamant about refusing drivers who were ill prepared for work that day. I would tell them to either buy a damn bag, or get out and find another order because they were NOT leaving here with my precious cargo. I fought tooth and nail with some of them, and would get very vocally angry, often in front of other customers. I wanted folks to know that we were not playing, and it was actually best to just call in your orders and get your food.
I remember this one day particularly well - the day I said fuck it, and took the red pill, or blue pill. It was a warm November night in 2016, I was helping my partner prepare a pre thanksgiving dinner for 12 people, I was meeting her dad for the first time and we were plating a four course dinner. My phone rings, and its the shop saying my delivery driver had hit a car, caused significant damage, and left without leaving a note. He unknowingly hit the customer's car, handed them a pizza, and drove off. Their neighbors saw the whole thing. My phone rings again, and it's - wait for it - the customer! She's screaming in my ear about all the things, and I handled the situation as best I could. I fired the driver, settled out of court with the customer, and went full on with Caviar and hated every minute of it. I had no choice, we had to offer delivery. The costs of an in house driver are not much different than the fees, albeit a bit lower, but the responsibility is now on someone else. So is the food quality, it's out of my hands once it leaves that door. If by chance a pizza shows up with only 7 slices (and this did actually happen to friend of mine who I later chastised for ordering delivery) this is also not my fault! The customer takes their chances when using a third party. I mean how many french fries are in an order? You'll never know, but you can bet there is a few less than when it left the restaurant...
A lot of restaurants are using ALL the apps to drive more business, and those percentages will definitely add up to cutting the bottom line significantly. Sure, maybe they are getting enough orders to handle that, but to-go packaging isn't cheap either, and god forbid you get the order wrong or a customer isn't happy with their delivery, you get dinged for the entire purchase. From what I've seen in my monthly statements, it doesn't take much for an error charge to show up, and they do. Sure we do get orders wrong, we mix up pizzas, or forget the salads during the peak hours, shit happens. But I feel like they have so many orders coming through they simply say the customer is right, and issue full refunds. I've also started thinking that some customers are using this to get free food, they're hep to the jive. They complain, and get comped for their trouble, and the restaurant takes a full or partial hit on the order. I have no proof of course, other than me disputing an error charge on a Margherita pizza (the most common of error charges). There are four ingredients - dough, sauce, cheese and basil. How TF do we mess that up? I dispute and usually I get the money in the end if I have a chance to check every week for what seem to be bogus error charges. The delivery apps aren't questioning anyone, they are too busy making a shit load of money for running a database and interactive website.
Back to the fees, the Money! So maybe you're not great at math anymore, totally understandable. Let me break down what we eat on our only third party app, DoorDash/Caviar. In case you missed it, Caviar got swallowed up by DoorDash in 2019, for $410 million and merged all Caviar accounts including us. DoorDash currently has a 67% market share of all the delivery apps. They were no longer adhering to high quality restaurants, we fell into the same categories as Papa John's, Mountian Mikes, and others as just another pizza place in or near Oakland CA. We don't boost our presence so we don't even really show up on their searches till about page 2 or 3 (even when I look on DoorDash's ordering app at my shop's address to see what pizza is available near me), we do not give them any other money outside of that 17% we give annually as a commission.
Well James, what does that amount to, the 17% of sales? We have a nearly neck and neck split annually between phone/walk in orders and DoorDash. (THANK YOU TO ALL WHO CALL IT IN EVERY YEAR) For 2023, we brought in an average $110K from third party sales, and the commission was $15431, not necessarily including any error charges or lost money on valid mistakes, but thats pretty accurate. Not only am I the lead delivery driver, I am the head accountant, and everything I submit to the IRS is true as the ocean is blue.
Ok so, $15K, wow! That's not an insignificant amount of money right? It is almost to the dollar how much debt I am currently carrying at a rate of 25% interest on a couple of business credit cards. Not to mention the SBA loan we took out in 2021, and two other cards I used 0% balance transfers on. Math nerds can go ahead and see what that is costing me annually too, I don't want to know right now, I'll find out in January when I am finalizing the books for 2024 and add up all the interest payments.
So, what can you do? First off, if you are healthy and have the ability to go to your favorite local joint, DO THAT! Give them all your money for the food you love and give a decent tip to the staff! DO NOT uses third party apps for delivery, and for Fucks sake, DO NOT use third party apps for pickup orders. I was so fired up about the 17% delivery fees, I forgot to tell you that they take at least 10% of the pick up orders too. Then maybe do a little self reflecting and see what YOU'VE spent on these convenience apps, pick up the phone and make that order in person.
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