How will Delivery Apps Uber Eats, Grubhub, and Postmates Mergers Affect Restaurants?
The COVID-19 pandemic has forced restaurants, bars, and taprooms to rely on third-party delivery platforms such as UberEats, Postmates, Grubhub, and market leader DoorDash to keep their businesses afloat. With the increased reliance on these online platforms, scrutiny has come from both businesses and lawmakers over the complex and arguably predatory commission rates that can sometimes take up to 40% from a restaurant order.
But the secret is that despite these sky-high commissions, many delivery companies still do not turn a profit. The UberEats division of Uber has grown more than 50% since the pandemic started but is still yet to be profitable.
Market reports indicate that so far the only food delivery platform that has turned a profit is Meituan Dianping, a delivery platform in China.
“Like ridesharing, the food delivery industry will need consolidation in order to reach its full potential for consumers and restaurants,” an Uber spokesperson told CNBC.
One of the primary reasons the delivery industry needs consolidation is because most consumers are not loyal to any one platform. Every platform has seen a decline in exclusive users over the course of the past two years. Restaurant partnerships that have exclusive access on platforms have incentivized users to use multiple apps rather than form an exclusive attachment to one platform.
Other delivery apps likely see the value in consolidating the delivery space as mergers and acquisitions in the delivery space has become the norm in recent years.
Grubhub owns Eat24, Seamless, and MenuPages. Caviar was acquired by DoorDash in 2019 creating the current market leader in the US. There have been rumors for months that Uber Eats and Grubhub are working on a merger deal that would make them the largest delivery service in the US by market share.
In a surprise announcement, Uber Eats revealed that they would acquire Postmates and not Grubhub as rumors suggested. The acquisition would result in the second largest delivery platform behind DoorDash. Grubhub announced soon after that they would be merging with European company Just Eat Takeaway. Just Eat Takeaway is also the result of a recent merger between the UK food delivery platform Just Eat and Dutch company Takeaway.com.
The Just Eat Takeaway and Grubhub merger will not change the US market share much but will instead create the largest global delivery platform.
It is suspected that Uber Eats did not merge with Grubhub due to feat it would draw regulatory and anti-trust attention. Grubhub’s merger will likely draw some anti-trust attention but as the effect on the US market is still unclear, the deal is expected to go through without much issue.
Effects on Restaurants
What do all the shuffling, mergers, and acquisitions have to do with restaurants?
Restaurants already have a tenuous relationship with these delivery platforms. There are multiple reports where Grubhub has listed restaurants that are not their platform as “not accepting online orders” or “closed” in an attempt to redirect traffic to other restaurants on their platform. Caviar has also been accused of similar actions where restaurants are listed on their platform as “only on Caviar” which is often false.
Restaurants have also reported that platforms like Grubhub will frequently cancel orders but still charge the restaurant fees associated with the order.
The friction comes from the fact that restaurants operate on thin margins. Roughly 90% of revenue for a typical restaurant is spent on fixed costs like food, labor, and rent. Delivery platforms charge commission fees on average 20%-30% per order but can be as high as 40%.
To appease restaurants, delivery apps claim they are working with restaurant owners to bring down the commission fees. Matt Maloney, Grubhub’s chief executive, promised at a news conference in March with the mayor of Chicago, Lori Lightfoot, to contribute $100 million to reducing fees for local restaurants. Restaurants have pushed back saying fees are simply being deferred and must be paid back eventually.
There is universal pushback from smaller independent restaurants against delivery platforms that favor larger chains by giving them more favorable rates due to the volume that larger businesses can bring. Larger chains are also given more favorable placement in the apps for better visibility and discoverability forcing smaller restaurants to pay additional fees to bolster their placement.
Mergers that eliminate competition simply result in less favorable choices for restaurants. Where a restaurant might object and instead switch to a rival platform, the dwindling choices force businesses to choose the slowest death for their business.
How Restaurants Can Thrive Without Delivery Apps
Restaurants are forced to rely on third-party delivery apps because they simply do not have the funds or expertise to build out a fully functional system to allow customers to order online. But some services are already building out systems to help out restaurants.
Companies, like Point of Sale companies, are beginning to build out their software support to allow seamless integration of online ordering systems to their existing systems completely cutting out third-party apps and their commission fees.
Customizable templates make it easy to create fully-functional menus that customers can order online with that are tied directly to the restaurant. These online ordering platforms often have integration with Google and other search engines and mapping apps for easy discoverability.
The savings these restaurants see can easily pay for additional workers. Restaurants are also employing their own delivery people, providing much-needed jobs with stability and benefits, something gig economy companies still struggle with.
Advanced technology enables restaurants, no matter how small they are, to take back their profits and autonomy. Those that made the switch say they finally feel like they’re working for themselves again and not for another company.
