Uber Eats isn’t the problem

COVID-19 has devastated restaurants, who are pointing the finger at food-delivery platforms, but they’re not the problem

Restaurants are angry at food-delivery platforms when they’re running smoothly, but restaurants are also angry when they’re not. The sentiment towards Uber Eats, SkipTheDishes, and DoorDash in the backdrop of a global pandemic seems to be a fine expression of the phrase, “Be damned if you do, and damned if you don’t.”

This past weekend, Uber Eats was experiencing some technical difficulties. Open restaurants were being listed as closed, pushing customers away from their favourite vendors in search of other purveyors of food. One owner of two bakeries said he lost $6,000 to $8,000 as a result. Other restaurants were getting orders and preparing them, but no drivers were showing up to receive the food and deliver it to customers. Leemo Han, an owner of three restaurants, told the Canadian Press, “It was such a waste. At one point, I had to tell my guys, ‘don’t make it.’”

These are good reasons to be angry. Restaurants Canada, a member association representing the foodservice industry, told the press about a month ago that 800,000 jobs in the sector had been lost due to COVID-19, and that one in ten restaurants had permanently closed. After all that, being instructed to prepare food that’s going to end up in the waste bin must feel like being told to deposit your dwindling stockpile of cash into a shredder disguised as an ATM.

Uber Eats ought to be damned if they don’t, which I think they appreciate — although maybe not to the degree they should. The company is apparently compensating restaurants for unfulfilled orders, and giving customers who were affected by the outage a credit worth $25. But is that enough to compensate for all the damage their malfunction did? The owner of the erroneously closed bakery, Craig Pike, told the Canadian Press, “Uber Eats might think that they’re doing the best that they can, but from the outside, it really, really doesn’t feel that way.”

But food-delivery platforms are also damned if they do. Even when these platforms are functioning as intended, they draw the ire of the restaurant industry. The Canadian Press reported the other day that “restaurants struggling to survive during the COVID-19 crisis have turned to takeout and delivery, but the fees charged by food-delivery companies are eating away their bottom line.”

Edmonton-based chef Paul Shufelt posted a video to Instagram about the pandemic-induced plight of the restaurant. He broke down his business’s costs per dollar sold, exposing viewers to the razor-thin profit margins that restaurants already need to creatively defend. Wolf Down, an Ottawa-based, Berlin-style döner shop, recently walked us through a similar exercise. Food-delivery platforms, which take commissions of up to 30 per cent of each sale, can turn a restaurant’s meagre profits into significant losses.

Some restaurants have been fighting back. Shufelt, when he opened up Workshop Eatery, avoided food-delivery platforms altogether by building an in-house delivery capability instead. “How can you help? Actually place a delivery through a restaurant,” he said. Elsewhere in the world, more than 100 restaurants are joining forces to launch their own food-delivery platform.

The restaurants seem to have landed some blows. DoorDash cut its commission fees by 50 per cent until the end of May, which the company said amounts to a $100-million investment on their part. SkipTheDishes, the largest food delivery network in Canada, is offering restaurants a 25 per cent rebate until the end of May. Perhaps the most miserly of the bunch, Uber Eats waived their delivery fees for customers, which should help restaurants’ bottom lines by spreading their fixed costs over more orders.

Are these companies offering relief out of the goodness of their hearts? Maybe, but I doubt it. They have an economic interest in the viability of the restaurants on their platform. Without restaurants, there aren’t going to be any customers placing orders. And without orders, there isn’t going to be any revenue. As CEO of SkipTheDishes, Kevin Edwards, told the Canadian Press, “It certainly doesn’t do Skip any good to have any restaurants struggling.”

The giants of third-party food delivery also have an economic interest in appearing virtuous in the public eye, as all big businesses do. Companies need to defend their brand name and reputation if they want to keep their customers loyal, attract the best talent, and make the best products. Brand names and reputations are among the many intangible assets that companies hold. Intangible assets accounted for less than 20 per cent of the capital held by S&P500 companies long before the digital economy came to life, but now they account for closer to 80 per cent.

For food-delivery platforms, who own neither cars nor food-production infrastructure, intangibles are almost everything. Yet sitting idly by while restaurants wither away does no good for their intangibles. In fact, doing nothing probably paints them as uncaring, hurting their image and decreasing their value. As counterintuitive as it might sound, it can pay off to take a loss.

But should food-delivery platforms take hits to their brand names and reputations for the hardships of the restaurant industry? It’s not their fault that we’re in the middle of a pandemic. Nor is it their fault that, pre-pandemic, some consumers preferred delivery by third-parties to dining in or in-house delivery.

There is no evidence of anti-competitive behaviour by food-delivery platforms taking advantage of their market position — not yet, anyway. Patrons of restaurants are free to choose between Uber Eats, SkipTheDishes, or Door Dash, each of which has a different commission structure, or they can take advantage of any in-house delivery capabilities their favourite restaurants might offer. Indeed, after deciding to leave a “highly saturated” Canadian market, Foodora said they were “faced with strong competition.”

Far from killing them off, food-delivery platforms are actually saving some restaurants from an untimely death. For some restaurants, food-delivery platforms are returning revenues that would have otherwise been completely lost at the hands of this social and economic lockdown.

Other restaurants, however, will not make it. Maybe most restaurants, as we know them today, will not make it. If this pandemic lasts long enough, it’s plausible that restaurants of the future will look little like the ones we used to frequent. As the founder of Wolf Down, Jo Parenteau, wrote in a recent essay, something has to change to keep restaurant margins in the black: food costs, overhead costs, or labour costs need to come down — or some combination of all of them do.

Derek Thompson at The Atlantic interviewed a retail expert about how restaurants could evolve to better manage themselves in a delivery-based world in the midst of global pandemic. It’s not a big menu of options, but it’s not small, either.

Restauranteurs that can weather the storm or have the appetite to give it another shot might try a food truck. Or they might move from the city to the suburbs, focusing on being little more than a for-profit kitchen with no dine-in experience. Or they might move away from prepared foods and focus on getting you inputs and recipes, like Hello Fresh, but with booze to top it off. Thomspon called this a “vision of restaurants as prepared grocers, from whom you might order several finished sides, the bottled ingredients for three cocktails, and a sirloin you’ll sear at home.”

While restaurants and food-delivery platforms wage their war, there are probably innovators lurking, thinking about how they can turn a profit by the new rules this pandemic has imposed upon us. In fact, they were probably lurking before social and economic lockdown turned food-delivery platforms into a necessity. Before COVID-19 was in our lexicon, take-out and delivery were already on the up and expected to account for a majority of the restaurant industry’s growth in 2020.

This trajectory about which restaurants are crying foul isn’t new. It’s only been accelerated. Crisis has a way of condensing years of change into a period of weeks. It’s hard on everyone, which is why we should support our favourite restaurants and the people behind them. But we shouldn’t fear change. Don’t blame food-delivery platforms, in other words, and embrace any solutions to which they’ve been steering us all along.