Practically everyone understands by now how badly the coronavirus pandemic has devastated the restaurant industry. If you visit many states, you will find numerous dine-in establishments locked up, although the country is finally reopening.
Even the restaurants that have opened are forced to stick to strict social distancing regulations, which keeps many tables empty.
It is not just restaurants that have suffered the brunt of this vicious pandemic. Food trucks have also witnessed steady declines in customer numbers as people are urged to stay at home.
These conditions have forced many restaurants to rethink their business strategies, which is why a growing number of them are offering food deliveries through apps like GrubHub and UberEats.
Granted, these are amazing tools that can help struggling restaurants survive these tough times.
The problem is that these apps are increasingly drawing criticism over the excessive amounts of commission they are charging in an industry where many restaurants are struggling to break even.
Giuseppe Badalamenti is the owner of Chicago Pizza Boss, a food truck. He operates from Westmont, Illinois. Recently, he shed light on just how much GrubHub is taking from a restaurant he is consulting for on Facebook.
Restaurant Made $1,000, But Most Of It Went To GrubHub
According to a statement he shared, the restaurant made a little over $1,000 in sales but had to give up most of that amount and ended up with just $376.54.
GrubHub explains in its documentation that a 20% commission on all orders made through the app will be deducted to cover marketing costs. In our example above, that resulted in a deduction of $206.51.
After that comes a 10% deduction to cover delivery, which led to the $94.99 deduction. Restaurants can avoid this cost if they use their drivers.
GrubHub also took $38.52 in processing fees. This expense consists of 3.05% and $0.30 per transaction.
The restaurant also had to pay an additional $231 for promotions, and restaurant owners have to get into these app-wide operations.
GrubHub was also recently criticized for giving customers a $10 discount on orders of at least $30. This cost was borne by the restaurateurs that opted in.
As if that was not bad enough, GrubHub charged a commission on the order's total cost before the discount was deducted. After the widespread criticism, the company offered to cover the discount cost for the first 25 diners at each restaurant.
As you can see on the bill, GrubHub also charged $131.19 for "order adjustments." This cost is incurred when an item is reduced from the order for one reason or another; for instance, when a customer complains.
No wonder Badalamenti captioned beside the post:
"Stop believing you are supporting your community by ordering from a 3rd party delivery company."
He went on to say:
"Out of almost $1,000 of orders, the restaurant you are trying to support receives not even $400… It is almost enough to pay for the food."
In other words, that amount does not cover related expenses such as the cost of preparing the food, let alone the cost of the food itself.
Badalamenti posted the receipt out of frustration. He felt that what GrubHub was doing was "so outrageous," which is why practically every independent operator out there is frustrated.
Unsurprisingly, GrubHub does not see a problem here. A statement to the media said that restaurant owners choose and pick the services they want to pay for, and GrubHub helps generate sales. According to the company, the partnership helps restaurant partners manage costs and grow their businesses.
GrubHub went on to explain that restaurateurs opt into promotions, which is the single largest expense for the restaurant Badalamenti featured. According to the company, this is purely a marketing expense.
Badalamenti Is Not The First Person To Notice This Problem
After Badalamenti posted this receipt, it got 2,000 shares and more than 120 comments on Facebook.
A journalist also shared it on Twitter. She had earlier tried to demonstrate how delivery apps were making a killing from struggling restaurant businesses.
A restaurant owner had told the journalist that:
"These sites live off of restaurants. They need us to survive. But I don't feel like they've been especially supportive of the industry. They're not proving to be good partners right now."
The owner also claimed that this was a very short-sighted outlook that will force people to do away with these sites as soon as things get back to normal.
According to another restaurant owner, the most successful operations are getting a margin of just 6%. The more people order through these apps, the more money these businesses lose because they have to part with over 30% of their margins.
GrubHub revealed that the number of restaurants signing up to use its services has grown by about 10 to 15 times. In some cases, the company has deferred commissions for some restaurants, albeit temporarily. However, these costs will not be waived or reduced.
The company explains that all it is doing is trying to help independent restaurants "keep their doors open."
Still, a lot of social media users were shocked at how much of their money goes to delivery companies. Most people wrongly assume that most of the money they pay for meals goes to the restaurants they are buying food from.
Many People Unhappy With GrubHub And Similar Delivery Services
According to one user, it is time people got smarter and started ordering directly from the restaurants. Unfortunately, some restaurants are encouraging their customers to use delivery apps, which is effectively an act of self-sabotage.
Another Twitter user explained that the solution was ensuring that each restaurant had an online ordering system on their websites because GrubHub and DoorDash take advantage of such establishments. These apps wouldn't have the audacity to charge such high commissions for their services with such features in place.
Already, some people are aware of this problem and trying to do something about it. A user said it was why they drove themselves to pick up their own pizza to avoid this "scam."
Still, there were some users who felt that the costs might be justified because these restaurants were outsourcing their online ordering, sales tax administration, advertising/promotions, and deliveries, all of which cost money.
Whatever you think of this debate, it is pretty clear that getting your order directly from the restaurant is way better than ordering meals through delivery apps.