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3News Investigates: Restaurants missing out on profits from delivery order apps

Spending at restaurants in recent weeks has dropped about 35% from this time last year, while revenue for the delivery apps has grown about 140%.

CLEVELAND — In these pandemic days, our daily lives are different. From how we do our jobs, to how we get our groceries.

When it comes to restaurants, more of us are tapping into apps such as GrubHub and DoorDash. And while it's convenient for us, we're finding that these delivery services are eating away at the profits of local restaurants.

When Carl Moore opened up his pizza shop six months ago, he expected a challenge. He did not expect a pandemic.

"My pizza shop goes week by week," Moore told 3News. "If I don't make the sales for that week, the next week, I might not open."

After the coronavirus shut down dining rooms across the country, restaurant owners quickly began relying on delivery and pick-up orders as their main source of income. 

Moore signed up for GrubHub, UberEats, and DoorDash.

"It does help you get your menu out there. And people do see that," he says.

However, partnering with these delivery services comes with a hefty price tag. Moore showed 3News Investigator Rachel Polanksy a GrubHub statement for a week in March. 

5 orders, $160 worth of food. But after all of the fees, Moorer walked away with $97. And that's not $97 worth of profit. 

For a typical restaurant, fixed costs like food, labor, and overhead eat up about 90% of the money coming in. Once all expenses are paid, restaurants are typically left with a 2-6% net profit. That leaves little room for the fees that the delivery apps are charging, which is generally 20-30% of what customers pay for each order. 

"Our little business here, we can't sustain that," Moore says. 

Restaurant owners aren't the only ones being shortchanged by delivery apps. Many delivery drivers, who have worked through the pandemic, are not considered employees.

"There is a major risk out there," says driver Ryan Isley.

Drivers like Ryan are independent contractors, which means they are ineligible for health insurance, paid sick leave, and other protections. That leaves drivers largely dependent on tips for income. 

"Especially recently. At least 60 to 70 percent of my actual pay comes from tips," Ryan tells us. "If people aren't tipping, we aren't making money."

That's a reality no worker wants to face.

The imbalance between the success of the apps and the demise of the restaurants is staggering. 

A research firm tells 3News that spending at restaurants in recent weeks has dropped about 35% from this time last year, while revenue for the delivery apps has grown about 140%.

Both GrubHub and DoorDash say they offer flexible plans to meet the needs of small restaurants. Meanwhile, there's a new app on the market called ChowNow that offers restaurants commission-free orders. Click here to find out more.

We received the following statements from GrubHub and DoorDash in response to our story.

From a GrubHub spokesperson: 

“We know these are tough times for independent restaurants, and we’re happy to work with restaurant partners to help them manage costs and grow their business. Our mission since we were founded in 2004 has been to connect hungry diners with great, local restaurants. Restaurant owners select the services they want and only pay us when we help generate sales. 

Our platform is free for any restaurant owner who wants to join since we have a fee-for-service model. If a restaurant wants us to deliver on their behalf, there is a 10 percent fee to provide this service that is used to pay the driver and cover the logistics of Grubhub’s drivers transporting the food from the restaurant to the diner. This is optional; a restaurant can choose to perform its own delivery. But the costs associated with delivery are not optional. For instance, it costs money to coordinate drivers, perform driver background checks, and create/update delivery technology. 

We also allow restaurants to market themselves on the platform and each restaurant owner determines the right level of marketing for his or her business. The average marketing fee is around 10-15 percent, and restaurants can choose to spend more if they believe it will drive more orders to them. Additionally, there is an ordering processing fee of 3.05% + $0.30 on each order received on our platform to cover credit card processing, fraud protection, undeliverable orders, customer care inquiries and other support requests we handle on behalf of the restaurant.

We're committed to helping restaurants, drivers and diners through this challenging time, and we created the Grubhub Community Relief Fund to provide financial relief for our restaurants and drivers. With this fund, all contributions through our Donate the Change program – amounting to more than $1 million per month on average – go to charitable organizations that support restaurants and drivers. The organizations we are donating to can be found here. 

Additionally, as soon as the pandemic began impacting restaurant operations more than two months ago, we offered a temporary marketing fee deferral that eligible restaurants could choose to enjoy for immediate cash flow relief.”

A DoorDash spokeperson added the following:

“We know that every restaurant is unique, which is why we offer each restaurant a number of ways in which we can support them. Some restaurants already have their own delivery drivers, but are looking to reach a much larger customer base to increase sales. Others may want to offer customers delivery as an option, but have found that it’s cost-prohibitive and logistically difficult for them to do on their own. For all of these restaurants, DoorDash works to offer solutions to address their needs, whether it’s technology, marketing, delivery logistics—or all three. The business agreements we have with each restaurant are based on those needs and the costs associated with providing these services, which are more vital than ever."

"DoorDash knows that doing our part during this unprecedented time is vital, which is why we provided a robust package of an estimated $120 million in commission relief and marketing investments nationwide during the height of the economic shutdown—including cutting commissions in half for more than 150,000 restaurants throughout the United States, Canada and Australia (including over 400 restaurants in Cleveland) —to help give local restaurants the additional revenue they need to survive.

In late May we launched a new initiative, Main Street Strong, which is a series of products, programs, and policies to help restaurants get back on their feet and navigate the next phase of Covid-19 by giving them choice and flexibility to reach their customers online. This includes the launch of DoorDash Storefront, which gives restaurants of any size the ability to create their own website for online ordering at the touch of a button. Restaurants won’t pay a commission, and in fact independent restaurants won’t pay any fees at all for the rest of the year."

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