Shauna Burns, who works for advertising company Pedal Power, rides a bike and displays an advertisement for the Chomp delivery service in downtown Cedar Rapids on Wednesday. Chomp was created by independent restaurateurs who came together to invest in their own food delivery service. (Rebecca F. Miller / The Gazette)
As it did for too many other institutions to count, the pandemic was life changing as restaurants knew it.
Things once acquired – enough workers for office hours, a reliable supply chain to bring in food, and a stable price for goods ordered – have now moved to the ‘taken for granted’ column.
As many restaurants try to successfully break out of the grip of the pandemic – avoiding the fate of about 750 Iowa who did not survive 2020 – the third-party delivery service is just one something more in their minds.
“In good times, you’re happy with an average net profit of 5%,” said Jessica Dunker, president and CEO of the Iowa Restaurant Association. But for the industry it still likes to call “the oldest profession in the world,” the past 18 months have not been good.
“This is the most difficult time in restaurant history,” she said.
As some restaurants grapple with the new realities, a trend cemented by the pandemic is third-party food delivery service. But with commissions and fees of up to 30% for national delivery services based in Silicon Valley and Chicago, many restaurants’ money comes out with every pickup.
“Restaurant delivery services are now an essential infrastructure for any food market. “
“As an industry, COVID has accelerated consumers’ desire for (third-party delivery), but has not accelerated our ability to respond to it,” Dunker said.
In a chain of events, a shortage of employees has resulted in reduced hours and closed dining rooms, further discouraging on-site dining, even for those who don’t want delivery or delivery. One in four restaurants is closed one more day a week and 40% are unsure whether they will ever put all their tables in the dining room, according to data from the association. Yet for many, the tenuous relationship they have with most delivery services is a losing situation as well.
“I feel like (national services) are trying to solve this problem, but I haven’t seen a model where everyone wins,” Dunker said. “No one is winning at the moment. We all just have to come to the table.
Dependence on delivery services
But in the Corridor, restaurants that now depend on delivery services to support pandemic habits that are becoming permanent have a local alternative that has alleviated many of the complaints restaurants have had with services like DoorDash, Grubhub and Uber Eats.
After Grubhub acquired OrderUp in 2017 – then the only delivery service for Iowa City residents – a group of independent restaurateurs came together to invest in their own service, rather than sending high commission rates to a company without a presence in the state.
“Our Friday evening 2019 has become our Tuesday 2021.”
The main complaints from local restaurants about Grubhub were the high fees, using the restaurant’s menus, and selling their food without the restaurant’s permission. When customers buy food through a third-party app, they are buying from the app, not from the restaurant. The app’s delivery driver in turn buys the food at the restaurant and delivers it.
No direct transaction between a restaurant and an unsuspecting customer can be problematic when things go wrong – and a lot can go wrong along the way, said Adam Weeks, co-founder and managing member of Chomp.
“Where the industry has hurt restaurants the most is failing to properly represent this restaurant’s hard earned brand over the years,” he said. “We take this very seriously. “
In addition to mitigating what restaurants said was a doubling of Grubhub commission fees in 2018, Chomp’s proactive customer service has been the prized gem of the local co-op. The local app also doesn’t rely as much on algorithms and artificial intelligence to send its 120 pilots as other apps, paying more proactive attention to day-to-day transactions.
“Grubhub’s rate hike was the catalyst that started it all,” said Josh Silver, owner of Nodo Downtown in Iowa City, a founding member of the restaurant and currently Chomp’s biggest customer in terms of order volume.
“It was almost a crisis for restaurants as they had become dependent on these delivery volumes,” said Jon Sewell, co-founder and co-owner of Chomp. When Chomp was founded, Grubhub was its only competitor.
As in other restaurants, offering a delivery service was not much of a choice for Silver. The only reasonable choice was which service to use. Chomp’s commission fee, a competitive 20% rate charged to participating restaurants, is also free of marketing costs – and that 10% makes a difference with very slim profit margins, Silver said.
Grubhub spokeswoman Jenna DeMarco said that Grubhub now offers several options for restaurants, including commission-free platforms with varied services and negotiable marketing fees.
“We’re committed to helping local restaurants in Iowa and across the country manage costs and grow their businesses,” she said.
While some restaurants were concerned about paying for a service to take business out of their establishment three years ago, Weeks said restaurants have adjusted to take-out and delivery which now accounts for a substantial part, if not the majority. of their activity, in some cases. The Iowa Restaurant Association estimated that even before the pandemic, only 37% of food prepared in restaurants was consumed there.
With the way things are going, Dunker said, ghost or cloud kitchens designed to cook food only for delivery, with no dining room, will be a bigger part of the future restaurant scene.
“This is an opportunity to get a bigger share and another check from this client in a week,” Weeks said. “Even when restaurants are open, a lot of people don’t want to eat out unless they have to.”
Chomp takes a bite out of the market
Chomp’s new baseline illustrates this long-term trend.
“Our Friday night 2019 has become our Tuesday 2021,” Weeks said of the order volume patterns at Chomp – and restaurants are processing delivery orders accordingly.
In early 2018, Sewell said that 35 restaurants in Chomp were competing with more than 130 offered by Grubhub. At the end of 2018, he said over 140 restaurants were using Chomp and over 60 were using Grubhub in the hallway – a story of David and Goliath from a local co-op taking over a big tech company.
Grubhub claims it grew almost 50% in Iowa City in 2018, although it declined to offer specific numbers to The Gazette for comparison.
Sewell and Weeks said the growth couldn’t have happened without community buy-in and an invested relationship with restaurants.
“At first, restaurants had loyal fans and not Chomp,” Weeks said. “Now restaurants treat delivery orders as if they were very important. “
Infrastructures of the future
Sewell, who has gone on to help establish local co-ops in other states, takes his thinking about the future of delivery apps a step further.
“Restaurant delivery services are now an essential infrastructure for any food market,” he said.
But with some of the more prevalent services not being local and extracting more than restaurants can afford, he said some are a “necessary evil.” As Chomp plans to expand to other cities, its brand differentiation can be a hurdle to overcome.
Dunker said models like Chomp’s could be a solution for future restaurants with large deliveries, with a local, relationship-driven focus and independent management based in the communities they serve.
“I think (the role of Chomp) will remain important. This pandemic… doesn’t seem to be going away as fast as everyone wants it to be, ”said Silver, with 25-50% of current orders being placed for delivery. “Chomp will definitely be part of our future, the way I see it.”
Eyeing new legislation
Fresh out of the Iowa Restaurant Association’s board meeting in September, Dunker said seeking legislative reform on third-party delivery is one of the association’s top priorities. Among these priorities, it seeks to include in the law requirements prohibiting:
• Third-party delivery services represent restaurants or use their menu and logo without permission.
• Minors, pets or smoking in a car while the driver is transporting food.
“We believe a start is a contractual relationship so that they don’t have predatory practices,” Dunker said, noting similar legislation in other states. The association will not pursue a limit on commission charges.
Shauna Burns, who works for advertising company Pedal Power, rides a bike and displays an advertisement for the Chomp delivery service in downtown Cedar Rapids on Wednesday. Chomp was created by independent restaurateurs who came together to invest in their own food delivery service. (Rebecca F. Miller / The Gazette
Chomp delivery driver Saad Shayg picks up an order Thursday at Nodo Downtown in Iowa City. The downtown restaurant was one of the first members of Chomp. (Rebecca F. Miller / The Gazette)
Nodo Downtown owner Josh Silver places an order for Chomp on Thursday at restaurant Iowa City. The company was an early member of Chomp and is now its biggest customer in terms of order volume. (Rebecca F. Miller / The Gazette)
Owner Josh Silver places an order for Chomp on Thursday at his Nodo Downtown restaurant in Iowa City. “Grubhub’s rate hike was the catalyst that started it all,” Silver said in an interview, referring to the creation of Chomp. (Rebecca F. Miller / The Gazette)
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