Delivery, some restaurateurs say, 'it's a parasitic relationship.'

Updated: May 15, 2019

'They start with a fingernail and end with an arm': says Robert Galati, who owns Sydney-based Italian restaurant Fratelli & Co and Thai restaurant Baywok

Another delivery going out, but are the profits going too?

He's not alone! Dinette in East Liberty, Pitsburgh, USA, may specialize in gourmet pizza. But don’t try to find the menu on a delivery app such as DoorDash, Postmates, Grubhub or Uber Eats. 

Unlike an increasing number of casual restaurant owners in Pittsburgh, Sonja Finn is fending off food-delivery companies because they undercut the very reason she opened Dinette.

“I enjoy cooking and hosting and entertaining, and I hired people who enjoy that, too,” she said. “Delivery apps are taking that away from us.”

Dinette is going against the grain: Third-party food delivery services are on the rise in Pittsburgh, with more people than ever ordering burgers, General Tso’s chicken, wings, waffle fries and even a single milkshake delivered to their door. Third-party delivery is changing the local restaurant landscape, especially for the city’s casual dining spots, but not always for the better.

In restaurant metrics, 25 percent to 28 percent of restaurant expenses go to food costs; labour accounts for about 30 percent, fixed costs like rent and dry goods clock in at around 30 percent; which leaves 10 percent to 12 percent net.

Adding between 25 and 30 percent of the cost of each order is a round meal in a square dish and something has to give.

Even the major brands are undecided, with nearly half of all McDonald’s restaurant franchisees in the U.S. saying that they were not satisfied with the economics of delivery as it stands. “We are in business to make money but it seems like everyone is making money off of us except us,” one owner commented in the survey results.

In response to this challenge there is innovation within the industry. One innovation has been to the rise of the gig economy where new relationships and structures have driven efficiencies but IBISWorld senior industry analyst, Andrew Ledovskikh, said concerns over remuneration and conditions for third-party delivery drivers and riders are an issue.

“This contractor (FOODORA) status is vital to third-party operators, as it keeps costs down," Mr Ledovskikh said. "It means these companies do not need to provide award wages, superannuation or benefits such as long service leave. Without the ability to employ these drivers as contractors, many third-party delivery operators would see their business model become unprofitable."

Another innovation is the introduction of 'dark kitchens', so called because of their location - invariably on an industrial estate or back street.

What a Michelin star restaurant looks like in 2019

A tatty car park under a railway line is squeezed between a busy road, an industrial site and a semi-derelict pub covered in graffiti. It’s one of the grittiest parts of east London and probably the last place you would imagine some of the trendiest eateries in the country to be preparing meals.

But the grimy spot is just a short moped ride from the gleaming office towers of Canary Wharf and upmarket docklands apartments, and is therefore the perfect location for the latest idea from Deliveroo, the UK food courier service. It is setting up dozens of “dark kitchens” in prefabricated structures for restaurants that want to expand their businesses without opening expensive high street premises.

Ten metal boxes of a similar size to a shipping container are on this site in Blackwall. They are fitted with industrial kitchen equipment, and two or three chefs and kitchen porters are at work in each, preparing food for restaurants including the Thai chain Busaba Eathai, the US-style MeatLiquor diners, the Franco Manca pizza parlours and Motu, an Indian food specialist set up by the family behind Mayfair’s Michelin-starred Gymkhana.

When it comes to third-party delivery the sea-changes within the industry are having a profound effect! But Ms. Finn at Dinette does not see herself changing her mind. Third-party food delivery “is not user-friendly for restaurants,” she said. Of the companies, “they’ve asked us to give what they’ve promised their customers,” she said. “And we can’t make that happen because we haven’t set up the model.”

So while delivery might pull in a few more dollars profit, “we can’t control the food, the quality, and the time it takes to get there,” she said. “So when things don’t go well, it reflects badly on the restaurateur.”

She also believes that delivery apps have created a “parasitic relationship” with restaurants.

“They’re feeding off me to make their money, but I created the main thing,” she said.

“We are using these apps because we have these phones,” she said. “But what actually makes life pleasurable is interacting with other people.”

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