Business

Can Iowa City's Chomp take a bite out of GrubHub?

Restaurant owners have started food delivery service Chomp as a competitor

A Captain Crunch sushi roll with shrimp tempura, crab, avocado, cucumber, tempura flakes and eel sauce is sliced up at Formosa in Iowa City on Friday, Dec. 15, 2017. (Stephen Mally/The Gazette)
A Captain Crunch sushi roll with shrimp tempura, crab, avocado, cucumber, tempura flakes and eel sauce is sliced up at Formosa in Iowa City on Friday, Dec. 15, 2017. (Stephen Mally/The Gazette)
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A group of Iowa City restaurant owners have joined forces to take on GrubHub for food delivery dominance in the city.

Nineteen owners that run 24 restaurants in the college town launched Chomp in early November as an alternative to GrubHub. Both GrubHub and Chomp are online services that let customers order food from local restaurants and have it delivered directly to them.

Founders of Chomp said they came together after GrubHub acquired the Iowa City food delivery market from OrderUp earlier this year. Once GrubHub did so, Chomp’s founders claim the company also doubled the fees charged to restaurants.

“It was a situation that needed to be addressed because the margins for restaurants just aren’t sufficient enough to absorb the commissions that GrubHub wanted to charge,” said Jon Sewell, the owner of D.P. Dough and a founder of Chomp.

Sewell described Chomp as similar to a cooperative in which the 19 restaurant owners each own a piece of the company.

George Etre, who owns four Iowa City restaurants, said it made sense for owners such as him to “cut out the middleman” and invest the money they’d otherwise spend on fees back into their own restaurants and the community.

“At least with OrderUp they had an Iowa City office. They were at least here. When GrubHub took over, they pulled all that out,” said Etre, whose restaurants include Formosa, El Patron, Takanami and Iowa Chop House.

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GrubHub spokeswoman Katie Norris said the company negotiates its commission rates with each restaurant.

“After a restaurant joins GrubHub, it pays a negotiable commission that is a percentage of each order received on the site,” Norris said in an email. “We only charge for the orders we send to restaurants, and we don’t charge anything for a presence on the site.

“GrubHub doesn’t make any money unless our restaurant partners do.”

Asked if GrubHub has lost market share since the launch of Chomp, Norris said the company does not disclose those numbers. She said the emergence of Chomp has not change GrubHub’s plans for the Iowa City market.

“We’re thrilled to be working with local restaurant partners to service diners in Iowa City and introduce more people to GrubHub,” she said.

Food orders made through delivery service websites or apps, such as GrubHub or Chomp, made up 18 percent of the total food delivery market this year, according to financial planner Morgan Stanley. By 2020, those orders could make up 40 percent of restaurant sales, the company said in a July report.

Sewell and Etre said they couldn’t just drop food deliveries, so that was another reason to start their own delivery service. Since third parties such as GrubHub, Uber Eats and more have started, local restaurants have become increasingly reliant on those delivery sales.

“The days of just opening the doors and relying on people coming in are over. You really have to explore every avenue to get into different markets,” Etre said.

Sewell said about 25 percent of his sales went through GrubHub after it purchased OrderUp.

“It’s not like a restaurant can walk away from that and just say, ‘I’m not going to work with you anymore,’ because they own 25 percent of the book of business, which is a scary position to be in,” he said. “They weren’t interested in negotiating rates.”

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Even though it only has less than two months of business under its belt, Sewell and Etre are excited about Chomp’s progress. About 40 restaurants use the platform, with another 40 lined up to start, Sewell said.

“I have no doubt that we will not just compete, but I think we will be the major player in the market within probably three to four months,” he said.

l Comments: (319) 398-8366; matthew.patane@thegazette.com

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