116 3rd St SE
Cedar Rapids, Iowa 52401
Like it did for too many other institutions to count, the pandemic changed life as restaurants knew it.
Things once a given — enough workers to staff business hours, a reliable supply chain to bring in food and a stable price for the goods that were ordered — now have moved to the “taken for granted” column.
As many restaurants try to emerge successfully from the pandemic’s grip — avoiding the fate of roughly 750 in Iowa that did not make it through 2020 — third-party delivery service is just one more thing on their minds.
“In good times, you’re happy with a 5 percent (average net) profit,” said Jessica Dunker, president and chief executive officer of the Iowa Restaurant Association. But for the industry she always likes to refer to as “the world’s oldest profession,” the last 18 months have not been kind.
“This is the most difficult time in the history of restaurants,” she said.
As some restaurants struggle with the new realities, one trend cemented by the pandemic is third-party food delivery service. But with commission charges and fees as high as 30 percent from national delivery services based in Silicon Valley and Chicago, money for many restaurants walks out the door with each such pickup.
“Restaurant delivery services are now a critical infrastructure for any food market.”
“As an industry, COVID accelerated the consumer desire for (third-party delivery), but did not accelerate our ability to respond to it,” Dunker said.
In a chain of events, an employee shortage has led to reduced hours and closed dining rooms, further discouraging dine-in even for those who don’t want delivery or carryout. One in four restaurants are closed an extra day per week and 40 percent aren’t sure if they’ll ever put all their tables back in the dining room, according to the association’s data. Yet for many, the tenuous relationship they have with most delivery services is a losing situation, too.
“I feel like (national services) are trying to address this, but I haven’t seen a model where everyone wins,” Dunker said. “Nobody’s winning right now. We just all need to come to the table.”
Reliance on delivery services
But in the Corridor, restaurants now reliant on delivery services to support pandemic habits that are becoming permanent have a locally-owned 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 residents in Iowa City — a group of independent restaurant owners banded together to invest in their own service, rather than sending high commission rates to a company with no vested presence in the state.
“Our 2019 Friday night has become our 2021 Tuesday.”
Chief among the local restaurant complaints about Grubhub were high fees and use of restaurant menus and sale of their food without the restaurant’s permission. When customers purchase food over a third-party app, they’re purchasing from the app, not the restaurant. The app’s delivery driver in turn purchases the food from the restaurant and delivers it.
No direct transaction between an unsuspecting restaurant and customer can spell trouble 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 not being a proper representation of that restaurant’s hard-earned brand over the years,” he said. “We take that very seriously.”
In addition to alleviating what restaurants said was a doubling of Grubhub commission fees in 2018, Chomp’s proactive customer service has been the local co-op’s prized jewel. The local app also does not rely as heavily on algorithms and artificial intelligence to dispatch its 120 drivers as do other apps, giving more proactive attention to day-to-day transactions.
“Grubhub’s rate increase was the catalyst that launched everything in motion,” said Josh Silver, owner of Nodo Downtown in Iowa City, a founding restaurant member and currently Chomp’s largest customer by order volume.
“It was almost a crisis for restaurants because they had become reliant on those delivery volumes,” said Jon Sewell, co-founder and part owner of Chomp. When Chomp was founded, Grubhub was its only competitor.
Like at other restaurants, offering delivery service wasn’t much of a choice for Silver. The only reasonable choice was which service to use. Chomp’s commission fee, a competitive 20 percent charged to participating restaurants, also comes without marketing fees — and that 10 percent makes a difference with razor-thin profit margins, Silver said.
Grubhub spokeswoman Jenna DeMarco said Grubhub now has multiple options for restaurants, including commission-free platforms with varying 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.
Though some restaurants were concerned about paying a service to take business out of their establishment three years ago, Weeks said restaurants have adapted to carryout and delivery now being a substantial part or even a majority of their business, in some cases. The Iowa Restaurant Association estimated that even before the pandemic, only 37 percent of food made in restaurants was eaten in them.
With the way things are moving, Dunker said, ghost or cloud kitchens designed to cook food for delivery only, without a dining room, will be a bigger part of the future restaurant scene.
“This is an opportunity to get a larger share and another check from that customer in a week’s time,” Weeks said. “Even when restaurants are open, a lot of people don’t want to go to a restaurant unless they have to.”
Chomp takes a bite out of the market
Illustrating that long-term trend is Chomp’s new baseline.
“Our 2019 Friday night has become our 2021 Tuesday,” Weeks said of the order volume patterns at Chomp — and restaurants treat delivery orders accordingly.
At the beginning of 2018, Sewell said 35 restaurants on Chomp competed against over 130 offered by Grubhub. By the end of 2018, he said over 140 restaurants were using Chomp and over 60 were using Grubhub in the Corridor — a David and Goliath story of a local co-op taking on a big tech company.
Grubhub contends it grew nearly 50 percent in Iowa City in 2018, though it declined to offer The Gazette specific numbers for comparison.
Sewell and Weeks said that growth could not have happened without community buy-in and an invested relationship with restaurants.
“Early on, restaurants had loyal fans and Chomp didn’t,” Weeks said. “Now, restaurants treat delivery orders like they’re super important.”
Infrastructure for the future
Sewell, who has gone on to help establish local co-ops in other states, goes a step further in thinking about the future of delivery apps.
“Restaurant delivery services are now a critical infrastructure for any food market,” he said.
But with some of the most prevalent services not locally based and extracting more than restaurants can afford, he said some are a “necessary evil.” As Chomp eyes plans to expand to other cities, differentiating its brand may be one barrier to overcome.
Dunker said models like Chomp’s could be a solution for the delivery-heavy future restaurants will depend on, with local, relationship-oriented focus and independent management based in the communities they serve.
“I think (Chomp’s role) will stay significant. This pandemic … doesn’t seem to be going away as fast as everyone wants it to,” Silver said, with 25 to 50 percent of current orders being placed for delivery. “Chomp will definitely be a part of our future, the way I see it.”
Eyeing new legislation
Fresh out of the Iowa Restaurant Association’s Sept. board meeting, Dunker said seeking legislative reform on third-party delivery is one of the association’s top priorities. Among those priorities, it seeks to put into law requirements that prohibit:
• Third-party delivery services from representing restaurants or using their menu and logo without permission.
• Minors, animals or smoking in a car while food is being transported by the driver.
“We think a start is a contractual relationship so they’re not having predatory practices,” Dunker said, noting similar legislation in other states. The association will not pursue a limit on commission fees.
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