As big delivery services eat up restaurant profits, upstarts try different recipes

Ordering a meal at the press of a button is convenient for customers, but behind-the-scenes deals with the delivery giants that made on-demand food popular are running some independently owned restaurants out of business, Vincent Son said.

“We’re not making a dime,” said Son, owner of China Feast. The Chinese restaurant in Kansas City’s River Market uses five different third-party food delivery companies, including Uber Eats, to reach customers.

Restaurants tend to have thin profit margins that often fall below 5%. Topping that with a 30% commission fee to companies like Grubhub and Uber Eats on every delivery order eats up all profits, Son said.

Grubhub and Uber Eats did not reply to request for comment on this story as of publication time.

The online food delivery industry in the U.S. amassed about $20 billion in revenue with about 105 million users as of 2019, according to data firm Statista.

“We moved to Uber Eats only because we wanted to be where our competition is, but it is turning out to be a headache now,” Son said.

Son bought into the services of food delivery giants two years ago, later realizing his restaurant’s listing details typically are buried at the bottom of the third-party websites, he said.

Spending time and money to package meals going out the door also is a hassle with no payback, Son added.

“We have to prioritize online orders over dine-in orders because we want to make sure the delivery driver gets enough time,” he said.

A native negotiator

“You’re basically turning your hamster on a wheel — but you’re not going anywhere, right? Every order they make, they’re not making money,” said Ashishh Desai, sales director at Overland Park, Kansas-based Menufy.

In 2009, Desai, Hoang Nguyen and Shawn Lee were working at an Asian eatery, Stix Restaurant in Kansas City, Kansas, when they noticed setbacks in the logistics of the ordering process. They saw a need for creating an e-commerce solution so customers could directly order from the restaurant’s branded website.

Duplicating that idea for other restaurants that were struggling to compete on the web marked the beginning of Menufy, Desai said.

“We partner with third-party delivery companies and negotiate on behalf of restaurants so that (restaurant owners) have to pay lower delivery fees,” he said.

“We also make it affordable for restaurants to do anything digitally, so we actually develop websites for restaurants.”

Menufy, which operates in 1,700 cities across the country, has partnered with DoorDash to reduce the delivery commission down from 30% per order to about 12% for its customers, Desai said. The startup also charges restaurants a convenience fee of $1.50 per order.

“Our fee remains the same whether a customer orders $20 or $100 worth of food,” said Jeremy Kuo, marketing director at Menufy. “We also let restaurateurs choose between absorbing the cost or passing it onto their customers.”

Menufy has a symbiotic relationship with restaurants, Desai said. The company’s profit depends on how many orders the restaurants get.

Josh Rogers opened his restaurant, Krokstrom Scandanavian Comfort Food in Midtown Kansas City, three and a half years ago. Rogers said he used Postmates for six months before switching to Menufy because of its lower commission fees and better customer service.

“A lot of us local restaurant owners see online delivery as a necessary evil; it is what it is, and the customers want it,” Rogers said.

Duopolizing the market

Attracted by the benefits of a location in the Midwest with a diverse food culture, ChowNow, a Los Angeles-based food delivery startup, recently decided to open an office in Kansas City. The company has a similar goal to Menufy: offer local restaurants a sustainable online presence — but with a different business model.

“We fell in love with Kansas City; the city government was supportive, there are universities nearby, there are at least a million people living in the city,” said Chris Webb, CEO and co-founder of ChowNow. “We were convinced Kansas City would be a good home for us.”

It took an investor’s eye to realize that local restaurants were suffering because they weren’t yet adept with technology, said Webb, who invested in his favorite local restaurant in Los Angeles 13 years ago.

“We want to get restaurants to have their own tools so that they don’t fall behind franchise restaurants just because they have a tight budget,” said Webb, who worked as a delivery driver for a restaurant in high school.

ChowNow, which was founded in 2011, provides online exposure for local restaurants through customized mobile applications and partnerships with Google, Yelp and Instagram. Unlike Menufy, ChowNow charges restaurants a flat fee between $99 and $150 per month.

“We think the flat monthly fee is very similar to the telephone, right?” Webb said. “So for decades, restaurants would get orders directly off the telephone. The telephone company would never charge anything on a per-order basis.”

Restaurants are now seeing food delivery systems as a marketing tool, not as a source of revenue, said Jeff Brack, general manager of the Classic Cup, a cafe in Kansas City’s Country Club Plaza district.

“We can kill out the business pretty quickly if we just operate on Uber Eats — the margins aren’t good enough, you need to completely revamp your business and pricing accordingly to take those service fees into account,” Brack said.


This story was produced through a collaboration between Missouri Business Alert and Startland News.

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