Is food delivery ruining restaurants? - Cincinnati.com

Polly Campbell Cincinnati Enquirer

Published 9:51 PM EST Dec 19, 2019

The seamless, maximum-convenience life has come to dining and quickly made itself at home. Delivery apps like Uber Eats, DoorDash, Grubhub and Seamless make it possible to wish for something to eat, browse the choices from your phone and have it in front of you in less than half an hour. All without putting on your shoes or speaking to another human being. 

Some may think it's on the rise because people are lazy, but it seems more likely it's because people are busy. Like Kate Bridgman of Northside, in a family with two full-time jobs and two teenagers in lots of activities. She uses it to make sure everyone has something decent and healthy to eat, even if they're not together to cook it. Or Mike McCord, who goes to school and works often on a different schedule than his girlfriend.  He'll order wings while he's studying.

It's great for consumers, and on the face of it, it's an opportunity for others, including the restaurants who can expand sales without adding the overhead of servers and dining rooms, the delivery drivers who can earn primary or secondary money, and of course, the billion-dollar delivery companies. 

Indeed, it is a huge and growing business. In 2018, $32.7 billion worth of pizza, fast food, sandwiches and almost anything else was ordered on an app and delivered in the United States. For comparison, that is more than three times the $10.1 billion Americans spent on ice cream the same year, according to Statista.com. And 38% of adults are more likely to have restaurant food delivered than they were two years ago, according to a survey by the National Restaurant Association. 

But look closely and it's obvious that there will be unintended consequences of this  "disruptive" technology. As taxi drivers paid the cost for the ease of using Uber, and retail is dying because Amazon can deliver anything in a day or less, and urban sidewalks are littered with electric scooters, there are likely to be some big changes to the world of restaurants, and we may not like them. 

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Elias Leisring's restaurant Eli's BBQ is on several third-party delivery services. He also occasionally uses them to order food for himself. And he has a delivery-only restaurant, Saundra's Kitchen. But the way he sees it, the whole third-party restaurant delivery business is built on an irrational premise.

He thinks of the time that a friend was over who really wanted something sweet after dinner. So they ordered Graeter's on Uber Eats. Since he was already paying an $8 delivery fee, he went ahead and ordered six pints. They got the order in 18 minutes. 

"People love it so much. As long as they want their ice cream in 18 minutes, someone's going to supply it. But it's not actually a profitable transaction for anyone," said Leisring. "It only works because it's subsidized by private equity." Uber Eats loses billions of dollars a year, he said. "It's only in business because people throw millions of dollars of venture capital at it. Eli's in Findlay Market has made more money than Uber ever has." 

Leisring is not alone in his skepticism. There has been plenty of negative press about delivery apps. The New Yorker had an article called "How delivery apps may put your favorite restaurant out of business," while The Atlantic featured one titled "The booming, ethically dubious business of food delivery."  

So, does anyone come out ahead on app-ordered meal besides the satisfied customer? Well, it's not a big moneymaker for restaurants. It can't be. Restaurants operate on super-slim margins, and the fees that the delivery companies charge restaurants are steep: from 15-30% of the cost of the food. A typical restaurant meal is priced at 30% food cost, 30% labor, 30% everything else, including profit. If that last 30% goes to a delivery fee, there's not much left. "I often feel that DoorDash is making more than we do on a delivery order," said Joe Lanni of Thunderdome Restaurant Group.

If a delivery order is from a new customer who might not otherwise have come in, the small amount the restaurant makes is probably worth it. But it's not clear it works out that way. Eli's used to do a big carryout business. Over the last four years, said Leisring, his carryout business has declined by about the same number of orders that delivery has gone up. "People who used to stop in on their way home to Mount Lookout or Madeira now go home, then call for delivery," said Leisring. It's almost a wash, numbers-wise. But he used to actually make money on carryout. Nobody was taking 30% of it. 

One thing that really bothers restaurant owners about the rise in delivery is that they can't give you the food as they think it should be served, and if it's messed up, they can't make it right because you didn't order from them. Mike LaRosa, CEO of LaRosa's – which does not use third-party apps because they've had their own delivery drivers since the '80s – cannot imagine giving up control of the order. "We set up the one number system so we knew we'd get the orders right. And we worked hard on our packaging. We want to be sure our customer is happy." They also have their own app. 

Being on the apps can come at the cost of the quality of service in-house. "It's easy to get addicted to the sales," said Lanni. "But we've seen it actually happen, especially in fast-casual, that delivery can be a distraction to service in the restaurant. Dine-in should come first." So they sometimes have to turn off app orders.

But restaurants sign up because it is so popular that they are afraid not to. They aren't getting ahead, they're just trying to make sure they don't fall behind. If a hungry person is scrolling through the app and doesn't see, say, their favorite Italian restaurant, they'll likely order from a different Italian restaurant, weakening their original loyalty. "If you're not on the apps, you're not relevant," said Leisring. 

And it's likely to increase here. Viroop Narla, a researcher at Frost & Sullivan consulting firm, told me that "We expect a lot of the growth in online delivery will be bolstered by companies reaching into new markets, including smaller cities like Cincinnati." They've saturated bigger cities. "With 940 Cincinnati restaurants on DoorDash and only 70 on Uber Eats and 50 on Postmates, there's quite some room to grow for the latter two."

Do the drivers come out well in this setup? Like anything else in the gig economy, it's a convenient way to make some extra cash, and they do OK. In 2018, USA Today calculated that most drivers make between $10-$15 an hour, varying with hustle and busy-ness. Recently, DoorDash was sued by the city of Washington D.C. According to the suit, from 2017 to 2019, the company encouraged customers to tip, but didn't tell them that the tip went to the company, not the driver. 

And, it's true that the delivery app companies aren't, in fact, profitable. DoorDash has never earned a profit, yet in November, it got $600 million of private equity investment, the fourth round in 14 months. Investment firm Cowen estimates that Uber Eats loses $3.36 on every order. Eventually, investors are hoping for a big payoff. But for that to happen, the app companies will have to be more aggressive than they've been. 

That doesn't sound like an "everybody wins" situation. 

Apps may become actual competitors of restaurants. One thing Uber Eats and other companies are doing is starting "ghost restaurants." They provide a kitchen where restaurants can cook just for delivery. Or it might be a menu of items they know there's a demand for, available only through the app, produced in an existing restaurant's kitchen by arrangement, or in one of the satellite kitchens.  

Uber Eats has launched the first celebrity ghost restaurant this fall with Rachael Ray. They've selected dishes from her latest cookbook and made them a choice on the app. They're made in a restaurant kitchen or one of the ghost restaurant sites. This has come to 13 cities to start but could come to Cincinnati soon. It adds up to more competition for existing restaurants. 

[ More from Polly Campbell: The best things I ate in 2019 ]

In India, Zomato is starting to control all aspects of the meal, delivering it, cooking it, even sourcing the ingredients for it. They're setting up gigantic warehouses all over the country. 

Something that's an obvious result of delivery is a ton of waste from packing it all up. Overall, only 9% of plastics are recycled or incinerated. The rest goes in landfills or turns into litter or ends up in the ocean. Jenny Lohmann of Hamilton County Solid Waste District emphasizes that there are no recyclable or compostable food delivery containers. They may have a recycling sign on them or theoretically be compostable, but there are no composting facilities here. The only plastic Hamilton County can recycle is plastic bottles. "I wish they would just use paper products. They aren't recyclable, but at least they aren't plastic that lives forever," said Lohmann. 

All of this is easy to spin out into the future, a future where people don't go to restaurants. Where you go online to find a date, with whom you watch Netflix at home, accompanied by wings from one restaurant and Chinese noodles from another, delivered by drone. Maybe there will be a day when no one interacts with a server or  anyone else at a restaurant, that restaurants close just like retail stores have, and the neighborhoods we've revived with places to eat and drink will be empty again.

That seems like hyperbole, but 10 years ago, we didn't think we'd do our Christmas shopping from a phone in our hand instead of at a mall. 

We're not close to that yet. Delivery orders are now less than 10% of restaurant sales, and they are mostly concentrated in fast-casual and casual segments of the industry. There are lots of restaurants in Cincinnati that aren't on the apps or get very little of their business from them.  

At Behle Street by Sheli in Fort Mitchell, about 25% of their business is carryout and delivery, but they do their own. "We've never even considered using third-party delivery," said owner Sheli Truss-Karim. "I don't trust a random person. The presentation won't be excellent. And the fees are too high." 

Pho Lang Thang does plenty of delivery, but they use 53T, a bike carrier who delivers to OTR and Downtown. "It's a guy who used to work for us," said owner Duy Nguyen. "Other services just cost too much." 

Jose Salazar won't do delivery from his bistro, Salazar, at all. He thought his more casual concept, Goose and Elder, would do more delivery than it does. He feels un-alarmed about the delivery dystopia. "I think people will always want to get together, enjoy good service, face to face." 

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