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The Spoon

Daily news and analysis about the food tech revolution

delivery

Food Delivery Was a Booming Business for Uber in the First Quarter of 2020

Despite the gargantuan loss of $2.94 billion Uber posted, the company’s Eats business saw massive growth during the first quarter of 2020. For Uber Eats, the company saw a 52 percent increase in gross bookings, or $4.68 billion, according to the company’s first-quarter results.

“The big opportunity that we thought Eats was just got bigger,” Uber CEO Dara Khosrowshahi said on an investor call this week, adding that “at a time when our Rides business is down significantly due to shelter-in-place, our Eats business is surging.”

Other Eats numbers from the quarter, according to the results, include:

  • Eats Adjusted Net Revenue of $527 million, up 124% on a constant currency basis due to “a mix shift toward small and medium sized restaurants driving higher basket sizes coupled with courier payment efficiencies, namely in the US.”
  • Eats adjusted EBITDA loss was $313 million or negative 59.4% of ANR.
  • Resulting adjusted EBITDA of a $313 million loss, worse than its year-ago result of $309 million

Khosrowshahi said on the call that small-to-medium-sized restaurants “continue to be a significant part of our business and our growth going forward.” No mention was made of the ongoing battle between third-party delivery services and governments mandating caps on the commission fees companies like Uber Eats charge these small and medium-sized businesses. 

Uber Eats is also playing by the strategy of investing only in markets where it holds the number one or number two position. To that end, the company exited eight countries this week, most of them in the Middle East. “This move will allow us to redouble our efforts in markets with larger long-term potential and higher returns like the US.,” said Khosrowshahi.

Also this week, Uber said it plans to lay off 3,700 people, or 14 percent of its staff, in response to economic challenges from the pandemic. As of now, Eats does not appear to be affected by the layoffs.

Zuul Kitchens and Figure 8 Team Up for Ghost Kitchen Consulting Firm

Ghost kitchen provider Zuul Kitchens and delivery consulting firm Figure 8 Logistics announced via email today the launch of Zuul Studios. The initiative combines Zuul’s operational chops when it comes to ghost kitchens with Figure 8’s expertise around delivery strategy and logistics for restaurants. 

Zuul launched its first ghost kitchen facility in NYC last year for restaurants needing more space to fulfill off-premises orders. Like other major ghost kitchen networks, Zuul provides members with kitchen infrastructure, labor support, delivery fulfillment, and consultations about menu and POS integrations. 

Meanwhile, Figure 8 is a consulting firm for food delivery businesses that works with restaurant operators to analyze their existing strategies and improve upon them. Helping restaurants launch native delivery — that is, delivery orders that originate on the restaurant’s digital properties, not those of third parties — is a key offering Figure 8 pushes.

With Zuul Studios, it seems the two companies have put the best of their respective capabilities together to offer restaurants both the physical space to fulfill more delivery orders and the strategic know-how to build a stronger business around off-premises offerings. Zuul Studios says will help restaurants design, build, and launch ghost kitchen operations, configure an affordable tech stack for off-premises models, and launch virtual restaurant brands.

According to the press release, “Zuul Studios acts as a catalyst for helping restaurants and real estate owners remain competitive and develop sustainable food delivery business models. Combining Zuul’s expertise operating ghost kitchens and Figure 8’s experience in food delivery consulting, Zuul Studios is able to create innovative delivery strategies for their clients.”

Of course right now, the pandemic has turned most restaurants into ghost kitchens that can only serve delivery and takeout orders. And though restaurants are slowly reopening, by and large they won’t return to the pre-coronavirus days of packed dining rooms. For QSRs and fast-casual spots that survive, off-premises will be an important element of the overall restaurant business model of the future. 

Ages ago, Chowly’s Sterling Douglass mentioned that when it comes to ghost kitchens, it’s “a tough business, in some ways tougher than running a traditional restaurant.” That’s still true. A lot of the methodology, whether around operations or financials, that would apply to a dine-in restaurant isn’t relevant in a ghost kitchen setting. Plus, many restaurants aren’t even sure of how to determine whether they have the demand to even warrant a ghost kitchen operation. As businesses shift into this new and very off-premises-focused normal, many of these questions will need to be addressed. 

That makes a consulting firm for ghost kitchens a potentially attractive sell right now. Zuul Studios hasn’t publicly released numbers on how much they charge for consulting fees or kitchen space. To be honest, it’s probably out of reach for many small restaurants, though they probably won’t have the customer demand anyway. For bigger chains now looking to make delivery a bigger part of their business, teaming up with Zuul Studios might be a way to ensure smoother operations and a better off-premises strategy overall going forward. 

Boston, D.C., and Baltimore Join the List of Cities That Want Caps on Third-party Delivery Fees

Baltimore, Boston, and Washington, D.C. all recently joined the growing list of cities imposing mandatory caps on the commission fees third-party delivery services charge restaurants. San Francisco, Chicago, NYC, and Los Angeles have already passed similar measures or are considering them.

The D.C. Council passed emergency COVID-19 legislation on Tuesday that, among other things, capped commission fees at 15 percent during the city’s state of emergency. As the Washington Post noted, “The commission cap, similar to ones implemented in Seattle and San Francisco, is meant to help eateries turn profits on those sales.”

Last week, city council members in Boston proposed an order for a hearing to discuss the possibility of caps on commission fees — much like the one NYC just held last week. A date has not yet been set for the Boston hearing. 

Baltimore is legally prohibited from imposing caps on delivery companies, but that didn’t stop Mayor Jack Young from sending a formal letter to DoorDash, Postmates, Grubhub, and Uber Eats, asking them to cap commission fees at 15 percent.

It’s a noble gesture, but Mayor Young might as well be talking to a concrete wall. The major delivery services have made it clear that they strongly oppose any caps on commission fees, arguing that caps would make food delivery orders more expensive for consumers, lessen the number of orders coming through the platforms, and ultimately harm both restaurants and the delivery companies themselves. As a Grubhub representative put it at last week’s NYC hearing, “These caps may force us to exit certain markets or suffer substantial losses that threaten the sustainability of our businesses.” 

To which one council member replied, “You’re saying a lot of stuff would force you to operate at a loss but you don’t seem to care that you’re forcing restaurants to operate at a loss.”

Grubhub, in particular, has taken severe (though deserved) heat for the way it has handled it has restaurant relationships during the COVID-19 crisis. The service sent out a press release back in March that led many to believe it was waiving commission fees for restaurants during the health crisis. In actual fact, Grubhub was only deferring those fees, and the policy included a lot of unsavory fine print that won the company yet-more bad press. And if you haven’t yet seen the viral Facebook photo that shows just how little restaurants collect from third-party delivery orders, check it here to understand why restaurants are nowhere near turning a profit under the current commission fee policies.

Other services are at least appearing to be more helpful. Postmates temporarily waived commission fees for independent restaurants, though the move only applied to new businesses signing with the platform and based in San Francisco. DoorDash has waived commission fees for all its independent restaurants through the end of May.

But what happens at the end of May? And what happens if a second wave of the novel coronavirus imposes another set of shelter-in-place mandates?

The entire restaurant industry is forever changed because of this pandemic and the dining room shutdowns it has caused. Menus are shrinking, restaurants will re-open with less seating, major chains are overhauling their entire store formats, and small businesses are going to have to adapt to technologies and procedures they might never have considered before. Delivery companies could do themselves and everyone else a huge favor by implementing their own fee caps and accepting that they’re part of the restaurant industry and need to share in some of the pain. Otherwise they can expect more government fee caps and regulations, and I wouldn’t be surprised if the whole industry forcefully turns on them at some point down the line.

Is the DoorDash-Pennsylvania AG Partnership a Red Herring or the Start of a New Era for Gig Workers?

DoorDash has entered into a public-private partnership with the Pennsylvania Office of the Attorney General to further expand financial, healthcare, and childcare assistance to couriers (called “Dashers”) working for the third-party delivery service. DoorDash said in a company press release that this expanded support applies Dashers in Pennsylvania working for its service as well as DoorDash subsidiary Caviar.

Most of the initiatives announced build on existing support DoorDash has provided to Dashers throughout most of the pandemic. For those diagnosed with COVID-19 or/or instructed to self-quarantine because of the virus, DoorDash is providing financial assistance, applicable to those that have worked for the service for 30 days (the number was previously 60). The third-party delivery service is also subsidizing telehealth costs related to the virus for any Dasher.

Notably, the company has also launched a childcare support program for the top Dashers in its Dasher Rewards program. Those that qualify can receive financial assistance for childcare while schools remain closed due to COVID-19. According to the release, the program will provide a financial bridge to parents until Pandemic Unemployment Assistance becomes available.”

As new developments for gig workers go, none of these initiatives is particularly unique. Most third-party delivery services have been offering some financial relief as well as protective gear to workers during the pandemic. One assumes this is at least partially in response to pressure from advocates and restaurant industry personnel to take better care of gig workers, who normally don’t receive benefits like paid sick leave, healthcare, and workers compensation. In fact, DoorDash was among the companies fighting California’s Assembly Bill 5, which was signed into law in 2019 and reclassifies contract workers as employees. 

What is new to this story is the involvement of a state government. Pennsylvania Attorney General Josh Shapiro is particularly vocal about how gig workers are treated. One of the stated goals on his website is to “end worker misclassification.” Depending on how extensive the partnership with DoorDash is, and how long it runs, other states could follow Shapiro’s lead.

It’s unclear right now if DoorDash’s newfound partnership is an about-face for the company or just another PR stunt. Recall that in addition to fighting California’s AB5, DoorDash was also the subject of a lawsuit filed by DC Attorney General Karl Racine, that one over unfair tipping practices for Dashers. 

The answer will probably not come until we’re further out from this pandemic and business regains some sort of normalcy. As I mentioned above, the major delivery services are providing at least some form of relief to workers right now. How long these protections extend in the post-pandemic world will show whether how long-lasting third-party delivery’s commitment to its gig workers’ well being actually is.

Fight Club: Mischief. Mayhem. Third-Party Delivery Fee Caps.

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If you like a good fight, the one around restaurant commission fee caps is worth watching. I spent the better part of three-plus hours the other day tuned into the New York City Council’s Committee on Consumer Affairs and Business Licensing public hearing. One hotly debated topic was around capping commission fees third-party delivery services like Grubhub and Uber Eats charge restaurants.

I’d love to say everything got resolved and NYC will be placing caps on third-party service commission fees for all time. The reality is that this fight was here long before the pandemic and will be around long after it leaves.

I’m sure you’ve heard of the brouhaha brewing around the issue. Restaurant industry advocates and businesses alike had flagged those third-party delivery commission fees — which can go as high as 30 percent per transaction — as prohibitively expensive for restaurants. With dining rooms closed now, most restaurants are left with the options of either shutting down completely or relying on a third-party service like Grubhub to help them execute on delivery orders.

One restauranteur who testified at this week’s hearing explained that for independent restaurants, the fees are more or less non-negotiable. (Side note: he also expressed fear of retaliation from delivery companies for his speaking at the hearing.) Jessica Lappin, a former NYC council member and the President of the Alliance for Downtown New York, said that even if restaurants are doing takeout and delivery right now, they are doing it at a loss. Council member Mark Gjonaj suggested that due to the commission fees, each transaction a restaurant makes is “yielding a net loss.”

Perhaps the most telling moment came when a Grubhub representative took to the mic to “express Grubhub’s strong opposition” to fee caps. You can watch the entire (and rather circular) debate that broke out here, but it more or less boiled down to the idea that if NYC and other cities successfully impose fee caps, Grubhub et al. will have to change their business model.

Therein lies the marrow of the matter in terms of why third-party delivery companies oppose commission fee caps and other changes (e.g., reclassifying workers as employees). Government oversight of those fees cost these companies more money, and further erode their chances of ever becoming profitable. An unprofitable model won’t satisfy investors, and third-party delivery as we know it would then be on the rocks.

Sky-high delivery fees and a faltering economy won’t help the model in terms of its attraction to the average end consumer. And they certainly won’t improve the net-negative returns restaurants are making at the moment.

In some cities, Big Government has already stepped in. San Francisco, Seattle, and Chicago have all introduced fee caps that will last at least as long as dining rooms remain closed. Los Angeles is considering a similar measure. NYC’s proposed 10 percent cap was actually introduced months before the novel coronavirus hit the U.S. in full force. 

As emergency measures, these fee caps feel necessary right now if independent restaurants are to have any kind of shot at keeping the lights on. Longer term, everyone (restaurants, advocates, government, tech companies, and consumers) will have a responsibility to address how much damage the delivery model is actually doing. It seems a global pandemic that’s taking lives and shuttering businesses isn’t enough to make some of these services stop siphoning the livelihood from restaurants. Are those really the businesses we want calling the shots in the restaurant industry in the future?

McDonald’s limited menu is good news for the drive-thru lane.

Among other things, like drive-thru lanes generating more sales, McDonald’s spent quite a bit of its earnings call this week talking about its menu. Since shelter-in-place orders forced the chain to close down dining rooms and rely on off-premises orders, McDonald’s has been offering a limited menu. For example, it doesn’t offer breakfast for the time being.

Cuts like that were made to help the mega-chain manage the operational difficulties restaurants face right now. On this week’s call, CEO Chris Kempczinski suggested customers should not expect every McDonald’s in the nation to immediately revert back to its pre-pandemic menu.

Smaller menus for the long term could work in McDonald’s favor, though. When we looked at the QSR Drive-Thru Study last year, one of the standout points was the steady increase in drive-thru wait times over the last couple decades. Growing right alongside those wait times has been the number of items QSRs offer on their menus.

These complex menus take longer to read, present customers with the tyranny of too many choices, and up the risk of an order being inaccurate when it is ready. None of those things make for speedy service, and with more customers likely going to opt for the drive-thru lane over the dining room now, finding ways to fulfill orders faster is crucial for QSRs.

No one is suggesting we revert back to my favorite picture of all time, this McDonald’s menu from the ’80s. But as restaurants pare down menus and plan to work with reduced capacity and limited staff once they reopen, the bloated mess of choices QSR’s previously offered may become a thing of the past.

Sweetgreen just added dinner options.

One company not paring down its menu is Sweetgreen. On LinkedIn this week, cofounder and Chief Brand Officer Nathaniel Ru unveiled the chain’s new dinner menu, called Plates.

For the last four weeks, the tech-forward fast-casual chain — most widely known for its highly Instagrammable salads — has been testing a Sweetgreen dinner menu. Via a post on Medium, the company said the process has been about “operationalizing an entirely novel concept (normally a year-long process) in just 30 socially distant days.”

That 30-day process looks, from the photos, to have turned up a menu full of plant-centric dishes and lots of legumes, grains, and sauces. If you want more details around how the team put this new concept together, the full Medium post is definitely worth a read.

Sweetgreen had been planning the dinner concept for some time in the hopes of launching it next year. But, as the Medium post notes, “given the current state of uncertainty, the need for warm, familial, and home-cooked food has never felt more important.” 

They’re right on the money. Family-style meals and comfort food are two major trends right now for restaurants as people shelter in place. I’ve never considered couscous and warm leafy greens comfort food, but I’m from rural(ish) Tennessee so what do I know? Plenty of folks are health conscious these days, and with many consumers likely to be wary for some time about going out to eat, a dinner concept is a smart play for Sweetgreen. 

Now if we could just get it delivered without those pesky commission fees. 

Starbucks Leans on Digital Orders and Modified Formats to Reopen 90% of Stores by June

Starbucks plans to reopen 90 percent of its U.S. stores by early June, the company said this week on its Q1 2020 earnings call. As expected, stores won’t immediately reopen nationwide and with the same sit-down cafe format in which they operated before the pandemic. Instead, the Seattle-based coffee giant will open gradually, with modified service that emphasizes pickup, delivery, and drive-thru. 

The company hinted at these plans a little less than two weeks ago, when company CEO Kevin Johnson sent a letter to employees explaining the chain’s recovery plan. As I wrote at the time, Starubucks is an international chain that is already navigating this recovery process in China, so it has some experience other U.S.-based chains may not. It is also ahead of the curve — a major leader, actually — in both off-premises formats and digital business. 

On this week’s call, Johnson spotlighted both of those things. He noted that “continued recovery in China strengthens our belief that these impacts [from COVID-19] are temporary” and that Starbucks expects to emerge with an even stronger business. “We are well positioned to leverage our digital assets and new operating formats like contactless pickup and curbside to expand service to customers,” he said.   

Only 30 stores will reopen their cafes, Starbucks COO Rosalind Brewer said during the call, and there will be no seating in those locations. “We will amplify delivery, we will have the Mobile Order & Pay channels open and then the addition of a new concept, the Entryway Handoff,” she said. Starbucks will monitor what happens in these stores before making the move to reopen other locations. 

For Starubucks, this slow reopening is less detrimental than it might be for a chain with a less robust off-premises strategy. Johnson noted on the call that 80 percent of customer occasions in U.S. stores were to-go before the pandemic even hit. “And so by augmenting the in-store experience with mobile ordering and contactless pickup, we can service significant volume of customers without having the cafe seating area actually opened,” he said. 

As states slowly begin to reopen their economies, bigger chains with similar store formats to Starbucks and existing digital strategies in place will likely operate with their own versions of this modified, to-go-centric format. Chipotle, which was already testing off-premises store formats pre-pandemic, has reported strong digital sales for the quarter. With more earnings calls set to happen over the next few days, we’ll get more intel into what other chains, such as McDonald’s, have in the works.

Smaller restaurants that can’t afford expensive mobile-order systems or accommodate drive-thru lanes can still look to some tech to help with the transition towards this new normal. While most independent businesses are more concerned with keeping the lights on right now, contactless customer service and digital payments will be two areas more restaurants will look to expand to in the coming months. 

Deliveroo Cuts 15% of Staff in Response to Coronavirus

UK-based food delivery service Deliveroo confirmed that it is cutting roughly 15 percent of its staff — a little over 350 people — and furloughing others, according to a report from The Telegraph. 

Fifty employees will be furloughed in addition to the layoffs. Deliveroo did not specify which roles it was cutting or which regions.  

A Deliveroo spokesperson confirmed to TechCrunch that the cuts are in response to the coronavirus pandemic, which is wrecking havoc on the restaurant industry. “This requires us to look at how we operate in order to reduce long-term costs, which sadly means some roles are at risk of redundancy and others will be put on furlough,” the spokesperson said.   

While off-premises orders — delivery and takeout — were initially hailed as the one major lifeline restaurants would have during this crisis, the reality is that many restaurants have struggled with the switch to this format. Others, including major QSR chains in the UK, have shut down completely for the time being.

Deliveroo’s cuts come just days after the UK’s Competition and Markets Authority (CMA) approved Amazon’s investment in the service. The deal had been under investigation before the pandemic. In its decision, the CMA suggested the third-party delivery service could collapse without the extra funds from Amazon.

Demand for delivery has dropped in the UK, likely in response to the economic uncertainty caused by the pandemic. With more people out of work and no real idea of when the pandemic will subside, if it will resurface, and what life will look like in two, three, or nine months, people are opting to cook at home and save money.

That doesn’t bode well for the food delivery sector, which already struggles with profitability. 

U.S.-based food delivery services have yet to make any major cuts like this, though it’s not out of the realm of possibility if things remain as they are economically or psychologically. 

Paytronix Raises $10M for Its Restaurant Guest Management Platform

Restaurant guest management platform Paytronix Systems announced today it had raised a $10 million round of fresh funding. The round was led by Great Hill Partners and Paytronix cofounders Matt d’Arbeloff and Andrew Robbins, according to a press release sent to The Spoon. This brings Paytronix’ total funding to $75 million.

The company said the funding is “designed to ensure that Paytronix is on sound financial footing and will continue to provide its restaurant, convenience-store, grocery, and retail clients with the communications tools necessary during this unprecedented COVID-19 pandemic.” 

The Paytronix platform offers a number of different solutions restaurants can add to their tech stacks, including loyalty program capabilities, custom mobile apps, messaging, and data analytics. Its software integrates with most of the major POS systems, and the company counts California Pizza Kitchen, Bloomin’ Brands, and restaurant group Lettuce Entertain You among its clients. 

Many of those brands, not to mention independent restaurants, are feeling the strain imposed by COVID-19 and the accompanying dining room shutdowns. And while we’ve called into question the value of certain restaurant tech solutions at a time when businesses need to cut back to necessary tools only, what we can count on is that some tech will be necessary for restaurants to both survive the pandemic and function once the world settles into its new normal.

Paytronix — whose website actually reads “slim down your tech stack — recently released a number of features that seem geared towards that particular approach to restaurant tech. The company now offers an online ordering platform that integrates with both POS systems and third-party delivery platforms. Even more important in these pandemic times, restaurants can now set up touchless payments through Google Wallet and Apple Pay integrations. 

Contactless payments, in particular, will be an important technology for restaurants of all sizes going forward. Bo Peabody, who sits on the task force that created the reopening guidelines for the state of Georgia’s restaurants, recently told me that it’s one of the most important pieces of tech a restaurant should consider right now. He went as far as to say that by the end of next year, “putting your credit card down will be a thing of the past.”  

Whether or not that will actually happen, we’re likely going to see many more guidelines around restaurant reopenings for the rest of the year, some of them focused on the most useful technology businesses can implement in this weird, uncertain time. Patyronix, with this new round, looks to be positioning itself as close to the center of that usefulness as it can get.

Delivery Hero Subsidiary Foodora to Exit Canadian Food Delivery Market

Restaurant food delivery service Foodora is exiting the Canadian market after operating there for five years, according to a company press release. The Berlin, Germany-based company, a subsidiary of Delivery Hero SE, cited profitability as the reason for its departure.

“Canada is a highly saturated market for online food delivery and has lately seen intensified competition,” the release notes, adding that “foodora has unfortunately not been able to reach a strong leadership position, and has been unable to reach a level of profitability in Canada that’s sustainable enough to continue operations.”

Foodora also currently operates in a number of countries across Asia and Europe. The service’s Canada business, which operates across 10 cities, will continue until May 11. 

While the press release highlights tough competition and a saturated market as reasons for its departure, Eater Montreal was quick to point out another factor that may have contributed to Foodora’s decision: Foodora’s drivers being allowed to unionize. In February of this year, the Ontario Labour Relations Board ruled that couriers working for the service should be classified as “dependent contractors.” Like California’s Assembly Bill 5, which was signed into law last year, this means Foodora would have to treat workers as employees, offering things like paid sick leave. 

The press release mentions nothing about the Ontario Labour Relations Board decision. However, it costs delivery companies more money when workers are classified as employees, which could further erode their (still nonexistent) profitability.

Nor would this be the first time worker classification and profitability are linked when it comes to food delivery. As we wrote earlier this year, “Companies like Uber, Postmates and DoorDash are all under increased pressure from investors to become profitable. Laws like California’s AB 5 certainly complicate that path to profitability.”

And while Foodora’s decision to exit Canada doesn’t appear to be directly related to the COVID-19 pandemic, the restaurant industry upheaval the virus is causing has intensified the discussion around the third-party delivery model itself: it’s relationships to restaurants, control over customer data, and the way it treats the workers it needs to survive and maybe one day reach profitability.

Toast’s New Delivery System Is (Potentially) Cheaper for Restaurants Than Third-Party Services

Once a simple POS system for restaurants, Toast has over the years morphed into the Swiss Army Knife of restaurant tech platforms, offering everything from payment processing hardware to back-of-house payroll software. Add delivery to that list. Today, the company announced the launch of Toast Delivery Services, which will, according to a company press release “eliminate high commission fees” from third-party services like DoorDash or Grubhub.

To do that, Toast will “enable restaurants of all sizes with an on-demand network of local drivers”. That’s a big point, since an expensive aspect of any partnership with a third-party delivery service is the cost of paying drivers.

Typically, restaurants pay higher commission fees to third-party delivery services when they need access to the entire delivery stack: the marketing, the technical ability to process orders, and the drivers themselves. While subtracting any one of those can lessen a commission fee, most restaurants need the whole stack. And, as we discuss frequently, the commission fees for those things can be 30 percent per each individual transaction — a point that’s rightly causing a lot of uproar right now as restaurant struggle to stay alive in the face of dining room shutdowns.

To be clear, though, Toast is not supplying those drivers itself. A Toast spokesperson told me over email that, “Drivers do not work directly for Toast. Toast Delivery Services powers technology to dispatch local drivers from 3rd party network partners to fulfill all orders.” Who those third-party networks are was left unsaid.  

It seems, then, that Toast is acting as more of a middleman between the restaurant and the driver fleet. Restaurants can still access third-party drivers, only through a partnership with Toast, which would process the orders, not Grubhub or DoorDash or Uber.

Restaurants will also still pay fees per transaction on orders, but via Toast, those are based on a flat rate rather than a percentage of each order. According to the company release, “the cost to deliver within a five-mile radius is under $8, versus a percent of sales.” More specific numbers weren’t given, and that’s where the benefits get a little cloudy. Depending on the size of the order, that under $8 figure may or may not be higher than what Grubhub et al. would charge.

For the sake of argument, let’s say I order a $15 burrito from a restaurant three miles away. Grubhub would charge a roughly $4.50 commission fee to the restaurant. Toast hasn’t said how it exactly calculates the distance-based fee, which means the commission on my burrito could be lower, about the same, or even higher, if the flat fee winds up being $8. 

That said, with shelter-in-place orders still active and many families hunkering down at home, larger orders and family-style meals are all the rage on restaurant menus right now. A 30 percent commission fee of a $40 family order would cost the restaurant $12 if they were working with DoorDash or Grubhub. In that case, Toast’s flat fee would be considerably cheaper, if the restaurant was within five miles of the delivery destination. Toast’s spokesperson said that “Typically the delivery fulfillment radius serviced by [Toast] is 3-5 miles.”

There are a couple clearer spots in this news. Restaurants wanting to set up Toast for Delivery do not need existing Toast POS hardware. Customers will also keep control of their customer data, which is another sticking point with third-party delivery services. 

Earlier this month, Toast cut 50 percent of its staff, prompting the question of how much restaurant tech a restaurant actually needs. Toasts new delivery system will have to prove itself a significant money saver for restaurants in order to stand up against the major third-party services.

Much of that would depend on the size of the orders a restaurant typically processes. I suspect those will continue to be larger for some time to come. Even when more states ease shelter-in-place restrictions, restaurant dining rooms will operate with far fewer tables and a lot more rules. Diners — many of which will be wary about going out to eat at all — may prefer to order in for the whole family instead. If that winds up being the case for the foreseeable future, Toast’s new system may prove an attractive bet for restaurants looking to improve their delivery logistics. 

Despite a Pandemic, Chipotle’s Digital Business Keeps Growing

Chipotle just recorded its highest quarterly level ever for digital sales, according to the company’s Q1 2020 investor call yesterday. Company CEO Brian Niccol said digital sales grew 81 percent, to $372 million, representing 26.3 percent of sales during the first quarter.

Numbers include the month of March, when restaurants across the country started shutting down dining rooms in efforts to stem the spread of the novel coronavirus. The upheaval this has caused for the restaurant industry can’t be understated: everyone from small, independent restaurants to massive chains like The Cheesecake Factory have seen sales drop in some cases, and nosedive in others.

Why not Chipotle?

For one, the company has long been doubling down on its digital business, which powers off-premises orders for delivery, takeout, and drive-thru. Prior to the pandemic, Chipotle already operated a $1 billion-plus digital business. Over the last couple years, the company has forged partnerships with multiple delivery companies, revamped its rewards programs, introduced new store formats for to-go-friendly business models, and added more drive-thru lanes — “Chipotlanes” — to its locations. It helps that the chain has always offered the kinds of quick-service meals made with food that travels well.

On the call this week, Niccol suggested that in order to combat the sudden loss of dining room traffic, the company was able to accelerate its existing digital initiatives: “the majority of our restaurants are open for to-go orders, which is allowing us to successfully leverage the digital platform we put in place over the past two years.”  

He added that, “As people started to implement social distancing, we moved swiftly by driving further investments toward digital and delivery designed to reduce friction, while increasing convenient access.” 

Delivery remains the fastest-growing segment of Chipotle’s digital offerings. A partnership struck with Uber Eats in March no doubt helps, as it gives the chain access to even more potential diners. Niccol said digital order-ahead transactions were also up, “doubling from the levels seen prior to COVID.” Daily signups for the Chipotle rewards program have spiked “nearly fourfold.”

A recent consumer survey that Niccol referenced on the call said Chipotle customers would return “at a similar or higher rate than before” once the pandemic eases enough to let dining rooms reopen. Given that, Niccol said he expects the company to continue expanding unit volume, margins, and store base in the long term. 

If nothing else, Chipotle’s glowing reports of the last quarter illustrate why it’s so important now for restaurants to be running with a digital and off-premises strategy in place. For smaller businesses with shallower pockets, this of course throws a host of other issues on the table, paying third-party delivery commission fees being one of the ugliest. Smaller restaurants would also typically need to look to third-party platforms that can assist them with building and running the kind of mobile app that functions well, and also address the issue of customer data. 

Right now, most restaurants are just struggling to keep the lights on. For those that manage, pulling from Chipotle’s digital playbook is a move worth considering in the longer term. 

Toronto, Canada Considering a Cap on Third-Party Delivery Fees

Toronto, Ontario mayor John Tory is considering imposing a cap on the commission fees third-party delivery services like DoorDash charge restaurants. He has said he will impose an emergency, temporary cap on those fees “if his emergency powers allow him,” according to an interview with Canada-based publication The Star.

Tory’s words come shortly after San Francisco, CA imposed its own emergency order last week, mandating that delivery services must cap restaurant commission fees at 15 percent if they want to continue doing business in that city. (Delivery services typically charge around 30 percent per transaction.) For now, that’s a temporary order, meant to assist restaurants struggling with dining room closures as residents shelter in place.

Unfortunately for Tory and Toronto restaurants, imposing a similar measure might be more of an uphill battle. Speaking to The Star, the mayor said that’s at least what “preliminary feedback from city legal suggests.”

So in the meantime, Tory is trying other tactics — including reaching out to the delivery services themselves. At the end of last week, he also left the following tweet, directed at those services:

Not surprisingly, delivery companies are defending their stance on commission fees, according to The Star. How long they can keep that up is another matter, because Toronto isn’t the only city considering potential commission fee caps. Last week, Eater pointed out that elected officials in NYC are asking Mayor Bill de Blasio to issue an emergency order similar to the one in San Francisco. Others are urging the same, including council member Mark Gjonaj, who previously introduced legislation around commission fee caps.

There’s no guarantee a measure will pass in Toronto, NYC, or any other place at this point. Even if they do, emergency caps are a surface-level fix to a much deeper problem around the amount of power food delivery services have over the livelihoods of restaurants. For many (most) businesses, offering delivery via DoorDash et al is still cheaper than trying to manage the logistics and driver fleet oneself.

That doesn’t negate the fact that charging a restaurant 30 percent of each transaction practically annihilates already-thin restaurant profit margins. Third-party services were also the subject of (yet another) controversy recently when a new lawsuit emerged, alleging Grubhub, DoorDash, and others are using their market power to push menu prices higher during the pandemic.

Finally, there is growing evidence that a delivery strategy in the midst of a pandemic won’t be enough to save restaurants.

Temporary caps in the wake of this unprecedented restaurant industry fallout are fine for now. But until we start addressing some of the fundamental flaws with the inherently greedy — not to mention unprofitable — third-party delivery model, the problems will proliferate, pandemic or no. Restaurants and their hourly workers will shoulder the bulk of those burdens.