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The Spoon

Daily news and analysis about the food tech revolution

third-party delivery

Report: Uber Wants to Buy Grubhub

Uber has made an offer to buy Grubhub, according to a report from Bloomberg. A potential deal could be reached as early as this month and would be an all-stock takeover where Uber would absorb Grubhub into its overall operations.

Details on this story are still forthcoming. 

Food delivery has been a booming business for Uber of late, with its Eats business seeing a 52 percent increase in gross bookings for the first quarter of 2020. However, the company remains committed to its strategy of only operating in markets where it is the number one or number two player. That has led Uber to exit certain global markets — India, South Korea, a bunch of Middle Eastern countries — where local delivery apps are far more popular.

That strategy is much tricker in the U.S., though, where DoorDash leads in terms of market share and Grubhub comes in second in many cities, according to recent numbers from Second Measure. Sticking to its strategy of only operating in markets where it is the number one or two service would mean Uber would have to exit many U.S. cities.

Hence a potential deal with Grubhub. The combined forces of the two would in all likelihood knock DoorDash out of the top spot in many places, and give Uber a larger share of major metropolises like New York City and Chicago. 

This kind of market consolidation was already in the works before the pandemic hit. Last year, Just Eat and Takeaway.com announced a merger that was finally recently approved. Delivery Hero bought South Korean service Woowa Bros. for $4 billion. And Brazil-based iFood announced, also in 2019, that it was merging with Colombian delivery heavyweight Domicillios.com, to corner more of the Latin American market. All of which is to say, it was only a matter of time before third-party food delivery consolidation came for the U.S. markets. 

Update (May 12): Grubhub released the following statement today:

“While our policy remains to not comment on specific market rumors, we want to reiterate our views with respect to M&A-related matters given the current level of recent speculation.

“We remain squarely focused on delivering shareholder value. As we have consistently said, consolidation could make sense in our industry, and, like any responsible company, we are always looking at value-enhancing opportunities. That said, we remain confident in our current strategy and our recent initiatives to support restaurants in this challenging environment.”

Welcome to Burger King. Did You Have a Reservation?

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Things I never thought I’d live to see: a global pandemic shutting down the economy, the McDonald’s snuggie, and fast food restaurants requiring reservations to dine in. But with the restaurant biz on the brink of catastrophic meltdown and businesses slowly reopening under strict social distancing practices, we can expect lots of new versions of the on-premises experience over the next few months — and probably a total redefining of what it means to be a restaurant. 

News landed this week that Burger King is testing an app for dine-in reservations at three stores in Milan, Italy that are expected to fully reopen on June 1. Reuters reports that the app lets customers order food and book a table before ever setting foot in the restaurant, which will operate at less than half its pre-pandemic capacity. During peak hours — 12–2 p.m. and 7–9 p.m. — roughly one-third of those tables will be reserved for customers using the app.

The company says it expects the new booking system to keep its revenue stable in the face of reduced in-house seating. Previously, BK in Italy got about 70 percent of its revenues from dine-in customers. Social distancing won’t allow for that now, and BK said it hopes to make up some of those lost sales with drive-thru.

Reservations are one way to keep crowds at bay in QSRs. Another is to build social distancing features into the actual store layout and operations, as McDonald’s has done in The Netherlands. The mega-chain is trialing a few initiatives at one store in the city of Arnhem, including table service, where burgers are delivered on trolleys, designated waiting spots for the line, and hand sanitizing stations at the store’s entrance. There may also be a host behind a plexiglass-shielded station, directing people where to stand in line.

There’s no word yet on whether this McDonald’s prototype will make its way to the U.S., though I wouldn’t be surprised if some social distancing elements wind up in the chain’s ongoing Experience of the Future store remodels. Burger King, meanwhile, has said if the trial of its app is successful in Italy, it could be used in other countries. 

And while QSRs are busy adopting features we’re most used to seeing at casual dine-in joints, the latter continues to adjust its format to be more to-go friendly. This was already happening B.P. (before pandemic). Now, sit-down restaurants are accelerating the addition of things like drive-thru lanes and self-service kiosks to keep business moving and socially distant at the same time.

All this suggests some seriously blurring lines between the normally siloed types of restaurant experiences. Going to a McDonald’s might suddenly feel like a more formal affair, while family dinner night at The Melting Pot might feel strangely casual without the usual person-to-person formalities. Tech tools that automate the order and pay process, and redistribute the tasks of servers, food runners, and cashiers, will only further change the now-fluid definition of the restaurant. 

We’re only at the start of things when it comes to these new dining out formats. Expect many more iterations of the restaurant to surface in the coming weeks. 

Grubhub Responds to Commission Fee Caps.

Meanwhile, I’d be remiss if I didn’t mention the ongoing smackdown between third-party delivery services and governments mandating caps on the commission fees these tech companies charge restaurants. That was a hot topic this week as more cities joined the list of those either considering caps or already implementing them. 

Grubhub responded this week via its Q1 2020 earnings call. CEO Matt Maloney said these fee caps force the company to increase fees for consumers, lessen marketing spend, and are ultimately resulting in fewer orders for independent restaurants. “Our preliminary data shows that on average, our independent restaurants are seeing over 10% fewer orders since the fee cap and many of these orders have shifted to a large brand or QSR restaurants that were not impacted by the emergency ordinance,” he said.

Note that he said “orders” not “revenues.” There’s no question that being on a platform like Grubhub makes a restaurant more visible to more potential customers. That in turn would hopefully fuel more orders for, say, your local pizzeria instead of Papa John’s.

But with Grubhub et al. taking an up to 30 percent commission of each restaurant transaction, more orders does not translate into significantly more revenues for restaurants. See this gem of a receipt, courtesy of one independent business, as proof of how little restaurants make on third-party platforms. 

On the call, Maloney said one-size-fits-all model “will not work.” And yet one independent restaurant owner who testified at a public hearing last week about NYC fee caps suggested there was virtually no negotiability when it comes to commission fees, suggesting Grubhub runs its own one-size-fits-all model when it comes to food delivery.

The debate around commission fees has been building momentum for some time. The pandemic has effectively stripped any remaining gloss off the facade of third-party food delivery and put its unsavory insides on full display. That the sector will need to make a pivot of its own if it wants to stay relevant seems more and more a question of “when,” not “if.” 

Amazon Returns to Restaurant Delivery. Sort of

But let’s end the week on a less-infuriating note, like Amazon running a makeshift third-party delivery service for restaurants in its corporate buildings. Drivers that used to transport the Seattle tech giant’s corporate employees are now running food from restaurant to customer, according to Eater Seattle.

Deliveries are contactless, meaning the restaurant packages up the order and sets it in the delivery driver’s trunk. Said driver then leaves the food on the customer’s doorstep. 

Once upon a time, Amazon ran a restaurant delivery service, which it shuttered in June of 2019. At the time, Amazon cited competition from the likes of Grubhub, Uber Eats, and other third-party delivery services. The new endeavor doesn’t appear to be a play by the company to get back into that space. Rather, it seems to be a temporary lifeline for local restaurants, not to mention a way to keep drivers who once ran corporate employees around working now that those employees are under stay-at-home orders.

On that note, have a good weekend, and don’t forget to tip your drivers.

Jenn

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.

Deliveroo Lowers Restaurant Commission Fees to 5 Percent, but There’s a Catch

Deliveroo this week said it would lower the commission fees it charges restaurants to just 5 percent — but only on orders where the restaurant provides its own delivery drivers. The announcement comes as restaurants increasingly call for the service to address its steep fees and as Deliveroo’s overall business struggles during the pandemic. 

The UK-based service will also completely waive commission fees on all pickup orders. Both forms of commission relief, if you can call it that, will be in effect until June 5. 

It’s a nice PR gesture, but it doesn’t solve the commission fee problems for restaurants that can’t afford to pay their own delivery fleet. With the restaurant industry currently on the brink of collapse, even paying one or two couriers on bicycles to deliver food could be more than an independent restaurant is realistically able to pay. Third-party services like Deliveroo charge up to 30 percent, and sometimes more, per transaction for these commission fees, which renders any chance at making profit null and void for many restaurants. Dropping commission fees to 5 percent but still expecting restaurants to foot the bill for their own last-mile delivery won’t benefit many businesses.

The ongoing collapse of the restaurant industry has wiped away any lingering optimism that food delivery apps are actually good for restaurants. What was for a brief minute called a “lifeline” for businesses as they pivoted to off-premises orders in the wake of the novel coronavirus is now under scrutiny from the entire industry, and the subject of much debate among governments. Multiple cities in the U.S. have already imposed mandatory caps on commission fees; overseas governments are now considering similar measures.

There’s also the fact that delivery orders won’t save a lot of restaurants. According to a recent survey from the James Beard Foundation, only 1 in 5 restaurant owners believe “with certainty” they will survive the COVID-19 crisis, and two-thirds of them are “uncertain” that off-premises orders will sustain their business. 

Some delivery companies are reportedly gaining business from the collapse, but Deliveroo doesn’t appear to be one of them. Just last week, the service cut 15 percent of its staff and furloughed others. The company said the cuts are in response to coronavirus. The UK’s Competition and Markets Authority recently approved a major investment in the service from Amazon, citing Deliveroo’s “significant decline in revenues” as reason for the approval.  

A smart piece from The Guardian’s James Ball last weekend noted that the entire (and heavily venture-backed) third-party delivery system is based on optimism. “Without that optimism, and the accompanying free-flowing money to power through astronomical losses, the entire system breaks down.”

The current state of Deliveroo could be a hint of how other third-party delivery services will weather the pandemic. Meantime, restaurants that need help making deliveries will still be paying the service those astronomical commission fees.  

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.

Uber Eats Is Exiting Eight Markets

Uber Eats Is exiting the Czech Republic, Egypt, Honduras, Romania, Saudi Arabia, Uruguay, and Ukraine, according to a regulatory filing from today flagged by TechCrunch. The company’s ride-hailing business will not be affected.

The filing notes that, “These decisions were made as part of Uber’s ongoing strategy to be in first or second position in all Eats markets by leaning into investment in some countries while exiting others.” The company will “fully discontinue” operations in the above companies by June 4, 2020. 

Uber also announced, in the same filing, that it is transferring its Eats business in the United Arab Emirates to its wholly owned subsidiary Careem, which operates a ride-hailing business around the Middle East.  

The company will “look to reinvest these savings in priority markets where we expect a better return on investment.”

An Uber spokesperson told TechCrunch that the filings are not related to coronavirus. Rather, they are part of the company’s strategy to be in the first or second position in all of its markets. Earlier this year, the company sold its Eats business in India to local third-party delivery service Zomato. It exited the South Korean food delivery market last year.

Worldwide, the third-party food delivery sector is feeling the economic strain brought on by the COVID-19 pandemic, which has forced many restaurants to close and made some customers wary of ordering out. Hailed not so long ago as the lifeline for restaurants, delivery services are now struggling with the rest of the industry. Last week, Delivery Hero subsidiary Foodora exited the Canadian market. UK-based Deliveroo, which recently got much needed approval on its investment from Amazon, said last week it was cutting 15 percent of its staff.

Stateside, local governments are imposing mandatory caps on the commission fees third-party delivery services charge restaurants, a move that could further erode both the on-demand business model these companies rely on as well as any shot they might have at future profitability. Uber’s news today will not be the last we hear of delivery services leaving entire markets and restructuring their strategies moving forward.

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. 

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. 

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. 

Indian Delivery Service Swiggy Will Cut Jobs and Scale Back Its Ghost Kitchen Division

Swiggy, one of India’s largest food delivery services, says it plans to cut about 1,000 jobs as the COVID-19 pandemic continues to wreck havoc on the global economy, according to Indian news outlet Entrackr. The layoffs are set to happen next month and will mostly impact the company’s ghost kitchen division.

The announcement comes just weeks after Swiggy announced a $43 million fundraise as part of an ongoing Series I round. The company is currently valued at $1.42 billion.

But unicorn status is no match for a pandemic, which has put India’s population of 1.3 billion on lockdown and gravely impacted businesses. Swiggy as well as its chief rival Zomato have both seen a drop in the number of daily orders they fulfill. Some cities in India — namely Telangana — have outright banned food delivery for the time in order to prevent further spread of the coronavirus. Entracker also noted that the Indian government is advising ghost kitchens to operate with half their workforce.

A Swiggy spokesperson said measures to deal with all these factors include renegotiating contracts with landlords, relocating some kitchens, and shutting down others. “As the lockdown gets further extended, we are evaluating various means to stay nimble and focused on growth and profitability across our kitchens.” 

Delivery services, restaurant tech companies, and restaurants themselves are all feeling the economic strain imposed by country-wide lockdowns, and layoffs are becoming more commonplace each week. In the last week alone, Yelp laid off 1,000 staff and furloughed others, Sweetgreen cut 10 percent of its HQ staff, and restaurants left and right have laid off or furloughed employees as dining rooms remain closed all over the world.

You would think ghost kitchens, which cater specifically to off-premises orders, would be a booming business right now. But Swiggy’s layoffs also underscore an important point: that ghost kitchens are superfluous to operations unless you have the customer demand to justify them. At last check, Swiggy had ghost kitchens in 14 cities across India.

The company is currently in the process of shutting down around half its ghost kitchens. Meanwhile, the company expects more layoffs — possibly up to 40 percent of staff — in this division to follow in the future.