For years, it’s been an open secret that orders from food delivery platforms like Grubhub, DoorDash, and Uber Eats are not profitable for restaurants. At first, restaurants used these apps to get in front of new customers who could eventually become repeat customers. Because restaurants operate on razor thin margins under normal circumstances as-is, they never banked on these platforms to earn the majority of their revenue. Third-party apps were considered “supplemental income” at best, and a “marketing expense” at worst.
And then the pandemic hit.
In a matter of days, mandated shutdowns completely eliminated the restaurant industry’s bread and butter, the dine-in experience. Restaurants had to move quickly and pivot to take-out and delivery only as their main source of income. Businesses that could not shift to this new mode of operations closed down, while those left standing found themselves now turning to these platforms.
While many predicted the coronavirus would be a boon to the food delivery apps, restaurants and customer alike are experiencing the negative effects of working with these platforms. The past few months have exposed the exorbitant fees restaurants pay to work with them, leaving owners with meager profits. Even then, food delivery platforms aren’t making money themselves either.
How is this possible?
Let’s use a Pad Thai order as an example for the rest of this article. Pulling up our food delivery apps, a $13 dish yields just over $20 all-in before tip.
At first glance, it may sound ludicrous to pay over 50% of the cost of the food in fees, but if you think about it rationally, perhaps it makes sense. You are, after all, indulging in the luxury service of having food delivered straight to your door.
With ~$1 tax and a $6 fee paid to the delivery app (which doesn’t include tip yet!), that sounds like enough for the restaurant to prepare the food, pay the driver a base wage, and leave enough for the delivery platform to take a small cut, right?
Here are three possible breakdowns of how this $20 is distributed. The party currently responsible for subsidizing food delivery is the restaurant, so that is where we begin our comparison.
NOTE: For the sake of simplicity, we will hold the delivery person’s wages constant at $7 + tip for a 30 minute delivery. 1
Restaurants have historically paid commissions upwards of 30% for delivery orders. In our example, this amounts to $9. While the delivery platform clears a $2 profit in order to keep its systems online, this amount is unsustainable given the single-digit profit margins that restaurants dealt with even prior to the pandemic.
None of these scenarios offer a sustainable solution for all three parties (customer, restaurant, delivery platform). At least one party must pay for the convenience of having a dedicated courier pick up food and bring it to a customer’s doorstep.
Let’s admit it: we’ve all grown accustomed to the convenience of having food appear after simply clicking a few buttons. There’s no way we’re going back to the old ways of calling a restaurant and spelling out our address and credit card numbers, letter by letter, number by number. There must be a better way that’s fair, sustainable, and convenient for all within our food delivery ecosystem—without paying $20+ for a Pad Thai.
Traditionally, catering has encompassed any situation that calls for a group of people to eat together. We believe this definition can be extended further into food delivery, where a broader definition of catering could just be, “feeding groups of co-located people.”
While restaurant margins have historically been small, catering has always been profitable because of the economies of scale. Preparing a meal for 10 person delivery allows for scale in every aspect: in preparing the food, delivering the food, and even in purchasing the food.
So here is the question we’re asking: Can we “cater” to multiple buildings in a neighborhood?
Instead of ordering a Pad Thai by yourself, what if 10 people on your block ordered Thai food together? The delivery person would only need to take one trip and still deliver food to each person’s front door.
By batching orders for a restaurant at the same date, time, and approximate location, we believe it is possible to achieve the necessary scale for food delivery to make sense.
Here is that same example of the $13 Pad Thai, applied to both models:
For a single delivery, the "batched" model, guaranteeing sane prices and wages for all parties, loses money; but as the number of deliveries made increases, things swing in its favor.
This “batched” model provides a few advantages:
We consider this an equitable solution to the existing broken food delivery ecosystem that’s better for everyone. And it’s why we are proud to introduce you to:
As a catering service that has prided itself on feeding groups for eight years, CaterCow is introducing Fare to work with our communities and reinvent food delivery in a sustainable, fair, and transparent way for everyone involved.
We curate high-quality and affordable weekly menus for your neighborhood, giving you access to restaurants all across the city. Order up to 24 hours in advance, giving restaurants sufficient time to prepare. There are no minimums for your individual order because your food will be delivered alongside your neighbors’ within the same one-hour time interval.
In this vision of an alternative food delivery ecosystem, the restaurants and menus we select are curated and taste-tested; so you’re always getting something that feels special, rather than a last-minute selection.
You may have noticed our usage of the term "ecosystem" throughout this article. We believe there is an interconnected relationship between diners, restaurants, drivers, and delivery platforms. When the pandemic started, this ecosystem was disrupted in a major way which caused restaurants to become dependent on delivery as a primary source of income.
Due to the hardship faced by restaurants, local governments have responded by imposing caps on the commissions these platforms can charge. As we have shown, the model employed by these delivery platforms offers little room for adjustment and that makes these regulations hard for them to swallow.
In response to the fee caps, Uber stated, "Regulating the commissions that fund our marketplace — particularly during these unprecedented times — would force us to radically alter the way we do business, set a far-reaching precedent in a highly competitive market, and could ultimately hurt those that we're trying to help the most: customers, small businesses and delivery people." The other major players responded in a similar manner.
While we sympathize with this logic, we also believe it is shortsighted. When we allow uncapped fees to wreak havoc on restaurants, the relationship becomes parasitic. Our futures are inextricably linked—if our restaurants fail, so do the delivery platforms. We need to treat each other as partners through this crisis.
That's why we’re proud to announce that we will charge our restaurants zero commission on all Fare orders. With this new model, we believe it is possible to achieve a symbiotic relationship where everyone wins.
1 - It's notoriously difficult to find how much these companies are actually paying drivers out of pocket, but DoorDash claims $18.54 per hour (including tip) so we’ll take DoorDash’s word and assume an average base wage of $7 per 30 minute delivery.