When Grubhub arrived in Iowa City in 2017, Jon Sewell received what he describes as a "call to action." He owns a D.P. Dough franchised there and had been using a delivery service called OrderUp to get his panties to college students. But then Grubhub bought OrderUp and doubled the commission on orders to an astronomical 30 percent, plus fees. At those rates, Sewell says, he lost money on each order.
So, in January 2018, Sewell joined forces with some 25 contributing Iowa City restaurant owners to launch his own delivery cooperative called Chomp. The business, which now employs five to seven full-time people and about 100 independent drivers, caps commissions below 20 percent, redistributes profits to co-op members and offers local customer service, which Grubhub had outsourced.
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Sewell's local experiment has national implications. At the start of the pandemic, food delivery apps, including the "Big 3" (Grubhub, Uber Eats, and DoorDash), were hailed as saviors, facilitating a takeout boom aimed at keeping restaurants and your staff working. But restaurants were quickly confronted with a harsh reality: These Silicon Valley and Wall Street-backed companies, which together command 93 percent of the market share nationwide, are designed to squeeze money out of local businesses, sucking up a total of $9.5 billion in revenue in 2020 alone, and send it to shareholders.
Jon Sewell from Chomp Adria Carpenter
“Most consumers really want to support locally owned restaurants,” says Kennedy Smith, a senior fellow at the nonprofit Institute for Local Self-Reliance (ILSR). “They think that by ordering food through the big delivery apps, they are supporting them. It really isn't, and that's a real disconnect."
Brian Rorris, owner of five restaurants and two bars in Iowa, calls the big apps “leeches.” He helped found Chomp and argues that the delivery co-op, with its lower commission rate and local customer service, is "more beneficial to the market." Iowa City seems to reflect that: Chomp now works with nearly 200 local outlets. Sewell helped start an equally successful delivery co-op, Nosh, in Fort Collins, Colo., and followed it up with LoCo Co-ops, an unaffiliated company that launched five more businesses across the country and is now organizing in Chicago.
"Delivery platforms, with few exceptions, have not been profitable."
Should Big Tech Apps Be Worried About a Full-Scale Restaurant Riot? A September 2021 McKinsey report detailed a recent shakeup at third-party food delivery companies, as Uber bought Postmates and Grubhub was bought by Just Eat Takeaway. The report hinted that the current app business model sits on a shaky foundation, reminding investors that while they may have seen "explosive growth" during the pandemic, "delivery platforms, with few exceptions, have not been profitable," and that the apps' high commissions were "unsustainable" for both the restaurants and the apps in the long run.
Meanwhile, local delivery services are on the rise. A recent ILSR report looked at 20 startups offering local delivery services and found they could disrupt the big apps by offering lower commissions to restaurants, better wages for delivery staff, and better hospitality.
Startups are not the only threat. During the pandemic, New York City, San Francisco and other cities have passed ordinances capping third-party delivery fees at rates ranging from 10 percent to 20 percent, which companies are challenging in court as unconstitutional. Many cities used pandemic relief funds to pay for free local delivery, partnering with taxi companies and bike courier apps.
“The biggest threat to restaurants is the one they are least aware of.”
John Schall, a restaurant owner and former economics professor at Yale, warns against excessive optimism. "I'm skeptical that co-op or other small-scale delivery options will ever make a significant difference," he says. “If they are successful, they will be bought. Everyone will have a price and the Big 3 will pay it.”