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Some Des Moines restaurants losing money from delivery apps

May 26, 2019

DES MOINES, Iowa (AP) — A simple swipe on a mobile app can bring an endless buffet of foods to your door.

Under pressure to meet customers’ growing demand for delivery, many local restaurants are turning to third-party services like Uber Eats and Grubhub.

But those services come with fees that some restaurant owners say are cutting into their bottom lines.

“There is a downside: They take 30% commission,” Lesley Rish, owner of Dumpling Darlings, who offers delivery through Grubhub, told The Des Moines Register. “It’s hard for restaurants to make a profit.”

Papa Keno’s, the six-month-old Drake neighborhood pizzeria, has its own fleet of delivery drivers. But owner Alec Davis also contracts with Grubhub to reach new customers who are used to turning to the delivery app for their meals.

The restaurant breaks even on most orders placed through Grubhub, he said.

“I don’t think we make a whole lot of money or anything on it, but that’s not our strategy right now,” Davis said.

But for Orchestrate Hospitality, which owns several long-established restaurants in the Des Moines metro, third-party delivery has been profitable and it’s become a major part of the company’s businesses, President Paul Rottenberg said.

Delivery can account for up to 10% of sales at some locations, he said.

Orchestrate started offering Grubhub delivery at Malo, the company’s upscale Latin restaurant in downtown Des Moines, more than a year ago. It then expanded delivery to other locations such as Centro and Django. The company recently added delivery through Door Dash, another third-party app.

Delivery fees cut into the company’s margins, but third-party services attract customers who may otherwise never step foot inside the company’s restaurants, Rottenberg said.

Zombie Burger + Drink Lab will soon be able to send out several hundred delivery orders.

“It’s profitable for us,” Rottenberg said. “If your restaurant is already successful it makes sense to use the services. It’s not a way to make your restaurant successful because the fees are so strong.”

Jessica Dunker, president and CEO of the Iowa Restaurant Association, said third-party delivery is part of a sea change for restaurants.

“We as an industry are on the cusp of a major disruption,” she said. “Like what Uber did to taxis and Airbnb to hotels, we have to be on the precipice of something similar.”

In Des Moines, a growing number of third-party delivery apps are vying to be the top choice for hungry eaters. Door Dash, Food Dudes, Mytown2go, Postmates, Seamless, Grubhub and Uber Eats are just a few of the options, and they’re recruiting as many restaurants as possible.

In the last five years, revenue from deliveries jumped 20%, and the overall number of deliveries increased 10%, according to The NPD Group. Much of that has been driven by young consumers who are opting to eat at home.

Nearly half of takeout and delivery customers nationwide are under 35, according to a 2019 report from the National Restaurant Association.

In Iowa, the number of people choosing to eat from home grew in 2018 with 39% opting for carry out, 22% drive thru and 3% delivery, according to a 2019 report from the Iowa Restaurant Association.

Third-party delivery fees vary by company and by restaurant, but they often account for 20 to 30% of each food order, local restaurant owners said. A pricing example on Grubhub’s website shows the delivery company collecting $14 in fees on a $44 order — about 30%.

That’s hard for a restaurant that already operates on narrow profit margins. Dunker said many Iowa dining establishments earn about 5% net profit.

“That being said, you have to do it and you have to do it because consumers demand it and it’s where the market is going,” she said.

For Justin Hawkins, 24, of Des Moines, delivery is a matter of convenience. He uses UberEats or Grubhub to have food delivered while at work. He said he uses the service around five to six times a month.

The cost per meal with fees can be around $15 to $25 depending on how much food he orders and where he’s ordering from, Hawkins said. The wait for delivery in the Des Moines metro is typically around 40 minutes, but never less than 30 minutes, he said.

Firehouse Subs is one of his favorite place to order from, but he’s never stepped foot inside on of Firehouse’ restaurants.

“I like the convenience and it’s super reliable too,” Hawkins said.

More young people like Hawkins will drive restaurants to move toward delivery, Dunker said.

The ideal situation for restaurants is to deliver their own food, which ensures profits stay with the owner and the food quality is consistent, like pizza or Chinese restaurants. However, most people can’t afford enough staff to make it sustainable, Dunker said.

In the future, restaurants may join together to create coalitions, like an East Village or Court Avenue group to try and work together to make delivery profitable, Dunker said.

Technology may be the answer as well, with temperature-controlled driverless cars delivering food.

Until then, the relationship between delivery services and restaurants will be in flux.

“In the next couple years, something’s going to give and there will be a great delivery solution that we’ll see people do,” Dunker said. “Delivery will be ubiquitous in almost every kind of restaurant.”

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Information from: The Des Moines Register, http://www.desmoinesregister.com

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