Restaurants Struggle with Delivery Fees During Pandemic
One out of five restaurants in the U.S. will close permanently as a result of Covid-19, according to estimates by Business Insider. But there’s one key industry player that’s thriving: delivery services.
Businesswire and Axios report surges in overall delivery service orders during the pandemic. A May earnings report for Waitr Holdings Inc., the Louisiana-based company that purchased Minneapolis-founded food delivery and takeout service Bite Squad in 2019, confirms: Bite Squad saw profits grow by more than $1 million between March and May.
But many of Bite Squad’s restaurant partners feel as though that success is coming at their expense, because of the fees restaurants must pay; Bite Squad charges some of the highest in the industry.
While Bite Squad declined to share the percentage of sales it takes from its restaurant partners, representatives of Twin Cities eateries Nico’s Tacos, Black Sheep Pizza, World Street Kitchen, and Craft and Crew say the service takes anywhere from 25 to 35 percent of each sale, depending on fees.
That percentage wasn’t a deal breaker before the pandemic—delivery sales were mostly incidental, says Black Sheep owner Jordan Smith, and they were considered part of the marketing budgets at Nico’s and World Street. But when dining rooms were forced to close because of Covid-19 and depend solely on takeout and delivery, it became a tremendous burden.
“You talk about restaurants and their profit margins, and they’re notoriously known for being very slim,” says Jenna Victoria, who owns Nico’s Tacos with her husband, Alejandro. “Full-service restaurants, we run 8 to 12 percent profit when everything is going well,” Alejandro Victoria adds. So after Bite Squad takes 25 percent of sales, it’s like selling happy hour-priced food, but without the money-making alcohol sales.
Craft and Crew hospitality group owner David Benowitz says the delivery services’ fees were sucking his profits so dry that he put together his own delivery platform. He hopes to be able to drop all third-party delivery services by midsummer. The business oversees five restaurants around the Twin Cities including The Howe Daily Kitchen & Bar and Al’s Place.
“It’s sort of a unique way for us to be able to bring back some of our furloughed employees and also plan for the future, because I don’t think that delivery is going away any time soon,” Benowitz says. “If anything, it’s just going to increase.”
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While some other services like DoorDash and Uber Eats offered temporarily reduced fees to restaurant partners at the start of the pandemic, Bite Squad did not. (Bite Squad did not respond to our request for comment on the topic.)
“I think there’s deep issues with the business model,” says Black Sheep’s Smith. “One thing we’ve talked about is maybe … the consumer can absorb the entire cost of the convenience.”
All the restaurant owners agree on another point: When they get busy and can shut off one of their delivery service apps for the evening, Bite Squad is always first to go.
This story appears in the June/July 2020 issue with the title “Delivering for Whom?”