Business

Consumers love food delivery apps, but high commissions eat at restaurant owners

So many Canadians are ordering meals via delivery apps, you'd think restaurants and the apps are cashing in big time. In fact, some restaurants won't even sign with an app, due to commissions of up to 30 per cent.

Delivery platforms charge up to 30% but earn only 'very, very thin margins'

Thompson Tran, chef and owner of the Wooden Boat Food Company in Kitchener, Ont., isn't interested in using meal delivery apps. He is concerned about cost and quality issues. (Marc Baby/CBC)

It's no secret the meal delivery business is booming in Canada. Hungry consumers ordered $4.3 billion worth of meals in 2018 — $1 billion of that on meal delivery apps such as Uber Eats, Foodora and SkipTheDishes.  

That number will climb again this year, according to Ipsos Foodservice Monitor.

But Canadians' enthusiasm for a quick and easy dinner isn't shared by all restaurant operators, because the delivery platforms grab a 20 to 30 per cent commission off every sale.

"You're just wasting your time making great food for very little profit," says Thompson Tran, owner of the Wooden Boat Food Company in Kitchener, Ont., which specializes in Vietnamese dishes. "I'm not a fan of delivery apps."

Restaurants Canada recently asked its members about a variety of industry issues, including the use of "third-party delivery/takeout apps."

Of those who replied, 35 per cent said they were working with the delivery apps.  Answers to a question about the profitability of the apps suggest a majority of respondents are not thrilled:

  • 55 per cent replied, "Slightly profitable."

  • 21 per cent said, "Not at all profitable."

  • Less than 10 per cent considered app delivery "very profitable."

The delivery platforms aren't exactly cashing in, either.

Asked about the size of the commission Foodora Canada charges, the company's general manager defends the cost. "It's what we have to charge to make our business work for us as well as the restaurant," says David Albert. "We're actually operating on very, very thin margins."

The Australian division of the German-based app collapsed in August last year, due to financial problems. Meanwhile, Uber warned investors that the company — and its Uber Eats division — loses money on its partnership with McDonald's and other big chains.

An Uber Eats delivery person carries a meal to a customer. Delivery apps are popular with consumers but not very profitable. (CBC)

Even so, Tran would appear to be a perfect candidate to jump on board the delivery trend: his restaurant has very little seating, and most customers opt for takeout. Why doesn't he sign up with a delivery app?  

"My profit margins are so tiny that if I give upwards of 30 per cent to those third-party apps, it's gone like that," says Tran with a snap of his fingers. He's been approached by three apps and has declined their offers.

But some restaurateurs insist that smartphone delivery represents a huge opportunity.

'The staff is already here'

John Lettieri runs Hero Certified Burgers, an Ontario-based chain with 52 locations. He doesn't mind paying a 30 per cent commission to outsource delivery.

"We've increased sales quite a bit, with no extra labour, no extra expenses," he says. "The gas is running, the electrical is running, the staff is already here."

Lettieri is so enthusiastic, he's launched a new venture: marketing his meals to unrelated foodservice operators across the country, for them to sell through mobile delivery apps.

John Lettieri, founder and president of Hero Certified Burgers, shows off new menu offerings he intends to sell to other restaurants, for delivery only. (Mark Bochsler/CBC)

"The idea now is to send our product to existing restaurants where we're not present, where we're not going to disrupt their own business, and we're going to have them prepare our food to go to market."

Lettieri is even adding new menu items — fried chicken as well as fish and chips — to be sold under the Hero Certified brand, exclusively for delivery. "It's an opportunity to help independent restaurants grow their business. It's an opportunity to grow our own business," he explains.

Ghosts but no dining rooms

Some foodservice operators have based their entire business on the meal delivery trend. They run "ghost kitchens" with no dining room whatsoever.  Best described as commercial kitchens, they exist only to fill orders from delivery apps.

George Kottos of Toronto is Canada's aspiring ghost-kitchen king. He's running delivery-only kitchens in Edmonton, Calgary, Red Deer, Alta., Saskatoon, Winnipeg and Toronto and plans to open new ones soon in Ottawa, Vancouver and Montreal.

"I call real estate agents and I ask them for the worst location in the city with the cheapest rent," says Kottos. "Because I don't need a storefront, because I don't open for customers."

George Kottos, Canada's aspiring ghost-kitchen king, stands in front of his bank of tablets, each connected to a different meal delivery platform and each offering a different type of food. (Mark Bochsler/CBC)

He operates 14 restaurant brands that are only visible on a smartphone. To a hungry customer, it looks like they're ordering from a regular restaurant — but the food comes from a kitchen where the chef prepares meals from a wide range of menus: souvlaki, pizza, omelettes, falafel.

Kottos says he's working closely with Uber Eats to determine where there is potential for yet another of his ghost kitchens.

The company shares data and analytics with him regarding what type of food is in demand but not available in a specific area.  "So if you go to the suburbs and they don't have an Indian restaurant, we can create the menu for them," he explains.

He acknowledges that a 30 per cent commission is significant, but says in his opinion it's fair, given that the apps do all the marketing on top of handling the drivers, vehicles and payments.

"The majority of restaurants do it as an add-on to their business, and then whatever you do with the delivery platforms, it's all profit," he says.

Tran doesn't see it that way. Beyond the financial considerations, the chef and restaurant owner has concerns about quality. "Consistency is a word that's heard in every kitchen around the world, but when you order food through a third-party app, you don't know who's delivering."

Tran has been approached several times by meal delivery apps, but he's not interested. (Keith Whelan/CBC)

Tran says he puts a lot of effort into creating delicious, high quality food, and has little faith a delivery app can guarantee food will arrive hot and fresh, the way it was intended to be served.

"From my own experience as a consumer, it's taken up to two hours for it to get to my door — cold, crusty — and who takes the brunt of that issue? It's not the driver. It's the owner of the restaurant."

About the Author

Dianne Buckner has reported on entrepreneurs for two decades. She hosts Dragons' Den on CBC Television and is part of the business news team at CBC News Network.

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