COVID-19 Resurgence Puts Third-Party Delivery in Spotlight
The nexus of COVID-19 resurgence in various states and the ongoing consolidation of third-party services like Uber Eats and Gruhub comes at a particularly inopportune time for restaurants.
Whether it’s giants like McDonald’s which recently halted dining room re-openings or independent eateries, all will be more dependent on to-go-only business and its related expenses. For independent restaurants, it’s an “excruciatingly more difficult” time, says Na’ama Moran, co-founder and CEO of Cheetah, the San Francisco-based food ecommerce platform.
On the big-get-bigger side of the third-party ordering/delivery scene, Uber Eats parent Uber Technologies this week announced its intention to acquire Postmates for $2.65 billion. That came on the heels of news that Grubhub will merge with Just Eat Takeaway. Despite their considerable scale, big companies have been struggling with limited menus, the added expense of to go meal packaging and third-party fees during the pandemic.
While chains like McDonald’s have long relied on several third-party services, others are still experimenting particularly those for whom delivery hasn’t been a big priority.
Darden Restaurants whose holdings include Olive Garden, LongHorn Steakhouse, Yard House and The Capital Grille recently tried third-party delivery for Yard House but isn’t convinced it makes financial sense. “Our own to go-business actually grew faster than the third-party business in those restaurants,” Darden CEO Gene Lee told analysts on a June 25 conference call. “Now, as we’ve said all the time, that can change…if we see that those margins are equal to what we do today. Then maybe we’ll go into the third-party model.”
Profit margins have become more of a focus for companies like DoorDash, Grubhub and Uber Eats because many cities have begun to cap commissions generally in the 20% to 40% rangethat they charge restaurants. In May, New York limited third-party delivery service fees to 15% per order. “There is already a lot of government pressure on these platforms’ commissions, which is very likely what’s also driving this consolidation,” says Cheetah’s Moran. “I think if they are left to their own device, they will get worse because they need to monetize what is a very expensive infrastructure.”
Topics: Litigation Finance, COVID-19, Business Management
Work cited: Steve Ellwanger, July 07, 2020
