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Food service groups offer local alternatives to major delivery apps

Food service groups offer local alternatives to major delivery apps
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Adam Fry had just started exploring third-party delivery services when the coronavirus pandemic upended the business model for his bar in northwest Washington, D.C.

Ivy and Coney, a dive bar known for its Detroit and Chicago-style hot dogs, started leaning more heavily on popular delivery app Grubhub once its regular patrons couldn’t safely visit in person. But Fry said that arrangement quickly became untenable.

“Within about a week we saw, based on our revenue, our total profit actually decreasing,” Fry said in an interview.

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Instead of continuing with the app, Fry and fellow Ivy and Coney co-owners Chris Powers and Josh Saltzman decided to launch their own service geared toward D.C. establishments.

The service, DC To-GoGo, offers a mobile app and web-based marketplace for pickup and delivery. It also offers third-party delivery for any restaurant with its fleet of couriers.

“We wanted to model a business which was largely built on number one transparency, number two living wages and number three working within the restaurant ecosystem,” Fry said.

While the dominant food delivery apps have positioned themselves as allies of local restaurants – urging eaters to support independent businesses and touting efforts to keep them afloat amid the pandemic – many restaurant owners have complained about the services and what they view as excessively high commission fees on orders that leave little margin for restaurants to profit.

These concerns have only been exacerbated by the COVID-19 crisis.

“The costs of operating a restaurant are just enormous and upgrading and pivoting to takeout is extremely hard,” said Maureen Tkacik, a senior fellow at the American Economic Liberties Project who has written extensively on the subject. “So paying these fees to delivery apps is just totally ruinous.”

Owners have very few options. Grubhub, Postmates, Doordash and Uber Eats, along with their subsidiaries, account for 98 percent of all meal delivery sales, according to one estimate based on September sales.

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The concentration could get even more pronounced if Uber’s proposed acquisition of Postmates gets regulatory approval.

“Any given market is often dominated by two or even one of them,” said Stacy Mitchell, co-director of the Institute for Local Self-Reliance, a nonprofit group that advocates for local resources.

“They’re corralling customers and then using their gatekeeper power to extract from restaurants," Mitchell said, arguing that many of the practices are deceptive.

Unlike the dominant delivery apps, DC To-GoGo’s drivers are full-fledged employees with fixed hours and incomes. Many of them are former restaurant staff that lost their jobs earlier on in the pandemic.

The company takes a 5 percent commission on pickup transactions, a 10 percent commission on deliveries that restaurants facilitate themselves and a 15 percent commission on orders using the DC To-GoGo’s fleet, plus delivery fees.

More than 30 restaurants have already joined the platform, which offers software for restaurants that want to set up in-house delivery. The company hopes to expand in the D.C. metro area.

“We believe that as long as we are supporting local and we are fostering that unity approach wherein we are helping restaurants and restaurants are helping each other, then it is sustainable,” Fry said.

In Iowa City, Iowa, Jon Sewell has been taking a similar approach built around restaurants supporting restaurants since 2017.

Sewell, drawing on his experience organizing health-care cooperatives, launched Chomp to compete with Grubhub, which had been the dominant service in the city since acquiring local competitor OrderUp.

Chomp works a lot like a cooperative – restaurants that sign up for the service pool their resources together to hire delivery drivers, and members also own a slice of the company.

“The idea of a third-party delivery service is brilliant and now essential infrastructure going forward,” Sewell told The Hill. “But, it can’t be held in the hands of tech-minded people looking for returns that venture capitalists want them to make.”

While drivers on the service are contractors rather than employees, Chomp guarantees a $12 per hour pay floor. Sewell said, “Our goal is not to make money: it is to break even."

The restaurateur has his eyes set on expanding that model nationally with his new project LoCo. The company is helping several markets, including Richmond, Va., Knoxville, Tenn., and Omaha, Neb., launch their own delivery cooperatives, providing experience, legal guidance and digital platforms.

In Durham, N.C., local leaders are taking a different approach to helping restaurants with food delivery amid the pandemic.

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Durham Delivers is a product of the city’s coronavirus recovery and renewal taskforce. The group works with communities to organize bulk meal deliveries at no cost to the consumers or restaurants.

A neighborhood organizer picks a day of the week and compiles orders from participating residents, then Durham Delivers facilitates the delivery at no charge.

Two hundred and fifty of these joint orders have already been made, which Discover Durham CEO Susan Amey says normally include upwards of 30 meals. Seventeen restaurants and 17 communities have already come on board to the program, with many more having expressed interest.

“What we're hearing from some of the restaurants is that the amount of revenue that they're bringing in on one of these orders can really make the difference for them,” Amey told The Hill.

Durham Delivers has begun experimenting with the same joint delivery model for breweries and bakeries. While it doesn’t see itself as a direct competitor to the big third-party apps, it offers an alternative “that we think could add community value,” Amey said.

Last year, David Cabello launched Black and Mobile after he noticed that many Black-owned restaurants were absent from the major delivery platforms.

Cabello, who previously worked for third-party delivery services himself, wanted an app that exclusively partnered with Black-owned businesses. His company operates in Philadelphia, Detroit and Atlanta, with plans to expand elsewhere.

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“I’m doing this to save Black restaurants,” Cabello told The Hill.

Black and Mobile charges restaurants a flat 20 percent commission and allows them to raise their food prices for delivery, unlike most major delivery platforms.

And although it currently uses gig work for its delivery, Cabello is thinking about hiring full-time employees in their place.

Mitchell noted that while various local delivery services have different fee structures and business models, "in general, they're cheaper and they are more aligned with the interests of the restaurant.”

Leaders of local services who spoke with The Hill maintained that while the major third-party apps are dominant now, their own platforms will provide a more sustainable model moving forward.