Businesses on the popular delivery platform – which will have largely been seem as a godsend by outsiders during lockdown – say they are being held at “gunpoint” just so they can compete with the bigger chains.
Deliveroo charges of up to 30% to restaurants and takeaways, meaning a meal costing £14 could leave the restaurant with a paltry £1.58 profit after all other costs are taken out.
Chef Krish Pankaj, who owns the Keralan Karavan in Cardiff, said he made the call to quit the delivery platform as virtually all his earnings were going towards delivery costs.
He initially turned to the delivery platforms at the start of lockdown when he realised offering takeaway was the only way to continue cooking.
Krish, who specialises in flavoursome Indian food, said: “Deliveroo was never our first choice because of the commission they were taking but Uber Eats helped us out for the first month by offering their service commission-free.
“After that it was 30% for Uber Eats and 35% for Deliveroo. So if you are selling a curry dish for £10, then £3.50 is gone straight away.
“It was a nightmare, we just had to stop in order to survive. It wasn’t worth my business.”
So often, small independent food businesses, like Krish, see the delivery platforms as their only option to compete with the bigger, better-known chains.
But the “ludicrous” delivery fees being charged by the “big three” – Deliveroo, Uber Eats and Just-Eat- means many restaurants are effectively working for Deliveroo rather than themselves.
Krish added: “The strangest thing is no one is standing up to these companies. There’s no one from the government or the council prepared to stand up and question them. It’s a schoolboy bullying thing: ‘Either you pay us or you don’t’.
“We were at gun point where you had to pay for the delivery if you wanted to be on the platform. If you ask any independents around who have been doing delivery during lockdown, everyone will say the same thing.
“These times are not normal times, normally you’ve got people coming into your restaurant, and delivery is your side sale going on, but when delivery is your main income that was literally holding you hostage. If you wanted to be on the platform, you had to pay that amount.”
Krish outlines just how much money he gets from a typical order placed on Deliveroo: “Customers already pay a £3.50 charge on top of their order when they go through Deliveroo plus a service charge of around £1.50, so for a £30 order, £5 will be for delivery and then they charge us commission for 35%.
They take all the money from all the customers then at the end of the week, they transfer the money to me as the restaurateur.
“So If I take say £1,000, they’ll take £350 straight away and give me £650. Out of that £650, I have to look after my food costs, my rent, my staff, my electricity. It came to the point where all our earnings were going on the delivery.”
Because he is a small independent business he cannot compete with the likes of McDonalds.
He added: “We were asking them to just take it relative to income. McDonalds are doing £3,000 each week and I’m doing maybe £600 so how is that fair, we are both having 35% taken?
“It’s not flexible at all. We just had to stop it completely.”
Mark Power is one of the directors at Smokehaus.
The US-diner style restaurant specialises in jumbo, gourmet burgers, ribs and wings and they experimented with delivery platforms before the coronavirus pandemic, but Mark said it never “took off” for them. They have two restaurants: one in Cardiff and one in Swansea, both of which had remained closed during lockdown.
“The big three are the big hitters out there and everyone knows them but the amount of money they take from us, it’s just too high,” explained Mark.
“It’s too high for us personally because of the protein element of what we offer. If we were pizza or pasta, it would be different. Those kind of places have high gross profit margins and I think you can afford to take those 30% hits.
“But because we are about meat and smoking and our raw costs are higher, when you take 30% off the top of that it’s just not achievable or viable.”
When Mark does reopen the restaurants, he is unsure what kind of world he will be returning to. It is a worry and he thinks he will have to look again at offering takeaway options.
“When we go back we’ll be looking at every avenue we’ve got and delivery will be part of that,” he said. “We will have to look at pushing the delivery aspect a lot more than we did before.
“But we will have to have a hard look at our pricing model. Before, we were trying to recoup some of that 30% on top and our pricing model was all wrong
“It just destroys any profit you’ve got. I’m all for promoting takeaway but if you’re not making any money from it you just turn into a busy fool.”
The only winners from the huge jump in food deliveries during the pandemic are the delivery platforms themselves, Mark said.
“You have to use them to get your name out there,” he explained. “But at 30% it’s just criminal. It’s such an enormous amount, the takeaways and the restaurants are doing all the hard work.
“The margins in our industry, even if you take Covid off the table, have been squeezed for such a long time with food costs going up, rates going up and prices going down.
“It’s no secret about the money they’re making. We’re not making that money.”
Andrew Chongsathien, founder of Brother Thai, said the whole model seemed to wrap around making lots of money for Deliveroo.
“In terms of pricing structure, that 30% eats into everything you’ve got left in terms of profit,” he said.
“Those 30% delivery fees are ludicrous. The technology is amazing, but the pricing structure is completely wrong. For example, when you hear that some places pay more in Deliveroo fees than they do to their staff, the model is broken.
“There’s a misconception that places are “doing well” during this crisis. They’re not. They’re simply working for Deliveroo.”
Andrew isn’t currently on any delivery platform but says he would consider it if there was a lower cost option.
“The delivery platforms do offer a good service, the technology is amazing and they’ve created a whole new industry,” he said.
“But along with that comes it’s own problems. It’s convenient, for the customer, but it comes at a price, for the restaurateur, and I don’t know how sustainable it is.”
“I would use a lower cost service if I did choose to go down that route,” he added. “People think it’s the only answer but it’s not. People can process orders using an online shop or even via email. You just need good records and a good way of getting your orders together and getting it out on time.
“The answer is setting up an order system on your own website and finding a last mile courier service. The 30% is the killer and that’s what it comes down to.”
The industry is crying out for an alternative, and that’s where Edmond Choo steps in. The founder of food consultancy I See Food and a full time opera singer, Edmond is determined to change the industry.
Together with some key figures from the Cardiff foodie scene, including Dusty Knuckle’s Phil Lewis, he has created Indie Eats: a “no frills, altruistic food delivery platform that brings independent businesses together in one place”.
His goal is to protect Cardiff’s independents from paying “stupid amounts in commission” to the big three.
Edmond said: “The real winners throughout the pandemic have been the big three: Uber Eats, Deliveroo and Just-Eat. These three food delivery giants are metaphorically raking the pounds in without having to do all that much.
“Since lockdown they would have had applications coming in from all over the place while businesses scrambled to change their business models from eat-ins to deliveries. While these three offer greater exposure on their platforms, for the businesses that apply to them, there’s a steep cost.”
So far, the response has been great he said and there is clearly a gap in the market in Cardiff. The likes of Dusty Knuckle, Keralan Karavan, Chronic Fried Chicken, The Pot Cafe and Bistro and the Dragon Fire Burger Co are all signed up.
Krish is hopeful Indie Eats will take off. He said: “Indie Eats is a very good concept for the small independents, and for the amount of work and technical help he offers, he is charging a nominal amount.”
Edmond said his driving force is less about making money and more about helping the industry.
“It’s an industry that these three companies have a monopoly over,” he explained. “No one wins. No business is really working for themselves, they are essentially working for Deliveroo, if they use them.”
Edmond is proposing to ask each business to contribute £300 per year for access to the platform and 8% in commission which includes use of his couriers. It’s a “far cry” from the 30-35% figure charged by the others, he adds.
“The 8% rate decreases by 1% each year, flattening out at 6% in the third and subsequent years. Additionally, 1% of all commissions taken are earmarked for local community and charitable initiatives.
“So, while making money is a priority, it’s not the main driving force behind this initiative.”
Mark at the Smokehaus is also keen, saying: “This could be just what we’re looking for, overall, this industry is crying out for an alternative.”
Deliveroo said it is committed to supporting its local, independent restaurant partners. A spokesman said: “We have been there for them throughout the crisis and we will be there during the recovery.
“From campaigning for a change to government policy to support restaurants, such as the cut in VAT, to introducing new tech tools to help customers dine-in safely, we have a positive track record of responding to the needs of our restaurant partners during this challenging time and this will continue to be our absolute priority.”
Last week, the delivery platform launched a new campaign called ‘Love Your Local’, specifically aimed at driving more orders to local restaurants, giving them more visibility on the platform and enabling customers to add a tip when paying for their order.
But the irony of Deliveroo’s campaign was not lost on Krish, who said it simply meant customers who thought they were supporting independent food business were simply filling the pockets of Deliveroo even further. Krish didn’t even get a look in.
General Manager and Marketing leader, with over 20 years of progressive leadership experience in the CPG and retail industries.