As lockdown restrictions continue across all part of the UK, many of us will turn to third-party delivery firms to order a takeaway, but what are the costs of these services to the businesses on the books?
With restaurants and pubs set to stay closed for the foreseeable, as the UK battles on with the coronavirus pandemic, most people will look forward to a takeaway as a treat at this time. Many businesses have had to turn to the three big delivery firms in order to get their food out to the local community and survive the lockdown. But at what cost?
Delivery costs to businesses
Currently, fees for companies such as Deliveroo and Uber Eats are 30 per cent, so if a business sells a pizza for £10, £3 of this will go to the delivery company.
This, coupled with concerns over ethics, has led to some business owners setting up their own online ordering system, but others just simply don’t have this option and rely on third-party firms to deliver their food to customers.
A recent survey, calculated by independent analyst Peter Backman, shows how much money aggregators take from UK restaurants, as it estimated that the three major takeaway ordering platforms Deliveroo, Just Eat and Uber Eats were securing more than £1bn in annual fees from UK restaurants.
Speaking to City AM last year, Peter Backman said: “Many operators, who have previously steered clear of delivery, are having to switch to a takeaway and delivery only offer.
“It’s not an ideal model in terms of the bottom line but it puts cash in the till and businesses will take anything they can get in this unprecedented time.”
Could fees be capped?
Cities in American have voted to cap fees on third-party delivery companies, which can reach up to 40 per cent, in order to help struggling hospitality businesses. Could the same happen here?
One business owner who relies on the big firms is Nick Watkins, of Glasgow’s award-winning El Perro Negro burger joint.
He would like to see a drop in fees, saying: “It would be nice during this challenging time that delivery partners reviewed rates to ensure that businesses were in a healthier state through the pandemic as it is in their interest as well long term.”
George Purnell owner of Koop + Kraft in Hampshire uses JustEat and UberEats for food delivery. He explained the fees and their impact on his business, saying: "If you’re using the big ones, like JustEat and UberEats, fees can be anywhere from at least 14 per cent.
"If you’re in the city and you use their drivers, you’re looking at almost 35 per cent, which is crippling in the restaurant industry to be honest. This is why a lot of restaurants who have had to close aren’t doing delivery because the fees are just so high.
"I can understand why they would want to charge that, but I think they’re very high, so I think they’d be better off charging less so that more restaurants get involved and offer delivery. We use JustEat because of the size of the platform – everyone in the country knows about it and that’s probably the one we use the most."
Speaking of a cap on fees, George agrees that this would be a welcome move, saying: "I definitely think the fees should be capped. They capped them for a month in April last year, but other than that they’ve done nothing. I think they’ve taken advantage of the situation.
"With the amount of business they’ve had and more restaurants signing up, they could have at least capped it for existing restaurants that used the platform before the pandemic, like us.
"Other than that, we’re quite lucky with what we do as we can adapt our product, delivery is a big part of what we do and without it there’s no way we would have survived, so we are grateful for platforms like JustEat, it’s just a shame they come at such a heavy price."
'It's time for change'
Julie Lin McLeod, owner of Julie’s Kopitiam in Glasgow was offered a cash incentive to join the books of a delivery firm, as she explained: “We firstly got offered cash up front by Uber Eats at the beginning (of the pandemic) when nobody knew what was going on.
“At that point we were unsure about even opening. They then retracted that offer further into the pandemic which would have been when business was surely booming as takeaways were the only place able to open.
“We’re grateful for the service however the fees are just so high, 27 per cent pretty much swallows our profits so we have to raise prices in order to get the food to customers and stay afloat.
“It’s totally understandable that they have to charge a fee for using the service, getting drivers, riders and a reliable platform is something we’re happy to pay for but I think that given the scale of their operation, and how many businesses will have signed on during a pandemic it’s quite a steep asking price to allow businesses to pay this.”
Sam Stevens, Director and Co Founder of MILK Cafes in Edinburgh explained why his businesses don’t use the big third party delivery firms, saying: “Like many cafes and restaurants we have turned to deliveries during these trying times.
“For us using a delivery platform was never a consideration. They charge unreasonable commission, sometimes up to 30 per cent.
“30 per cent is generally the profit margin that restaurants work to so it just doesn’t add up. Restaurants end up putting prices up to cover the costs and the only person that wins is the delivery company.
“But the main reason for us is that it doesn’t sit well with our business ethos. These big companies are known to have unethical practices.
“We like to think we are a company that treats people well and puts quality first. What kind of message would we be putting out if we were to use these apps? It goes against the grain.
“We are in a lucky position that we are able to provide our own delivery service and we sometimes use Farr Out, a local cargo cycle courier company.
“The biggest challenge will be making consumers kick the habit and understand the pressure these companies put on small businesses. It’s time for change.”
What can businesses do?
Prask Sutton founder & CEO of Wi5 - a mobile order and pay solution enabling hospitality operators to manage pickup, delivery and table service ordering themselves - said that while the big-name delivery firms are convenient, this comes with a price and customers need to be aware of this.
He said: "Irrespective of whether a customer is buying food from a local takeaway for the first time or if they're a lifelong fan, as soon as they order via a delivery aggregator they become the aggregators' customer. Any data and insights gleaned will go on to help the aggregator, and chances are the small business will never benefit; most likely quite the opposite.
"We'd urge businesses using aggregators to think of them as a customer acquisition channel. But, in order to continue to grow and develop their own business, should consider moving newly acquired customers over to their own channels ASAP, where they can take the power back.
"They'll be able to gather insights into their customers' behaviours, understand their wants and needs and can more effectively manage their marketing and loyalty programmes to ensure the customer experience is what it should be and representative of their business. Without eroding profit margins".
Going direct helps operators
Danilo Mangano, General Manager Europe at SevenRooms had this advice for businesses: “Restaurant owners should carefully consider what’s being offered to them by any prospective partner – what they’re getting and what they’re being expected to give up in return. A relationship with a platform that puts its own interests ahead of the restaurants can be very costly in the long run for owners.
"Where possible, venues must look to implement and facilitate their own direct online ordering, collection and delivery services. Whether that’s app-based, ‘click & collect’ or otherwise, going direct helps operators foster more profitable direct customer relationships in the long run.
"A cap on commission fees is another option that could be considered, though this has historically been reliant on government policies to implement. Ultimately, it might be up to the restaurants themselves to reject the current model and stop these third parties from eating their lunch.”
Flipdish offers an online ordering service for restaurants and their MD Fionn Hart said the customer is looking for more transparency: “Research shows that nearly half of takeaway buyers are unaware that up to one-third of their takeaway value is typically siphoned to these marketplaces in commission.
“In fact, four in five people believe the aggregators should be more transparent online about the hidden fee charged to restaurants.
“If Just Eat, Uber Eats and Deliveroo insist on taking such high commissions, we urge for more transparency to help consumers actively choose how they order food online and who profits most.
“There are cheaper options available for restaurant owners that also put them in control of their data and branding.
A spokesperson for Deliveroo said: “Deliveroo is committed to supporting our restaurant partners at this challenging time.
“From campaigning for a change to government policy to support restaurants, such as the cut in VAT, to 0% commission on pick up deliveries and a £0 joining fee, we have a positive track record of responding to the needs of our restaurant partners and this will continue to be our absolute priority.
“Commission fees are tailored to each individual arrangement with a restaurant partner.
“Every penny goes directly towards covering operating costs and investing in the Deliveroo platform to improve the service we offer riders, restaurants and customers.
“This means that we can make sure we have market-leading choice available, that we pay riders well and we offer tools to help restaurants to grow their business.”
A spokesperson for Uber Eats said: “We are committed to supporting restaurants and the thousands of people who rely on them for work and as an essential service during this difficult time.
“At the beginning of the crisis, we put in place a range of initiatives to help restaurant partners, particularly small business owners, as they keep their kitchens firing to feed people across the country.”
Just Eat has also been contacted for comment.
A version of this article first appeared on our sister site, The Scotsman