Delivery accounted for about a quarter of South Bethlehem’s El Jefe’s Taqueria sales before the coronavirus pandemic.
Now, it makes up 75% of the Mexican eatery’s sales.
And that’s meant that owner John Schall is giving up a growing portion of his sales to third-party delivery apps like Grubhub, Uber Eats and DoorDash.
“We barely broke even in April,” Schall, who paid about $25,000 to get the restaurant’s food on customer doorsteps last month, said Monday.
More and more customers are turning to third-party delivery apps to help support local businesses at a time when delivery and takeout are lifelines for restaurants forced to stop dine-in eating under Gov. Tom Wolf’s stay-at-home order.
The coronavirus shutdown comes at a real cost to the nation’s restaurants, which need delivery to survive in this new era, but are having a hard time justifying sending an increasing percentage of their potential profits to delivery companies.
“It shouldn’t be something that makes it so restaurants aren’t viable and that’s what it is now,” Schall said. “The size of the fee makes it not viable for restaurants.”
This dichotomy’s led San Francisco Mayor London Breed to cap at 15% the fees delivery apps charge the city’s restaurants for the duration of the pandemic. New York City is weighing a package of bills limiting apps from charging restaurants no more than a 10% commission permanently.
And now Bethlehem City Councilman J. William Reynolds wants the city to explore creating a licensing process and perhaps capping fees. Council is set to consider a measure drafted by Reynolds to get the administration to study the issue Tuesday evening.
Some delivery services like DoorDash and Caviar are trying to help the industry during the COVID-19 crisis by cutting their commissions by 50%, said Stephanie Otterson, spokeswoman for the Pennsylvania Restaurant & Lodging Association. But some have aggressive fees and commissions that are detrimental to the industry, she said.
“Restaurants have been forced into a situation not of their doing and these companies should not benefit on the backs of those businesses that are struggling to survive,” Otterson said.
Grubhub and DoorDash did not respond to requests for comment.
It is costly and complicated for small restaurants to offer their own delivery. Yet, more and more customers want the convenience.
When restaurants use delivery companies, they agree to give up a set percentage -- sometimes as high as 30% -- of every delivery order, a tension that’s plagued restaurants since the apps’ inceptions. Add in competing fees and the fact that some companies offer better service than others, and restaurateurs say they face an array of unattractive choices.
The COVID-19 health crisis is elevating this tension as an industry that already operated on razor-thin profit margins struggles to stay afloat.
As delivery accounts for more and more of sales, that cost grows, too. About 6.25% of El Jefe’s monthly total revenue pre-COVID-19 went to delivery costs, now it is 18.5%, Schall, who also owns two Massachusetts locations, said.
“I am going to fight this. I’m not going to close up. This is a battle I am going to take on,” Schall, who recently wrote an op-ed in The Boston Globe calling for public regulation of the delivery apps, said. “It is not just El Jefe’s. It is all the restaurants in Bethlehem.”
Roasted, the East Fourth Street breakfast and lunch favorite, paid just Grubhub $1,800 in April. That’s money owner Derek Wallen says he could have used to pay one or two more employees. At the same time, relying on three delivery services gives Roasted enough order volume to justify bringing on more staff.
Many who use delivery apps don’t know restaurants are forced to eat the costs of the convenience, so Reynolds hopes just discussing it could immediately help local restaurants.
Bethlehem’s Director of Community and Economic Development Alicia Miller Karner said the city is already investigating the apps.
“We are already working with the businesses to understand the impact of third-party delivery services on their bottom line,” Karner said.
SouthSide Arts District Manager Missy Hartney said she’s thrilled the city is giving it attention because it could really help.
“We are all working so hard to keep these businesses alive for when the fog clears,” she said. “We want these businesses to still be there.”
Some businesses are exploring delivery and curbside for the first time, while others are opting to stay closed, Hartney said.
Red Stag Pub crunched the numbers before the virus hit and it wasn’t worth it to offer delivery for its normal menu through Grubhub. The bustling pub just off the city’s Main Street did a very small takeout business pre-pandemic.
Today, the eatery is opting to offer family-style meals and baked goods for delivery, a structure that make the high fees more palatable, owner Neville Gardner said.
Forced to rely upon someone else to deliver his carefully-crafted food, Gardner wanted to ensure what arrives is up to Red Stag standards. He pivoted to items like bangers and mash, cottage pie and wings, which can be reheated. He’s increased the price of items so they don’t lose money, but he would welcome lower fees.
“Our main concern wasn’t the price, but the quality of the product when it got delivered,” Gardner said. “If it took 45 minutes to deliver fish and chips, it wouldn’t be getting there the way we wanted it to taste.”
As America slowly returns to a new version of life with social distancing, restaurants will have to learn to operate with fewer tables and more takeout and delivery.
That’s why Schall says it is critical to now address delivery companies, which he believes are operating as oligopolies with a vise grip on pricing. He likens it to the need to regulate public utilities.
“The COVID-19 pandemic and crisis for restaurants that resulted from it has provided us an opportunity to address this issue,” Schall said. “It’s not like this issue wasn’t affecting restaurants adversely long before this crisis took and it will continue to after it’s over.”
The state’s restaurant association supports legislation that requires transparency for delivery app fees and costs, as well as short-term fixes that reduce the fees charged during the crisis, Otterson said.
The group points out that many of the delivery apps offer deals to the customer -- like $10 off of a $50 order -- but then passes that cost on to the restaurant while pocketing more money on the sale.
Before the pandemic, the association was working with Philadelphia City Council to prevent apps from the unauthorized listing of restaurants on their apps. Now, they are looking at long-term rules to ensure restaurants can negotiate better pricing.
While Schall says he’s found it impossible to negotiate with the apps, Wallen’s had mixed results.
Before the pandemic, Roasted relied on all three delivery services over different periods. Uber Eats offered the best delivery, but the highest fees, Wallen said.
“When I said I want to negotiate my rates because it was too high,” he recalled, “They said, ‘Ok,’ and canceled my service and asked us to return the tablet they provided.”
He turned to DoorDash and was able to negotiate a much better rate of about 20%, but he’s had many delivery issues. So, he explored Grubhub in October, which offered a 25% fee that’s split between marketing — think those discount offers — and delivery. He declined until COVID-19 struck.
Roasted is now using all three delivery apps.
“It has increased sales,” Wallen said. “Having the three systems we have a lot more marketing. We have a lot more viewers, so we can get a lot more orders.
“Now I am busy enough to get another staff member back for the weekend. I’ll get 15 to 18 tickets at the same time but with all of these fees I am basically paying his wage and revolving my cash. I’m not really making a profit, but I am getting another employee employed again. That’s just how I look at it.”
Over the weekend, Wallen posted on Roasted’s Instagram page encouraging customers to order takeout or use a restaurant’s own delivery service to help them keep more money. He saw a corresponding uptick in takeout orders, which left him hopeful educating customers might help.
El Jefe’s Schall doesn’t want customers to feel guilty when they order in.
“People are going to do delivery. I don’t want them not to do delivery,” Schall said. “I just don’t want the delivery companies to provide absolutely outrageous prices.”
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Sara K. Satullo may be reached at ssatullo@lehighvalleylive.com.
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