Using third party delivery firms for ordering takeaway has become second nature to some of us, but what do these services cost businesses?

With the announcement of further restrictions in Scotland that’ll affect food and drink takeaway, many of us will turn to the likes of Just Eat, Uber Eats and Deliveroo for takeaway – but what are the costs of these to independent Scottish businesses?

Recently Minneapolis mayor Jacob Frey capped the fees of third-party delivery companies, which can reach up to 40 per cent, in order to help struggling hospitality businesses.

New York City Council recently voted to cap fees of big delivery firms at 15 per cent, with similar mandates having been made in San Francisco, Seattle, Washington, D.C., and Jersey City.

Calls for similar action have been made by some people here, as more and more Scottish businesses have come to rely on third-party delivery services at this time.

The new restrictions, which came into place on Saturday 16 January,  mean that customers will no longer be allowed to enter hospitality businesses for takeaway services, meaning all takeaway sales of food or drinks must take place from outside the premises such as via a hatch or doorway.

As it is mid-winter in Scotland, the thought of queuing outside for a dinner order is not a pleasant one, meaning more use of delivery apps. But what is the cost of these to independent businesses?

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.”

How do big businesses work?

Generally staff who deliver for companies such as Uber Eats and Deliveroo are self employed contractors who can pick up various orders from nearby takeaways and deliver in one round.

This can lead to dis-satisfaction with orders – food arriving cold – and reputation damage to businesses who would serve the dishes differently if customers were collecting.

Also, this self employment status has thrown up questions on staff conditions and rights as well as tax issues.

Costs to small 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.

An Edinburgh business owner told The Scotsman that while the option for delivery of food via third party firms was welcome in these times, the fees simply weren’t worth it and because of this, set up their own web ordering system by working with Scottish company What the Fork.

The owner said: “In this current time, of the pandemic, third party firms can be seen as saviours when customers can’t come to restaurants for food.

“They have been there for us when no-one knew what was going on but I have learned from some mistakes, for example then more you use these firms, the higher costs/the lower the profit.

“At the start of lockdown it became about the survival of the business, not profit, but since then we have moved away from the third party firms and set up our own online ordering platform. I’d only use them now if we are very quiet.”

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.”

“For us using a delivery platform was never a consideration”

Sam Stevens, Director and Co Founder of MILK Cafes in Edinburgh explains 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.”

Lee Bandoni who runs the Aldwych Cafe in Glasgow said that Just Eat and Uber Eats did not offer the support needed, saying: “When making the change to takeaway you need to think very carefully about who to partner with.

“In the last lockdown, we had to scale more in two weeks than the previous two years.

“Just Eat and Uber Eats simply don’t give you the support, the speed to react or local knowledge that you need.

“With Just Eat we had to change prices three or four times because of the errors they kept making on the menu.”

Graeme Sutherland, Managing Director of Good Brothers Trading Co Ltd and The Small Spirits Company also won’t use third party delivery companies.

He explains that this is because of the fees they charge, saying: “We have never considered using a delivery company like Uber Eats or Deliveroo for this exact reason.

“The costs involved would mean that either our product would be too expensive and thus not receive any orders or we would compromise on quality.

“The second option is absolutely not an option and the first does not make business sense.

“Small businesses are having to look at other options and this is where the click and collect option helped. We were able to minimise our costs while still offering amazing quality and value.

“If there was a cap on fees then this might enable more of us to look at using them. I am also sure that the larger corps do not pay the same fees as the small indies which calls into account the level playing field question?

“If more regional options are available and can compete we would be more likely to use them.

“As it stands we will not go near the big delivery co’s (even though we are constantly being contacted by them to work with them – shows a lack of respect and understanding for our business).”

This contact by the big delivery firms occasionally includes a cash or tech incentive (such as a free tablet) to the business which can be claimed when they sign up.

But these amounts vary business to business, and have a shelf life as Julie Lin McLeod, owner of Julie’s Kopitiam 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.”

What about smaller firms?

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.

“Unknowingly, customers are lining the pockets of executives at the expense of local restaurateurs and staff”

Conor McCarthy, CEO of Flipdish added: “Restaurants are serving an eye-watering amount of money to online food marketplaces.

“In exchange, the tech companies promise new customers but in reality most takeaway buyers have their trusted favourites.

“Unknowingly, customers are lining the pockets of executives at the expense of local restaurateurs and staff.

“Giving away a huge chunk of revenues to Big Tech giants is a particularly painful huge blow to restaurateurs who are struggling to get back on their feet after the crippling lockdown.”

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.

About The Author

Rosalind Erskine

Known for cake making, experimental jam recipes, Champagne and gin drinking (and the inability to cook Gnocchi), Rosalind writes for The Scotsman on all things food and drink related.

Let us know what you think

comments