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Recapping a wild year in restaurant-delivery relations

The delivery landscape continued to evolve, resulting in both wins and losses for restaurants.
Photograph courtesy of DoorDash

Restaurants and delivery companies have a complicated relationship. The coronavirus pandemic didn’t necessarily help.

While many restaurants struggled, delivery companies saw business soar. Governments worked to level the playing field, and the providers themselves rolled out new services to help restaurants—and compete with one another.

Here’s a look at some of the biggest milestones in an eventful year for restaurant-delivery relations.

Delivery booms

When dining rooms were closed across the country, diners turned to delivery services like DoorDash, Grubhub and Uber Eats in droves, resulting in record growth for those companies. Uber Eats, for instance, has overshadowed its ride-hailing counterpart Uber for two consecutive quarters. Executives believe it represents a permanent shift in consumer habits.

The surge helped restaurants, too. More than 37% said they would have gone out of business if they hadn’t partnered with a third party during the pandemic, according to research by digital signage company Raydiant. 

However, others said the costs associated with delivery hurt their business. On earnings call this fall, executives from Chipotle and Noodles & Co. blamed the service for shrinking margins and said they planned to steer more diners toward takeout and curbside pickup.

Government steps in

As restaurants’ protests over the fees charged by delivery providers grew louder, local governments across the U.S. took steps to temporarily restrict the charges, which can account for more than 30% of an order. 

Limits ranged from 10% to 20%, with 15% being the most common figure. Restaurants widely approved of the measures: In Los Angeles, for example, 73% said the cap had helped them.

But delivery companies argued the caps would ultimately hurt restaurants because the costs would have to be passed to the consumer. In December, DoorDash began doing just that, adding diner fees in Denver and Chicago.

While some locales were considering making the caps permanent, the delivery companies have called for more nuanced alternatives.

Providers consolidate

2020 saw the number of major delivery companies shrink from four to three with Uber Eats’ acquisition of Postmates. DoorDash, Uber Eats and Grubhub now account for roughly 99% of the delivery market.

For restaurants, it means fewer companies to deal with but also less leverage in dealing with them. And if the delivery providers’ growth starts to slow, they could put the squeeze on restaurants.

The trend did not go unnoticed by federal officials. In September, members of the U.S. House of Representatives asked the Federal Trade Commission to investigate market consolidation in the delivery industry. And regulators took a close look at the Uber Eats-Postmates deal before allowing it to proceed. 

A leader emerges

DoorDash solidified itself as the leading delivery provider, reporting 50% market share as of October. In early December, it went public, and its value skyrocketed to nearly $60 billion—more than most restaurant chains—giving it the necessary capital to keep growing.

Restaurants were understandably wary. “I think there’s a little concern anytime anything gets that large,” said Pam Waitt, president of the Orange County Restaurant Association, in December. “They’ve grown to this huge business on the backs of restaurants, and I think in the spirit of real partnership, it’s imperative that that’s how everybody thinks, including large businesses—that we’re in this together.”

Providers innovate

The pandemic drove a lot of innovation within the delivery companies, which rolled out new products and services on a seemingly weekly basis.

To name just a few: Uber Eats launched contactless ordering via QR codes, Grubhub introduced new tools for accepting direct orders, and DoorDash allowed restaurants to join its platform while using their own delivery fleets. 

The new bells and whistles gave restaurants flexibility in how they use the delivery providers, and many enabled them to avoid paying certain fees and commissions.

An olive branch appears

In December, the National Restaurant Association and the major delivery companies unveiled a list of best practices for the delivery industry intended to guide policymaking going forward. They touched on major pain points like fees and data, and were hailed as a first step toward a healthier relationship—a positive development at the end of a turbulent year.
 

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