INSIGHT:
As often, things can get complicated when talking about meal delivery startups. They have the (hopefully unwanted) ability to generate controversy in almost in any context. It should not be different in a crisis as COVID-19. More than the security of its delivery workers (which have its fair share of controversy), the most debated topic is… the commission these apps take on restaurants.
As most chains (such as McDonald’s or Burger King) have removed their restaurants, there has been a drop in the deliveries, which have been almost compensated by orders to small restaurants (already operating on delivery platforms before the crisis or newcomers). Therefore, the idea is that delivery startups are somewhat making money on the back of strained restaurants. Then comes the question of the delivery fees, notably in the US where they have been more or less willingly slashed.
DEEP DIVE:
- DoorDash reduces commission fees by 50% for restaurant partners (this may represent up to $100M of commissions injected into restaurants cash flows).
- Uber Eats does the same in the UK
- San Francisco caps the commissions for food delivery apps at 15%
WHY IT MATTERS?
This may be a grave danger for the delivery startups. Indeed, even if some were nearing profitability, slashing by 50% their commissions while their most profitable partners are closed (restaurant chains generate a disproportionate share of the traffic and profits), can’t be good.
On the short-term, this may be bearable, but these may have difficulties to raise additional funding. Moreover, as the crisis may last longer than initially thought, notably for restaurants, will they be “politically” able to re-increase their commissions?
Find out more in our FOODTECH INTERRUPTED REPORT on the impact of COVID-19 on the FoodTech ecosystem
