- [Narrator] For many people throughout the pandemic
dinner plans usually look like this.
You look up your favorite local restaurant
on an app like Uber Eats or Deliveroo
if you're in the UK, place an order,
track it on the map, grab the bag from your doorstep
and voilà, dinner delivered.
But sometimes in those bags,
restaurants include notes like these
encouraging customers to order directly from them next time.
That would mean
they don't have to pay delivery companies
commission fees of up to 35%.
Restaurants around the world
have organized to push delivery services
to lower their fees.
While recognizing these apps have become very important.
- They are massively crucial
but grudgingly crucial actually (chuckles)
it's hard giving away your hard-earned cash to a platform,
but yeah they're keeping us afloat.
- [Narrator] While restaurants have been struggling
with the pandemic, delivery services like
Uber and DoorDash have boomed.
By the end of 2020 food delivery spending
had more than doubled compared to 2019.
But spending at restaurants was down roughly 5%.
- That will be the legacy of the pandemic in this sector.
Everyone had to change their behavior overnight.
- [Narrator] So are delivery apps,
helping restaurants or hurting them?
The food delivery market as we know it
actually started about 20 years ago,
when Grubhub in the US and Just Eat in Europe,
entered the market.
- The generation one operators,
the roots of this business model
we're working with independent restaurants
and independent restaurants that had existed for decades
prior to the platform coming along.
I got my Deliveroo bag and my bike
and I'm gonna spend a couple of hours doing some orders.
- [Narrator] Giles Thorne researches
European internet companies for Jefferies
and to better understand the food delivery industry
he spent some time actually making deliveries
for Deliveroo in the UK in 2019 and 2020.
- Everything changed in around 2016, 2017
because the generation two competition came in
and these were delivery led.
These were platforms like Deliveroo, like DoorDash,
like Uber Eats that saw the consumer value,
the utility of an online food delivery app
and that the branded chains, the big restaurants
not the independent pizza parlor in London
but the McDonald's three doors along
would also benefit from the utility
of this type of platform.
- [Narrator] There are a lot of companies
vying to take control
of the food delivery industry right now.
The global market was projected to be
worth $285 billion in 2020.
Margins are low meaning despite high demand
delivery companies mostly operate at a loss.
- The reason why a platform
will not be making money at this point in time
is essentially because they are in a competitive market.
♪ Did somebody say Just Eat ♪
They are having to spend a large amount of money,
primarily through marketing
to get consumers, to download the app and start using them.
The platform says, right,
I got three other guys in my market
by the of next year I wanna get two of them to exit.
So I'm gonna spend a hundred million dollars
buying up every billboard.
And I'm gonna send a message to the other guys
that they are not gonna get traffic.
And that's the logic.
That's why people don't make money.
- [Narrator] Since the delivery market's inception
there has been a lot of consolidation.
Just Eat has undergone six major mergers and acquisitions
in the last five years.
Last year, it was acquired by Takeaway.com
which then acquired Grubhub for $7.3 billion
in the US Uber Eats acquired Postmates
for 2.65 billion in stock.
(bell ringing)
In December, 2020 DoorDash went public.
By the end of the year
the company was worth at least $50 billion.
Uber, DoorDash and Grubhub now control roughly 98%
of the overall US food delivery market
in terms of transactions.
In the United Kingdom, Uber Eats, Just Eat and Deliveroo
are among the most popular food delivery apps.
One restaurant working with delivery services like these
is Tai Kitchen in London.
- We set up the business just before COVID hit.
We literally were open
a week before the pandemic.
- [Narrator] The owner Richard Poole
has relied on services like Uber Eats and Deliveroo
to keep the restaurant alive
during various levels of lockdown since March, 2020.
- Those plans were in the pipeline
when it came to us having, eat and service
and having that extra revenue stream
but obviously that went to part.
So we had to improvise.
- [Narrator] Tai Kitchen also offers its own service
for in-store collection.
- We had to have our own delivery service
but obviously it's a lot...
The logistical nightmare of having your own delivery service
it's real.
It's a real challenge.
That's why we outsource it to Deliveroo and Uber Eats
to deliver our food.
Another thing is Deliveroo and Uber Eats,
they basically own all the drivers (giggles)
It's very, very hard to find independent.
Well, technically they are independent, right?
But it's very hard to find someone who'd come over
to work with you.
Do you know what I mean?
'Cause basically, they own the fleets.
- [Narrator] Uber Eats has nearly 5 million drivers
and delivery people globally
and DoorDash has over 1 million.
Most apps offer restaurants,
a range of services
from just helping facilitate online ordering
to actually delivering the food.
If the app handles the delivery
the fees can range from 10 to 35% of the total order.
- The whole balance of deliveries and take-aways.
But right now it's like 80% deliveries
like the whole 85 from our point of view.
So I think let's say to improve things would be
more people actually coming to collect.
So you come collect an order
you basically gave the restaurant,
a hundred percent of the revenue.
- [Narrator] These tensions over commission fees aren't new.
McDonald's franchisees have complained publicly
that Uber Eats erodes their margins.
While Uber has said it offers some large restaurant chains
a lower service fee.
In 2019 representatives from the two companies
said they reached a new deal.
And since the pandemic hit
various regions in the US including New York, LA
and Philadelphia have temporarily capped delivery fees
for restaurants at 10 to 15%.
DoorDash has said the commission caps
ultimately restrict restaurant choice.
Precisely when restaurants need the full range of options
to help their businesses survive and thrive.
Some restaurants are even working out of ghosts kitchens
where they cook food exclusively for delivery services.
- At Uber Eats, drivers have switched off their hailing apps
this weekend to demand better treatment
from the food delivery service.
- [Narrator] Delivery apps have also come under pressure
from gig workers, demanding better employment protections
including better wages and sick pay.
The CEO of Uber
recently called for dialogue
but said its delivery app allows workers to make money
in a flexible way.
DoorDash Grubhub and Uber Eats told the Wall Street Journal
they've provided drivers with various PPE.
And Just Eat said it supports contact free delivery
and has given restaurants reduced commission fees
throughout the pandemic.
As these companies have become a key part
of many people's lives, regulators are watching
to see the impact on competition, consumers,
delivery drivers and restaurants
- It's very hard to see our money go
like that amount go to them
but again, credit where it's due
they are keeping us afloat.
So even with the commission rates, being that high
if it wasn't for them, we'd actually have to shut.
(soft music)