Like most Australian restaurant owners, the last few weeks have been tough going for Paul Kasteel after the Morrison government restricted trading across the industry to takeaway and delivery services amid the COVID-19 pandemic.
His venues, Hoo Haa bar and Miss Kuku restaurant, located on Melbourne’s iconic Chapel Street strip, have been struggling to keep their doors open having lost in excess of 95% of their traditional revenue.
“All of a sudden we’ve got to pivot and scale up home delivery and takeaway … a lot of us don’t even have enough money to pay out costs out and keep employing staff,” Kasteel tells SmartCompany.
In a bid to deliver an add-on service to customers supporting his business, Kasteel has begun selling essential items alongside meals to customers, such as dry pasta, cereal, eggs, rice and toilet paper.
But he’s run into an unlikely competitor: meal delivery giant Deliveroo.
The UK-headquartered company has been advertising its own essential grocery items in several spots across Melbourne in recent weeks, following in the footsteps of its British parent.
Online listings for the essentials service — now advertised as closed — show the delivery giant has put items like cereal and pasta on its own menu, something Kasteel, who pays the company a 30% commission to deliver his own goods, calls a slap in the face to small business owners.
“What I take offence at is a company all of a sudden coming along with the advantage of all that market data, cherry picking and creating kitchens to compete directly back against us,” Kasteel says.
“Are they running a delivery service or restaurants and grocery stores?”
A Deliveroo spokesperson would not disclose who supplies the essentials service, but said it was launched “in response to customer demand”.
“The aim is to provide a selection of essential grocery items. The Essentials range comprises items such as cereal, pasta, rice, bread and juices, as well as tinned and canned goods such as chopped tomatoes and baked beans,” the spokesperson said.
“Deliveroo is working tirelessly to help record numbers of restaurants, cafes and catering groups who are joining the platform and to help ensure Australians are aware that their local restaurants are open for business.”
Tensions boil as restaurants fight for survival
Before the coronavirus crisis hit Australia many restaurant industry operators were already persistently complaining about the service commissions charged by meal delivery platforms like Deliveroo and UberEats, which range from 14 – 35%.
Such is the popularity of these services with customers that restaurants and cafes often feel obliged to sign up, only to sacrifice margins.
Now, as the hospitality sector fights for survival and thousands more business owners are forced into pivoting towards delivery services, tensions are beginning to boil over.
“It’s ridiculous,” Evan Hanisimikali, co-founder of Manny’s Pizza diner in Chippendale, New South Wales, told SmartCompany last week.
“If they said they’d reduce their commission from 35% to 25%, that would be a huge difference.
“If you’re doing $5,000 a week in Uber another 10% in your pocket is $500. That’s a staff member.”
When dine-in and bar customers were still the majority of his venue’s weekly takings, Kasteel says he could justify 30% commissions on takeaway orders, which were only one or two per cent of his business.
These days, there are no such luxuries. Costs like wages, utilities and rent can no longer be fracitionalised across multiple revenue streams, meaning the chunk companies like Deliveroo are taking comes directly out of the only business channel now available to restaurants.
The numbers just don’t add up. Kasteel made about $900 in his first week doing delivery only, and was left with just $230 after accounting for the cost of goods, GST and commission fees to Uber and Deliveroo.
“Many suppliers are taking a bit of a cut on their margins, working together with us and realising we all have to help each other,” Kasteel explains.
“These guys aren’t doing that … then they pop up a business to try and compete with us.”
Other business owners SmartCompany has spoken to in recent weeks have unanimously agreed that delivery platforms are falling short of the mark when weighed against the influence they now command over the industry, renewing calls for commission cuts across the board.
“Our places used to serve people dropping by after work to pick up their own meals, but that business goes to UberEats now,” one restraunt owner, who asked not to be named for fear of commercial reprisal, told SmartCompany.
“If they’d reduce their commissions for the next few months, it would be a game changer.”
SmartCompany has also seen several emails sent to restaurants by Deliveroo and UberEats in recent weeks offering them opportunities to discount their products to attract more customers — a path restaurants already struggling to make ends meet have been reluctant to pursue.
“No one can afford to discount right now,” Kasteel says.
Delivery platforms resist commission cuts
Meal delivery platforms raked in $690 million in revenue across 2018-19, according to industry research firm IBISWorld, which projects the industry to grow 26.5% in 2019-20. In comparison, total restaurant industry revenue is estimated at about $19 billion a year.
But Restaurant and Catering Association chief executive Wes Lambert says the delivery platforms are operating on “razor thin margins” and are making about a three per cent average profit on orders across the industry.
“They make cents per order on every single order, they don’t make it up on volume,” Lambert tells SmartCompany.
“They don’t have the margin to reduce the commissions lower than the range now.”
Thusfar foreign-owned meal delivery operators like UberEats, Deliveroo and Menulog have resisted calls from the industry to lower delivery commissions.
Deliveroo Australia boss Ed McManus told SmartCompany last week they couldn’t afford it.
“We’re not in a financial position to do that,” he said.
Instead, the platforms have been rolling out piecemeal alternatives.
Deliveroo, which has seen a flood of new restaurants sign onto its platform in recent weeks, has promised to help restaurants transition to delivery by sharing market data and has “refocused” its marketing team on promoting local businesses.
“We have a lot of experience in how to run restaurants if you like, or in this case kitchens, for delivery only,” McManus says.
“So we’re working really hard with all of our restaurant partners to help them convert their operations … that goes to things like staffing ratios, kitchen layouts, practical things.”
Meanwhile, UberEats and Menulog have outlaid financial support, but in the form or marketing funds instead of delivery commission cuts.
UberEats last month launched a $5 million package to support promotional activity and has waived sign-on and service fees for pickup orders.
Menulog has halved commission on all pick-up orders and has committed $3 million to a “restaurant marketing” package to promote local businesses.