How delivery apps use restaurants without owners knowing

As Dave Ross jokingly noted, during the lockdown a lot of us did our patriotic duty, bit the bullet, and decided to support our favorite restaurants by ordering it to be delivered. Many of us felt really good because we’re supporting not just the restaurant, but the person who delivered it.

But it’s been reported sometimes the restaurant you ordered from isn’t involved in the transaction and may be taken advantage of, in some cases. Ranjan Roy was a business manager at the Financial Times and runs a newsletter company called the The Edge Group, and joined the show to discuss his findings.

“A friend of mine runs a couple of pizzerias, and they do not deliver,” Roy said. “But then he suddenly started getting complaints about cold pizzas being delivered, the wrong pizzas being delivered, and couldn’t quite understand what was happening. It turned out a company called DoorDash had somehow gotten into his Google listing, and there’s a big blue button that said ‘order for delivery.'”

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“And if someone clicked on that, it seemed like they’re ordering from a Jay’s New York Pizza … but the call was being routed through DoorDash,” Roy explained. “DoorDash would call in the order to his pizza place, just kind of pretending to be a regular customer, and send over a driver who didn’t even identify himself, and basically the entire transaction happened without him.”

Companies like GrubHub and UberEats sometimes operate in a similar manner. It’s a grey area legally, in a sense, because the restaurant owner gets the business, yet they’ve been tricked and then get associated with delays and other issues that were not their fault.

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“This should not be legal. It seemed at least shady,” he said. “But it turns out they do these things called demand tests where they go into a new market, basically put every restaurant on their platform. And then after a couple of months of operating like this, they could go to the restaurant owner and say, ‘We just gave you an extra few thousand of business without you having to do anything.’ So it’s a pretty good pitch.”

There’s no charge to the restaurant during the demand test, Roy says, but once they’re on the platform, the fees start to hit. The restaurant owner has to pay up to 30% of each order to DoorDash, which is a difficult margin for most restaurants. So why would any restaurant consent to this?

“It makes sense when if 95% of your business is dine in and you’ve already paid your rent, your waiters are already there … then it’s just kind of extra money on the side, so you’re just weighing the fees against the cost of your food,” Roy said.

“But especially during the pandemic, these numbers do not add up at all because when 100% of your business becomes delivery then taking a 30% hit per order — when your profits were always 3% to 5%, 10% in the pizza industry is very good — you’re losing money on every order at that point.”

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