No one expects to cry on Valentine's Day, but that's exactly what Erin Eastland did a few years back. It wasn't because of a broken heart, but rather a broken kitchen. The executive chef and partner at Milo & Olive, Huckleberry, and Milo SRO in Santa Monica was forced to comp several meals after her kitchen staff was overwhelmed by the number of take-out orders made by couples hoping to spend a romantic night in with the restaurant's wood-fired pizzas and handmade pastas.
Food delivery apps like GrubHub, UberEats and Postmates had just begun to gather steam and it quickly became clear to Eastland that the old ways of doing deliveries wasn't going to cut it.
"At that point we just weren't organized enough to meet the volume of orders coming in," said Eastland, who also serves as the executive chef for Huckleberry Bakery and Cafe, another of the handful of restaurants in the Rustic Canyon family. "That got us ready for what was going to happen in the near future. We literally revamped our entire kitchen and learned a lot to help us come out on top. We cried a bit, and then got to work figuring out a better system."
Just as shared cars, scooters and bikes have dramatically impacted transportation, food delivery apps are a disruptive force in dining. Restaurateurs are having to rethink their business models without any reassurances that they're on the right path. Which delivery apps rise to the top is anyone's guess as each struggle to gain market share and are yet to turn a profit for hungry investors. But fail to get on board and you just might find yourself on the chopping block.
These apps facilitate the delivery of meals from local restaurants to customers, cutting down on the food establishment's costs because they no longer have to employ drivers of their own. The advantage of these apps is the ease and simplicity they provide. Customers don't have to call to make an order and then go to a restaurant to pick it up. Food delivery apps provide all of this in just a few clicks. And they pay their drivers as independent contractors and not full-time employees deserving of benefits and other liabilities for companies.
The apps make money by charging fees to the customers and participating restaurants. Percentages range from 10 to 30 percent per order for restaurants while consumers pay $2.99 to $5.99 on average. Postmates is offering a special deal where users pay a flat fee of $99 a year for unlimited deliveries in an obvious move to gain more users despite potential losses.
Advertising is another way that food delivery apps make money. Some restaurants pay to be on the app's featured list of restaurants, gaining greater prominence on the app's interface. Being more visible can lead to more sales. But the bulk of revenue is in delivery fees.
Some restaurateurs view the apps as a positive, helping grow their customer base by reaching people who live outside their immediate area while also adding a layer of convenience to regulars. They can also increase profits by streamlining how the food is prepared and packaged. Entire restaurants are being formed to just serve the delivery app community, offering no dine-in space or waitstaff. These have a few names - tablet kitchen or ghost kitchen.
(A car is double-parked in an alley off the Third Street Promenade, a familiar site, as the driver dashes into The Gallery Food Hall to pick up orders for delivery.)
Other restaurant owners call delivery services a destructive force that squeezes smaller restaurants, making already slim margins even more anorexic with the potential to force foodies to close their eateries or raise prices beyond levels they are comfortable with. By making it possible for a person who hates driving east of the 405 to order from a Downtown LA restaurant, the delivery apps expand someone's dining footprint so much that they may neglect their neighborhood spots. When that happens restaurants have no choice but to sign up with a delivery service so they too can be featured on apps and reach customers in another zip code.
"This business as we know it is done, it's dead," said Eiman Shekarchi, who owns five restaurants, including the recently opened Crimson Kitchen in Downtown Santa Monica. "The market is too saturated, the state and city rules and regulations are onerous, we're getting sued by these attorneys who say our websites are not (Americans with Disabilities Act) compliant for online orders, and now you have these (delivery apps) taking another chunk of our income.
"But you have to be on them. It's like the mafia. If you don't, you lose."
That's because the food delivery business is no small potatoes, with sales hitting $32.7 billion in the U.S. last year and expected to reach $90 billion by 2023. Online is where the customers are. Instead of walking down the street and stopping at your local sandwich shop, more people opt to use their smartphones. Surveys have shown that 20 percent of Americans use food delivery apps for ordering at least once per week, and those numbers continue to grow in dense metropolitan areas where the dining options are seemingly endless and people are more pressed for time and have the discretionary income to pay for this culinary convenience.
It's no wonder that the top delivery apps appeal to customers making well above the area median income. The average Caviar customer makes roughly $79,000 a year.
Whereas five years ago a person with the munchies would be confined to ordering a pizza or perhaps some kung-pao chicken, now they can feast on their favorite fast-food burgers or handrolls from an uber-popular sushi spot located across town, all while wearing their pajamas and from the comfort of their couch. No more waiting outside the restaurant for a table to open up. You're craving tacos while your boyfriend wants eggrolls? No problem. You order on DoorDash while he pulls up UberEats and places his own order.
The demand for these apps is so great that Downtown Santa Monica, Inc. instituted a mobile-delivery parking pilot program on Second and Fourth streets, reserving a small number of metered parking spaces for delivery drivers so they can get in and out more easily, not block bike or traffic lanes and not circle endlessly looking for parking. The pilot is being studied and wraps up next month. So far interviews with drivers and restaurant managers have been positive.
"Six years ago you were starting to see tablets coming into restaurants and I thought, 'This is crazy.' But it's progressed so much over the last few years. It is a must have that helps us get food to people who don't want to drive in LA traffic, who aren't feeling well or want to have a nice night in but still want to experience a restaurant or try a new concept," said Benjamin Lighton, general manager of the award-winning French-Vietnamese fusion restaurant Cassia, which recently opened a delivery-only concept called Cassia Rice & Noodle Kitchen.
Others are doing the same, leasing warehouses and hosting multiple virtual restaurants consisting of just an online presence.
"We can work with existing restaurant partners to create delivery-only menus. [They would] appear as entirely new restaurants on the UberEats app," Ambika Krishnamachar, UberEats product manager told Mashable.
To be successful in the digital space, brick-and-mortar restaurateurs have to adapt, just as Chef Eastland did with Milo & Olive. That includes redesigning physical spaces as well as menus and packaging.
Sommelier Kathryn Coker, the wine director for the Rustic Canyon family of restaurants and co-owner of Esters Wine Shop & Bar on Seventh Street, knows that much of the success of Esters can be attributed to its vibe, that feeling one gets when sipping a crisp chardonnay on the patio with a warm and gooey grilled cheese sandwich in hand. After researching what people were ordering and how other restaurants were packaging their dishes, Coker and her team came up with a delivery-only menu with a heavy focus on charcuterie and cheese, as well as customized wine lists that rotate frequently.
"It's been trial and error," she said. "At first we put our whole menu online and 30 plus wines and that was hard to maintain and hard to get the right Esters experience at home. You have to think about it in a different way."
For small businesses with slim profit margins, being thoughtful about the menu is critical. It helps to be a part of a larger restaurant group so you can negotiate lower fees from the food delivery startups. Owning your own building or locking in an affordable rent are also beneficial — anything to keep overhead low.
Some have said that the apps cannibalize a restaurant's business, and make it harder to compete as people can now order from restaurants that previously were out of their reach on a busy weeknight. If you live in Santa Monica restaurants in Westwood or Culver City will come to you. Does that mean you are going to frequent your local eateries less?
"Definitely," Shekarchi said.
There is increased competition, but you also have to consider that the apps are opening up more possibilities to reach new customers.
"I don't think [food delivery apps] replaces the restaurant business," Coker said. "Maybe going out mid-week to eat, but I haven't seen a dip in that for us."
"I haven't noticed that the restaurant is dead, but to-go orders are on fire," Eastland added. "There are days when percentages are a little up or down, but nothing alarming."
The chance to increase revenue is there, but so are the cons. Sometimes deliveries are late, resulting in hot food gone cold, or key ingredients are missing. Without a direct line to the person who orders, restaurants can't respond quickly to negative experiences. That can hurt their reputations. Some delivery drivers can be pushy or rude or dirty. Restaurant owners can complain, but oftentimes it's hard to get through to a customer service representative.
There is fear that online ordering becomes more of the norm and dining out will be reserved only for special occasions. How will that change the restaurant industry? Will dining out become more expensive? Will wait staff be as knowledgeable about the cuisine or cocktails? Will people become more anti-social and lose out on vital personal connections that come with breaking bread?
"What I hate most about this is it's taking away that amazing thing where you used to go out with your partner, spend a nice evening together," Shekarchi said. "People, maybe without realizing it, are becoming more isolated. These apps are contributing to that."
Restaurants with higher price points may be able to eat the fees charged by delivery companies for now, but sooner or later they'll have to pass on the increased costs to consumers or pull out of the delivery game altogether. It's cost prohibitive for them to offer delivery services on their own.
"Right now we're trying to figure out the right balance," Eastland said. "We're not quite there yet. We're adjusting and are benefiting from these services and feel confident that we will for awhile.
"But then again, they could lift the percentages to whatever they feel like, and we'll have to make a decision on our end what we should do moving forward."