Big Tech’s food-delivery apps face a grassroots revolt

Grubhub, Uber Eats and the rest were hailed as saviors during the pandemic. But restaurants, fed up with exorbitant fees and and other aggressive tactics, are forming local delivery co-ops in an effort to drive the apps out.

• Dean Kuipers

When Grubhub came to Iowa City in 2017, Jon Sewell got what he describes as a “call to action.” He owns a D.P. Dough franchise there and had been using a delivery service called OrderUp to get his calzones to college students. But then Grubhub bought OrderUp and doubled the commission on orders to an astronomical 30 percent, plus fees. At those rates, Sewell says, he lost money on every order.

So in January 2018, Sewell joined forces with about 25 Iowa City restaurant owners who chipped in to launch their own delivery co-op called Chomp. The business, which now employs five to seven people full time and about 100 independent drivers, caps commissions below 20 percent, redistributes profits to the co-op members, and offers local customer service, which Grubhub had outsourced.

Sewell’s local experiment has national implications. At the start of the pandemic, food delivery apps, including the “Big 3” — Grubhub, Uber Eats, and DoorDash — were hailed as saviors, facilitating a takeout boom meant to keep restaurants and their staffs working. But eateries were quickly confronted by a harsh reality: These Silicon Valley and Wall Street–backed firms, which together dominate 93 percent of the market share nationwide, are designed to scrape money out of local businesses — sucking up a combined $9.5 billion in revenues in 2020 alone — and send it to shareholders. Meanwhile, without dine-in customers, some restaurants were trapped in a money-losing proposition; 110,000 of them closed, either permanently or long-term, in the first year of the pandemic.

“The majority of consumers really want to support locally owned restaurants,” says Kennedy Smith, a senior researcher at the nonprofit Institute for Local Self-Reliance (ISLR). “They think that by ordering food through the big delivery apps, they’re supporting them. It’s actually not, and that’s a real disconnect.”

Brian Rorris, who owns five restaurants and two bars in Iowa, calls the big apps “leeches.” He helped found Chomp, and argues that the delivery co-op, with its lower commission rate and local customer service, is “more beneficial to the market.” Iowa City seems to reflect as much: Chomp now works with nearly 200 local joints. Sewell has helped start a similarly successful delivery co-op, Nosh, in Fort Collins, Colorado, and followed it up with LoCo Co-ops, an unaffiliated company that has launched five more enterprises across the country and is now organizing in Chicago. Some of the new delivery initiatives are eliminating restaurant commissions altogether: An app-based service called Delivery Co-op in Lexington, Kentucky, charges restaurants a flat fee of $300 per month; customers subscribe for $25 per month, and the drivers get $10 an hour plus tips and, after three months, health benefits.

Should Big Tech’s apps be worried about a large-scale restaurant revolt? A September 2021 McKinsey report detailed a recent shakeout in third-party food delivery companies, as Uber bought Postmates and Grubhub was purchased by Just Eat Takeaway. The report hinted that the apps’ current business model sits on a shaky foundation, reminding investors that while they may have experienced “explosive growth” during the pandemic, “delivery platforms, with few exceptions, have remained unprofitable,” and that the apps’ high commissions were “unsustainable” for both restaurants and the apps in the long term.

In the meantime, local delivery services are on the rise. A recent report from ISLR looked at 20 startups offering local delivery services and found that they could disrupt the big apps by offering lower commissions to restaurants, better pay for delivery personnel, and better hospitality.

Startups aren’t the only threat. During the pandemic, New York City, San Francisco, and other cities passed ordinances capping third-party delivery fees at rates ranging from 10 to 20 percent, which the companies are challenging in court as unconstitutional. A number of cities used pandemic relief funds to pay for free local delivery, partnering with taxi companies and bike messenger apps.

John Schall, a restaurant owner and former economics professor at Yale, cautions against excessive optimism. “I’m skeptical that co-op or other small-scale delivery options will ever make a significant difference,” he says. “If they are successful, they will get bought up. Everyone will have a price and the Big 3 will pay it.”

Meanwhile, the fate of independent restaurants may depend on whether they can stave off delivery monopolies. “I believe the biggest threat to restaurants is the one they’re least aware of,” Sewell says. Big Tech’s delivery apps have been accused of using local ordering data to facilitate or create competing entities, such as ghost kitchens, and thus increase their own business at the expense of restaurant clients. Amazon does this on a mega scale, marketing copycat products directly to customers, thus undercutting their own marketplace clients. In 2019, DoorDash started DoorDash Kitchens, a ghost-kitchen operation in Redwood City, California. That concept has since expanded to other cities.

“I have nothing positive to say about Silicon Valley and what tech has done to our society,” Sewell says. Local delivery co-ops are “my way of fighting back.”

Correction: An earlier version of this story misstated Chomp’s commission cap. The co-op caps commissions below 20 percent.