The sudden onset of the pandemic in March sent the restaurant industry into a death spiral. Working in a notoriously low-margin business, many couldn't withstand weeks of limited or no indoor dining. As a result, about 1 in 6 restaurants nationwide has closed permanently, and as of September nearly 3 million restaurant workers had lost their jobs.
Under pressure to pay rent and retain workers, some restaurants turned more of their attention to delivery, particularly from app-based companies such as DoorDash, UberEats and GrubHub. Few restaurants that hadn't done delivery in the past had the time or money to create their own delivery service, which typically brings in less money than dining rooms, where customers are more apt to order more profitable items like appetizers, desserts or a second round of drinks.
These restaurants have quickly found that the apps, with their high fees and strong-arm tactics, may be a temporary lifeline, but not a savior. Fees of 30% or higher per order cut eateries' razor-thin margins to the bone. And a stimulus package that would bolster the industry has stalled in Congress, even as states and municipalities enact new limits on both indoor and outdoor dining.
Restaurants are entering a critical stage as a new coronavirus surge takes hold and outdoor dining becomes less appealing during the colder months. Lawmakers can help by extending federal grants to independent restaurants that will help them close the gap in lost sales and cover payroll and other expenses. But legislators also should consider caps on the fees the apps can charge, particularly amid the pandemic, as places such as New York City, San Francisco, New Jersey and Washington state have done, or risk seeing additional restaurant casualties. Officials in Colorado and Santa Clara County in California are considering similar fee limits, though app firms are pushing back by imposing $1.50 to $2 per-order charges on customers in some cities.
App companies have said the high fees are necessary to pay drivers, acquire new customers and expand into new markets, and caps could force them to alter their service. But the fees are also funding a consolidation among the four largest players that together represent an estimated 99% of delivery market share and which will give them greater pricing power.
Though still unprofitable, Uber this month completed its acquisition of Postmates in a $2.7 billion deal. And DoorDash, also a money loser, is going public this week with hopes of raising more than $3 billion from investors. DoorDash's IPO will net already wealthy investors billions in profits, particularly galling as restaurants wither.
The apps' fees have hobbled many restaurateurs that had viewed app-based delivery as a temporary solution until the coronavirus could be contained.
While several vaccine trials offer hope that indoor dining might safely resume next year, Stephanie Vitori, owner of the Cheeseburger Baby restaurant in Miami Beach, said she worries she will not be able to hold out that long.