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Updated: June 29, 2020

As more people order takeout, CT restaurants wrestle with making food delivery profitable

HBJ Photo | Steve Laschever Matt Sousa, regional manager of World of Beer in West Hartford, said his restaurant uses food delivery apps to build name recognition, but it’s not a profitable service.
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Connecticut restaurants have been forced to make major changes in recent months amid the coronavirus pandemic, but one issue still haunting many eateries is whether they should offer delivery services, and if so, what’s the best way to do it.

Since Gov. Ned Lamont’s ban on in-person food service was implemented in mid-March, many restaurants have adopted online ordering services, but delivery has been a bigger challenge, one that’s been eating at local restaurants for years.

The advent of mobile apps like Uber Eats and DoorDash has made delivery services more widely available to small restaurants, but their use comes with high fees — as much as a 30% commission — making them impractical for some.

Other restaurants have installed their own in-house online ordering and delivery systems, but they too can be costly and come with their own challenges.

HBJ Photo | Steve Laschever
World of Beer in West Hartford receives up to 20 orders per day through third-party apps.

It’s a predicament local restaurants must figure out quickly if they want to survive in the age of coronavirus, which has devastated the industry (as many as 30% of restaurants could close permanently this year, according to one estimate) and forced more consumers to choose pick up and delivery.

German online market research firm Statista projects online food delivery, which has grown 20% in the last five years, will garner $26.5 billion in revenue in 2020.

“[Online ordering] was probably more of a trend a couple years ago, but it’s become the norm now,” said Scott Dolch, executive director of the Connecticut Restaurant Association. “Now it’s about relevancy and how you stay at the top of [customers’] minds through this pandemic.”

World of Beer in West Hartford is using delivery apps like Uber Eats and DoorDash, which are providing important name recognition, but aren’t a moneymaker, said Matt Sousa, a regional manager for the Florida-based restaurant and bar chain that has a West Hartford location in Blue Back Square.

Even though World of Beer makes little to no money from third-party-enabled delivery orders — for which it pays a large commission — it could help generate new customers who visit the restaurant in-person in the future, Sousa said.

“It’s an exposure thing, especially in the times of COVID,” Sousa said. “I’m running on every [third-party delivery] platform there is.”

World of Beer gets up to 20 delivery-app orders per day, Sousa said. The restaurant doesn’t upcharge to make up for the near-zero profit it makes from those orders, because that would create the impression that World of Beer charges outrageous prices, Sousa said. But the restaurant does place flyers in delivery-order bags that encourage customers to dine in at the restaurant or order takeout from World of Beer directly over the phone.

“If you’re working on slim margins, there’s nothing to be made after that,” Sousa said. “I don’t think the consumer knows the full extent of it.”

Dolch said many of his members have expressed concerns about the fees delivery apps charge and he’s encouraged app-delivery companies to be more transparent about commissions, and work out agreements so that all parties can make a profit.

“If our restaurants don’t survive, your business doesn’t survive,” Dolch said of the delivery-app industry. “Helping them survive this pandemic is key.”

App makers respond to crisis

In response to the pandemic — which forced Connecticut restaurants to stop all in-person dining from mid-March to May 20, when they were allowed to open for outdoor dining — some larger app companies have made adjustments to their pay structure, and offered to increase their promotion of restaurants.

DoorDash didn’t charge independently owned restaurants commission from mid-March until the end of April, and charged half of its usual 20% commission for all restaurants until the end of May, according to the San Francisco-based company. It also earmarked $20 million for merchant marketing programs, the company said.

Uber Eats, which charges a 30% commission, appears to have offered more modest perks. It didn’t charge customers a delivery fee when the pandemic shutdowns began, and is giving restaurants the option to be paid daily rather than weekly.

HBJ Photo | Joe Cooper
Wood-n-Tap Bar & Grill co-owners Mike Hamlin (left) and Phil Barnett have developed their own online ordering service.

But the apps’ financial shortcomings aren’t the only pitfall, said Phil Barnett, who co-owns Wood-n-Tap Bar & Grill, a Connecticut casual dining chain with nine locations. When a restaurant is dealing with a third-party delivery service, it doesn’t control how the food is delivered to customers.

“[Customers] expect a certain level of quality, and if that doesn’t go through, they tend to put it on the restaurant, not the delivery company,” Barnett said, likening the phenomenon to blaming the IT guy for problems with your computer. “Unfortunately, we don’t believe Uber Eats or DoorDash do a great job representing our brand.”

[Read more: Hartford Restaurant Group quietly builds a $32M Wood-n-Tap empire]

That’s a big reason why Wood-n-Tap is currently rolling out an in-house online ordering platform, Barnett said. Through Atlanta-based tech and professional services company NCR Corp., the new system allows customers to place and pay for orders online, Barnett said. When the customer pulls up to a delivery spot, posted signs instruct them to text a number, and a restaurant staffer then brings the order to the customer’s car. It costs the restaurant $80 per month per location, Barnett said.

Barnett said his restaurant group is considering a delivery option, and that the system has the additional benefit of removing the sometimes labor-intensive order-by-phone system it previously used. However, the restaurant still sells food through third-party apps, Barnett said, for the sake of marketing.

V’s Trattoria owner Rob Maffucci said he no longer uses food-delivery apps operated by large companies.

Giving away business

Rob Maffucci, who owns V’s Trattoria on Trumbull Street in downtown Hartford and has been a fixture in the city for about two decades, said that while his restaurant has a good relationship with local food delivery services like Dine In Connecticut, he now refuses to work with the national players.

“I would rather not do an order than give away 30% of it,” Maffucci said. “It doesn’t make sense, especially in times like this where there’s zero volume. It’s not worth the marketing.”

Maffucci has used his own online delivery platform through St. Louis-based Executive Dining Company for about a decade, he said. The system includes a delivery option, and Maffucci’s employees (and sometimes Maffucci himself) delivers the food, he said.

Dolch, of the CRA, said he advises restaurants to use the larger apps as a marketing tool, since they really can help smaller eateries get brand exposure. He also wants app companies to make it more worthwhile for restaurants, a low profit margin industry that’s currently in dire straits.

“I want to be able to work with these delivery companies, I just want it to be more fair across the board,” Dolch said. “I want to make sure there’s a great partnership.”

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