Restaurants and bakeries struggling in the pandemic are trying to decide whether and how to provide delivery services in a cost-effective way.
But they are caught between a rock and a hard place – having to choose between sacrificing a significant profit margin in exchange for the convenience of third-party services or going through the complex and costly process of setting up their own.
For many restaurants, forgoing delivery is not a solution to this predicament. Ian Tostenson, president of the BC Restaurant and Foodservices Association, estimates that around 65 per cent of restaurants in the province use third-party food delivery services.
High commission fees of up to 30 per cent are one of the main downsides to using food-delivery services.
In Richmond, Little Fox Bakehouse has opted to start its in-house delivery service.
Owner Eric Ho said it made more sense for him to do that because his kitchen can’t produce any more than it is doing now, so there was no point in trying to expand his customer base by using a third-party delivery service.
“It won’t make sense for us to try to push for more production but lose that 15- to 20-per-cent [commission] margin,” said Ho. “Managing third-party ordering also requires more effort and risk for a business like ours where we don’t make things on order but already have a set number of items prepared for each day.”
However, most businesses are still hesitant about setting up their own delivery services.
“While there is evidently challenges of high fees/cuts from using third-party delivery, it is extremely cost- and labour-intensive to start up one’s own delivery service,” said Muriel Protzer, senior policy analyst for the B.C. branch of the Canadian Federation of Independent Business.
There are also other benefits to using third-party services than just saving on set-up and maintenance costs.
“[Third-party services] have a bigger market we don’t have so it’s better to approach different audience too,” said Hitomi Syversten, owner of Baker & Table Café on Fraser Street.
When the first lockdowns started, most restaurants defaulted to third-party services for convenience.
“DoorDash and Uber Eats were easy to set up, that’s all,” said Syversten.
But the costs are piling up as the pandemic presses on.
“Because it happened so quickly back in March … [restaurants] really didn’t have time to … think about strategically as the best way to approach it,” said Tostenson.
Owners are offering delivery services to boost take-out sales and to address people’s concerns about health risks from eating in restaurants. In a report published by Statistics Canada in July 2020, the food and beverage subsector experienced a whopping 107.0 per cent surge in e-commerce in the initial months of the pandemic.
“The alternative for businesses in this scenario is pick-up–only models, which greatly narrows their customer base. It’s a tough game business owners have to play in […] doing the math to see what business model they can pivot to while still making enough revenue to pay their fixed costs,” said Protzer.
Searching for other solutions
Aside from making the impossible choice between high-cost delivery services or expensive in-house delivery, businesses and advocates are hoping for other solutions.
The most obvious alternative is to put a cap on commission fees. In its 2020 election campaign, the B.C. NDP promised that it would cap such fees at 15 per cent. A similar proposal has also been raised by legislators in Ontario and Manitoba.
The restaurant association is going one step further by combining the cap with the addition of competitors to the market.
It has partnered up with technology companies Modern and Tutti to develop two delivery services whose commission fees will be limited to 15 per cent or less.
Syversten is willing to give these new services a go, but she has some concerns.
“I found that it takes time to get reviews up when you started new app. If reviews are low nobody orders. It will take time to get orders which is bad for business even [if] commissions are low.” The popularity of the service and the size of its pool of users are also important factors to consider.
Tostenson acknowledges that this is a long-term rather than a short-term solution.
“I think it’s going to help the industry and help restore its profitability in the long-term. It’s a good fit. We’ve got the market power and the ability to do it.”