Disrupting the disruptors: How restaurants and startups are flipping the table on meal platforms, and why UberEats should be worried

In the five short months between November 2015 and April 2016, Australia’s restaurant industry changed forever.

First came UK-born Deliveroo, with its ‘rapid and aggressive’ growth strategy, and then UberEats, the eponymous delivery platform promising to help businesses reach new heights.

Over the next four years, these two multinational businesses would turn Australia’s $42 billion cafe, restaurant and takeaway food services industry on its head.

As customers relished their newfound ability to order something other than pizza to their doors, billions of dollars flowed through these meal delivery apps in just a few years.

In the aftermath of this runaway popularity, thousands of businesses, large and small, signed the dotted line, and platforms quickly became fixtures of the new, burgeoning face of Australia’s hospitality sector – all the while clipping between 14% to 35% from every order.

But almost half a decade later, something new is happening in the restaurant industry, and the likes of Deliveroo and UberEats — which now sit on an estimated $690 million annual gold mine — have reason to be worried.

The disruptors, envy of budding tech startups the world over, now face being disrupted themselves, and the outcome of this monumental fight for the hearts and minds of Australia’s restaurant owners will determine what your favourite eatery looks like for years to come.

There’s a new class of businesses rising, promising to undercut the widely criticised commission rates of the multinational platforms, by either beating them at their own game, or re-imagining the future of online food delivery altogether.

Meanwhile, other restaurants are striking out on their own, realising they’re better off taking delivery into their own hands instead of solely farming out customer relationships to the sharing economy.

Popular Vietnamese restaurant Roll’d is one such business. Chief executive and co-founder Bao Hoang says UberEats and Deliveroo remain important partners to the franchised chain for now, but the future will see Roll’d’s own service take priority.

“We’re trying to build a business model that has long-term benefit, and unfortunately through the third-party platforms, I don’t think many people make money,” Hoang tells SmartCompany.

“Customers are becoming more aware now about the costs and the burden [platforms] have on restaurants.”

What’s driving the wheels of change at Roll’d? No prizes for guessing. It’s become fashionable to explain a story with some variation of  ‘along came coronavirus’, but for Australian restaurants, it couldn’t ring more true.

In the wake of a government-mandated shuttering of their dining rooms in March, cafes and restaurants suffered a staggering 22.9% fall in revenue. In other words, total sales for cafes, restaurant and takeaway food services was $890 million dollars less in March this year than last.

It’s against this backdrop many of Australia’s restaurant and cafe owners are expressing their frustration with meal delivery commissions. SmartCompany has spoken with several dozen business owners since the restrictions began, and the dim assessment of UberEats and Deliveroo is widespread, although not total.

Most asked not to be quoted speaking critically of the platforms, fearing their listings on the popular applications could suffer as a result.

“It’s a rip-off, that’s the reality,” Paul Kasteel, owner of Hoo Haa bar and Miss Kuku restaurant, tells SmartCompany.

Destiny through delivery

Commissions aren’t the only factor driving angst about the relationship between delivery platforms and the restaurant industry though. Businesses SmartCompany has spoken with say control over service, en-route food quality and customer acquisition are also important to them.

As has been the case with the platformification of business in the retail, accommodation and transport sectors, UberEats and Deliveroo have become inevitable gatekeepers between restaurants and their customers.

While platforms offer opportunities to reach new patrons, they also pit brands against each other in a marketplace they have little control over.

“It’s really about that food quality and the ability to provide our own service.

“Looking forward, convenience and getting food to people is what people are going to be looking for,” Hoang says.

Roll’d has already started doing ready-made meal deliveries, as the coronavirus outbreak disrupts the industry around it, an important first step in what Hoang predicts will be a long journey towards a profitable operation.

After all, delivery isn’t cheap. Just ask Uber.

The publicly listed sharing-economy giant lost US$774 million on its eats segment globally in 2019. Deliveroo is a private company, so few know the scope of its financials.

But Hoang hopes Roll’d controlling its own delivery destiny can actually expand the scope of his business, enabling franchisees to move beyond the lunch-time takeaway trade into the lucrative casual dining market through the evening.

“There’s an investment required upfront. We’re loss leading to a point,” Hoang says. “If we’re able to bolt-on a full delivery service to our stores we can really start to drive economies of scale.”

Roll’d co-founder Bao Hoang is determined to control his own delivery destiny. Source: supplied.

Hoang’s delivery dream would have become reality at Roll’d over the next decade anyway, but coronavirus has moved up the timetable substantially, and in many ways, that’s really what the platforms have to worry about.

While it’s impossible to say what the restaurant industry will look like in the aftermath of COVID-19, depending on where you sit, the forthcoming changes could either be a false dawn, or a new day.

UberEats and Deliveroo have enjoyed a surge in the number of restaurants using their platforms — in some cases begrudgingly — during the pandemic, but underneath the need to flip the switch on short-term delivery solutions, many business owners are hard at work finding alternatives.

Disrupting the disruptors

Not everyone is going it alone either. A variety of new vendors are nipping at the multinational platforms’ heels by offering better deals and in some cases pitting Deliveroo and UberEats against their clients.

Jack Lindsay is the owner of UpToasted, a small Brisbane-based startup that’s billing itself as the ‘anti UberEats’.

Lindsay is working with contracted drivers in Brisbane to fulfill orders for about 14 restaurants, charging a 18% commission and an $11 weekly fee, compared to Uber’s 30% commission.

But the pay rate isn’t the only difference between UpToasted and UberEats. Lindsay has hooked into Facebook’s API to allow restaurants to leverage the world’s largest social media platform to place their orders.

Boasting 17.3 million Australian users a month, Lindsay thinks Facebook is underutilised ground for meal delivery orders and wants to expand the market by allowing restaurants to use their own pages to do business on the social media platform itself.

“It’s crazy expensive having a customer-facing app, you have to pay the Kardashians or something to market it, which is ultimately funded by restaurants,” Lindsay tells SmartCompany, referencing UberEats’ highly publicised ad campaign with Kim Kardashian.

UpToasted founder Jack Lindsay wants to disrupt UberEats. Source: supplied.

The founder says a few of his clients are doing $5,000 a week in sales through Facebook already, and he hopes to grow awareness about social-media ordering.

“UpToasted has found the gaps and inefficiencies of major delivery platforms and has brought the focus back to supporting small, family-owned businesses with similar technology and a more personalised service,” Lindsay said in an emailed quote.

Elsewhere, Melbourne-based startup Mr Yum has quickly become somewhat of a leader in the backlash against UberEats and Deliveroo, helping restaurants oversee their own delivery for a comparatively meagre 4.5% commission.

Co-founders Kim Teo, Kerry Osborn and Adrian Osman have picked up a swathe of popular brands, including Moon Dog Brewery, Betty’s Burgers, Strike and Beer DeLuxe in recent weeks, providing the same app-based ordering concept as the multinationals, but leaving delivery up to restaurants themselves.

The startup is expanding so fast that it’s launching in a new neighbourhood every week and will soon be working on interstate expansion beyond Melbourne.

“We’re trying to create a far more sustainable cost model,” Teo says.

Teo has been studying restaurant cost structures and believes 15-17% of order value is the most businesses can afford to pay for delivery. Mr Yum takes 4.5% for handling ordering and payment, which leaves businesses with between 10% and 12% to pay for delivery.

“Because it’s the restaurant’s tool, they can set a delivery fee they’re looking for and a minimum order value for delivery,” Teo explains.

Divide and conquer

Mr Yum is far from the only one looking to claw disgruntled restaurants away from the major platforms. Companies such as Next Order and Food Chow have emerged as white-label options that effectively allow restaurants to remove third parties from the equation altogether.

While this influx of competitors is typical of any maturing market, what’s not typical is the coronavirus crisis and how it’s enabled the likes of Mr Yum to capitalise on simmering tensions about delivery commissions.

Teo has unapologetically sought to carve a divide between Deliveroo, UberEats and their restaurant clients, emerging as a vocal opponent of their business models in public comments and marketing efforts.

It’s a tried, tested and effective strategy, and there’s no denying Mr Yum has a financial incentive in pitting the multinational platforms against restaurants in the eyes of customers.

Mr Yum co-founders Kerry Osborn, Kim Teo and Adrian Osman.

But there’s more than just marketing in the push against the large platforms. Underneath the bluster, there’s a belief it’s time for a second wave of companies to re-imagine online food delivery.

Teo, a former logistics consultant, believes the first-mover models pioneered by Uber and Deliveroo won’t last.

“I’m not one of those naive entrepreneurs that’s like: ‘Why is Uber keeping all their profits?’ Let’s be honest, they’re not even making a profit,” Teo says. “It’s the industry that’s unsustainable.”

The co-founder says expensive point-to-point deliveries from the on-demand nature of the platforms, combined with an inherent inability to forecast for peaks and troughs in demand, necessitate the exploitative nature of their businesses.

The platforms themselves are taking notice. UberEats and Deliveroo have been defending their patch behind the scenes and late last month Deliveroo hit back in a letter addressed to Teo.

“We note that you have made a number of untrue and misleading statements about how Deliveroo works with restaurants and the commissions that we charge,” the letter, dated April 22, reads.

“For comparable services to those that you offer, including customer pick-up and what we would call Marketplace+, where the restaurant completes the deliveries, commissions are far lower than you have suggested.”

UberEats has previously taken issue with Teo’s social media posting, where the founder has publicised snapshots of restaurant statements detailing delivery fees.

Platforms stand and bow

Deliveroo and UberEats have spent millions setting up their businesses in Australia, and they’re not about to cede market share without a fight.

Other prominent players such as recent entrant DoorDash and veteran Menulog are also vying for space in the increasingly crowded online food delivery market, estimated to be worth $677 million (Statista) or $690 million (IBISWorld) in 2019.

Roy Morgan consumer panels suggest UberEats leads the pack, used by 11.5% of a nationally representative sample and growing fast, while IBISWorld estimates place their market share at almost 60%,  followed by Deliveroo at 17.5%.

Startups such as UpToasted and Mr Yum are still just a fraction of the size of the major platforms, but in an industry where restaurant brand power is influential, markets can turn quickly.

Aware of the fickle nature of consumer tastes, the platforms have taken steps to respond to industry pressure in recent weeks.

DoorDash said last month it would halve commissions for small restaurants until May, while UberEats earlier this week said it would cut commissions from 35% to 30% permanently.

Deliveroo has cut commissions to 5% on orders where restaurants conduct their own deliveries, but has yet to follow UberEats in dropping commissions on orders it fulfills.

Deliveroo’s Australian managing director Ed McManus recently told SmartCompany there were no plans to reduce prices.

“We’re not in a financial position to do that,” he said.

Disrupting the position of the multinational platforms is no small matter; over the last five years, Deliveroo and UberEats have led a surge that’s left them with hundreds of thousands of regular customers.

While UberEats does not separate out country-by-country sales and no financials are available for Deliveroo, estimates indicate revenue comes easy to both businesses.

Figures compiled by IBISWorld indicate revenue increased from $51 million in 2015 to $690 million in 2019 ⁠— a 1,252% increase.

Statista estimates indicate revenue increased from $484 million in 2017 to $677 million in 2019 ⁠— a 39% increase over a shorter period.

Transparency and responsibility

There is also no shortage of restaurants which remain loyal to the major platforms, particularly those which have relied on UberEats and Deliveroo in recent weeks to keep their heads above water.

Cale Drouin, a Brisbane-based restaurateur, owns The Green Edge cafe in Windsor and Yavanna restaurant in Paddington.

He tells SmartCompany its become popular for restaurant owners to get “high and mighty” about meal delivery commissions, without taking the time to understand what it costs the platforms to deliver their service.

“Uber cops a lot of flak, but it is a complicated business,” he says. “The reality is there’s a certain cost associated with doing this and making some money in the delivery space.”

The business owner says he’s appreciated UberEats’ flexibility in allowing him to vary his menu items at short notice recently, particularly in the face of COVID-19.

Drouin says the platforms have created issues for themselves by failing to be transparent enough with the restaurant industry about their costs and commission deals.

He believes the platforms should make efforts to improve their communication in an effort to improve goodwill with disgruntled business owners.

“These platforms need to come out and talk about their costs a little bit more and how much is involved in doing this,” he says.

DJ, the owner of one of Melbourne’s longest standing Indian restaurants, Gaylords, says he also intends to continue using UberEats, despite struggling to make money through the platform unless he can make 40-50 orders every day.

“We cannot live without these platforms, they deliver us vast numbers of customers,” DJ tells SmartCompany.

Once product discounts, which Gaylords pays for, and Uber’s commission is taken into account, DJ says he’s left with about 40% of the retail price of a typical order.

“Frankly speaking, that’s either food cost or one of my chefs,” he says. “Surviving has become difficult.”

“If I can’t increase my number of orders over the next month or so, I’ll have to close too.”

DJ’s experience underscores a source of renewed anger about platform commissions in the face of the coronavirus pandemic. Business has dried up, which means driving the scale needed to make trading through platforms profitable has become nearly impossible.

At first glance businesses such as UberEats and Deliveroo appear as partners like any other, but their role as platforms sitting between restaurants and customers extends their role in a way which would have been unheard of two decades ago.

While startups tussle with these multinational tech giants over the future of the fast-growing delivery space, businesses across the country are facing the same bleak future Gaylords has been forced to reckon with.

Whether the cafe and restaurant industry is able to find a sustainable solution remains to be seen, but the stakes have never been higher. After all, delivery is no longer an optional extra for Australia’s restaurant owners, it’s their only source of income.

Thankfully, coronavirus restrictions have begun to ease, but there will be no turning back the clock on this monumental shift.

And the meal delivery platforms that now call Australia home are faced with an industry-defining question: will they bear the burden of that responsibility?

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