Seeking to stay busy after retiring from a career in nonprofit health-care management, Jon Sewell opened a calzone shop in Iowa City, Iowa. After eight years in the business, he can tell you all about the joys of plying college kids with late-night cheesy goodness—and even more about the downsides of delivery apps such as Grubhub, which doubled the commissions it charges restaurants to 30% after it acquired a competitor that Sewell worked with. “If the true cost of the delivery service was borne by the customer, they’d never do it,” Sewell says.
In response, drawing on his experience persuading rival hospitals to cooperate, Sewell started Chomp, a delivery service that now works with almost 200 restaurants in Iowa City and nearby Cedar Rapids. Restaurants pay commissions of 15%, and drivers earn an average of almost $20 an hour. Shortly after Chomp gained traction, friends in Fort Collins, Colo., asked for help setting up a similar service called Nosh.
Last year, seeking to build on those successes, Sewell created LoCo Co-ops, a company that sells technology and know-how to restaurants interested in establishing delivery cooperatives. LoCo operates in Las Vegas, Omaha, and Knoxville, Tenn., with three more cities in the works. “There’s nothing that DoorDash, Grubhub, and Uber Eats do that can’t be replicated locally and operated at a much lower cost,” Sewell says. “There’s no need to send all this money to a bunch of venture capital-backed firms in California and Chicago who managed to figure out how to get between restaurants and their customers.”
Across the U.S., growing numbers of entrepreneurs are offering homegrown alternatives to national heavyweights. The smaller services typically charge less, pay drivers more, and avoid tactics such as listing restaurants without permission—which some of the biggies have acknowledged doing—according to a May report on 20 such initiatives from the nonprofit Institute for Local Self-Reliance. Their business models vary widely, from co-ops such as LoCo to services that don’t charge restaurants, collecting instead from customers, to others funded by monthly membership fees from eateries. The pandemic turbocharged the movement, says report author Kennedy Smith, as independent restaurateurs pushed back at the high fees of the national services and their customers embraced the idea of keeping more money in the community.
The local services typically don’t work with major fast-food operations, focusing instead on independents, which accounted for more than half of the industry’s $659 billion in sales last year. Although the pandemic got customers hooked on the idea of paying little or nothing for delivery via the big apps, there’s a growing awareness that convenience comes at a cost for independent restaurants. When they fail it can be a big cultural and economic blow to places known for their food culture, Smith says, and that understanding has fostered a spirit of cooperation among the entrepreneurs behind the alternative services. “Their motivations weren’t that they saw market opportunity, but that there was something really wrong with what was happening economically to local restaurants, and they wanted to help fix that,” he says.
The three top delivery apps in the U.S.—DoorDash, Grubhub, and Uber Eats—all say their fees are fair and their services have helped restaurants weather the pandemic.
Candy Yiu and several partners opened Malka, a 30-seat restaurant in Portland, Ore., in January 2020—less than three months before the city went into lockdown and restricted indoor dining. They started using Caviar (owned by DoorDash Inc.) for limited deliveries, despite being “shocked” by the fees. The experience prompted Yiu—an engineer with Intel Corp.—to explore the economics of restaurant delivery. She and her husband, Akshay Dua, soon founded an alternative, Slurpalicious, in Astoria, a city on the coast two hours from Portland where they own a small hotel. Restaurants can sign up for free; customers pay 7% of their order plus 60¢ per mile; drivers get the delivery fees and any tips, earning $15 to $30 per hour, depending on the time of day, Yiu says. “Our mission is to have affordable delivery and fair pay for drivers,” she says.
When DoorDash arrived in Astoria in April, it signed up some chains but none of the 25 or so restaurants that use Slurpalicious. Yiu is planning to team up with a local taxi service to expand the area served by the app, and she’s working to adapt the software for use by restaurants elsewhere. Jim Sanderson, an equity analyst at Northcoast Research, says there’s room for both big national apps and locals such as Slurpalicious and LoCo. But if the popularity of the alternatives continues to grow and they keep bringing prices down, they could threaten the bigger services’ most profitable segment: independents that pay high commissions. In that case, Sanderson says, “if I’m DoorDash, I’d be shaking in my boots.”