When Robert Magiet opened TaKorea Cocina in Ukrainian Village in 2019, he couldn’t foresee the upcoming global pandemic that threatened the very existence of his restaurant, although he was able to get through it.
Now, a service that became widely popular during the pandemic continues to threaten TaKorea Cocina’s existence: third-party apps used to take orders online.
Specifically, the fees delivery apps like Grubhub and DoorDash charge restaurants to use their service that can amount to nearly one-third of what customers pay for an order. While those fees were temporarily capped when shutdowns started, those limits expired in the fall.
“Just last year we paid $93,000 in third-party app fees alone,” Magiet said. “We hope to make a 20% profit on a given year — that is sort of the rule of thumb — but when half your orders are coming from third-party apps and they are taking 30% of each order, then we aren’t making any profit.
“There is nothing left once Grubhub or DoorDash takes its cut.”
The pandemic was a boon for third-party delivery services, which were able to market themselves as a way to quickly get food from your favorite mom-and-pop restaurants without customers having to leave the house and be potentially exposed to the deadly virus spreading throughout the country.
“At first they generally seemed to want to be a partner to businesses like ours and not only helped with orders and deliver food, but also gave us exposure,” Magiet said. “And when Grubhub was first created over 15 years ago, I think their rates were only like 10%”
To Magiet, a 10% commission for helping expose a restaurant brand seemed like a fair deal. Then the market started to become saturated with other services competing for customers.
“All of them needed to start implementing discounts and promos for the consumer like ‘Spend $20 and get $5 back,’ and who do you think eats that cost?” Magiet said. “We do as the restaurant. Then they all started raising their rates. First to 15%, then 20%, 25% and now each of them are eating as high as 30%. Do they want to kill small businesses?”
Magiet said as much as he wants to stop using these third-party services, he simply can’t turn down the business. Too many customers are accustomed to using the apps to get food now.
“Customers have it and once they are used to using something, they develop habits, so we have to continue going where the demand is at,” Magiet said. “It’s killing us though, like I don’t know if I am going to stay in this industry. I may have no other option but to close.”
Elisa Sledzinska, a spokeswoman with the city’s Department of Business Affairs and Consumer Protection, said the city intervened last year with its Chi Biz Strong Initiative, which provided businesses “critical financial relief,” removed “unnecessary burdens” on them and helped keep “workers safe.”
Under that initiative, Elisa said, the city imposed a 10% or 15% cap on service and commission fees from the apps. But the measure expired on Oct. 31.
Then two lawsuits were filed by the city against Grubhub and DoorDash alleging “predatory tactics” that have hurt restaurants and misled consumers for years. That lawsuit was filed following a joint investigation from the city’s law department and BACP.
Kristen Cabanban, a spokeswoman for the city’s law department, declined to comment on the lawsuit, which is pending.
Magiet said when the cap on delivery and service fees was in place, the restaurant did well — even if it was just for a limited period of time. He said if the cap was made permanent, he wouldn’t needed any type of COVID-19 stimulus support.
Jenna DeMarco, a spokeswoman for Grubhub, said the company remains dedicated to helping “restaurants grow and support them through the recovery and beyond.” They’ve given more than $2.5 million in grants to restaurants across the Chicago area, she added.
“Grubhub supports restaurants so they can be successful and drive more growth for their business,” DeMarco said. “Restaurants can choose from a range of services on Grubhub, including commission-free options.”
A spokesperson for DoorDash said the company has “always been committed to helping Chicago restaurants succeed by offering a variety of tools and resources to reach new customers and drive revenue, and our flexible pricing options enable merchants to choose the products and services that best meet their needs. The fees associated with our service plans help power the DoorDash platform, covering Dasher pay, background checks, credit card processing fees, and insurance for Dasher.”
UberEats didn’t respond to a request for comment.
Consumer tip: Order through restaurant’s website
Magiet said those lower commission options are much more tolerable for his business. All customers must do is order directly through a restaurant’s website.
Ordering that way only means the business loses only 7% of a meal’s cost rather than the 30% charged when an order is placed through the app. Still, customers must be constantly reminded to order that way instead of through the apps.
Magiet says the threat facing small restaurants is similar to how rideshare services disrupted the taxi industry across the globe, putting many cab companies out of business and leaving customers limited options and subject to surge pricing, he said.
For him, implementing a permanent cap on the fees charged by third-party apps is crucial.
“We’ve been told that small businesses were the backbone of America but it doesn’t feel that way because we can’t compete with these huge corporations — look how Amazon is killing local pet stores,” Magiet said. “Look, I am a capitalist and I get things change but I believe things should be done fairly and in partnership and right now that is not happening.”