New local option offers alternative service for changed dining habits
Sep. 1, 2024 6:00 am
CEDAR RAPIDS — It’s not as crazy as it may sound.
Loco, a new delivery service for restaurants launching later this year, is attempting to do what other third-party apps have not been able to deliver: local, competent service that’s still profitable for restaurant owners in a dining world permanently altered by the pandemic.
Drawing investment and leadership solely from Cedar Rapids restaurant owners, the new app hopes to take a second shot at reducing the outsized power big players like DoorDash, Grubhub and Uber Eats wield over locally owned restaurants. Its name, which acts as a portmanteau of “loyal” and “local” as well as an acronym for “locally owned co-op,” hopes to offer an alternative as big tech firms tighten their market share grip.
“We’ve all been getting our butts kicked by (the other delivery apps) of the world,” said Steve Shriver, co-owner of Brewhemia in Cedar Rapids and chair of Loco’s board. “They’re taking up to 40 percent of our revenue through their platform, and it’s leaving the community.”
How Loco is different
With plans to launch by the end of the year, Loco will start local and stay local. Investors must be local restaurant or retail business owners, and profits will be returned to restaurants who use the app — whether they’re investors or not.
Investors can get involved for as little as $500. The app endeavors to raise $200,000 to $300,000 before launch.
The cooperative model, which President Jon Sewell has previously pioneered with other delivery brands like Chomp in Iowa City, has a few benefits to reinforce its sustainability. The brand will never expand outside the Cedar Rapids metro.
“This service will be run the way a restaurant owner wants delivery service to be run,” he said. “There are no retired restaurant owners in the DoorDash executive suite.”
Commissions on orders will be lower than the average charged by other apps. Most orders will be charged a rate of 15 to 20 percent. Other apps have introduced lower commission rates in response to backlash from restaurant owners, but they come with strings attached, Sewell said.
“When they offer a 15 percent commission rate, they will only deliver up to a mile away,” he said, as one example.
Delivery drivers, who typically rely on tips, will be paid more. All drivers will have a minimum guarantee of $15 an hour, with potential to earn much more.
Perhaps most importantly, local ownership will deliver service that resolves conflicts without taking a hit on a restaurant’s reputation and revenue. Quality control is a common complaint among restaurant owners who use third-party delivery.
Restaurant owners also will maintain more control over the platform itself, in addition to its transactions.
Shriver said DoorDash recently threatened to lower Brewhemia’s ranking in search results because of discrepancies between his DoorDash menu prices and his restaurant’s dine-in prices. Restaurants often increase their menu prices by a nominal amount on delivery platforms to account for added fees and make profit margins viable.
“But in the same message, they offered me a lower commission if I sign an exclusive contract with them,” he said. “There’s so many levels to their deception and marketing, it’s terrible.”
In the future, investors see Loco’s potential for business-to-business applications that go far beyond food delivery.
Permanently changed habits
In an industry that operates on tight margins with little room for error, the relationship between restaurants and third-party delivery apps has been complicated, at best.
As restaurants scrambled to adapt to pandemic threats, new customer habits and new pressures like labor shortages, the Iowa Restaurant Association’s president and chief executive officer called delivery apps “a necessary evil” in 2021.
In the early years of their popularity, apps were posting restaurant’s menus and logos to digital platforms without the restaurant’s permission. When an order was placed, the app’s delivery driver could purchase food from a restaurant and deliver it with no direct transaction between an unsuspecting restaurant and the delivery customer.
Quality control was an issue in a less regulated era when drivers could smoke, transport animals and pick up other passenger fares while delivering food.
Iowa legislation that became law in July 2022, thanks to lobbying from the Iowa Restaurant Association, has stopped most of the biggest complaints about misrepresentation and quality control. Since then, association CEO Jessica Dunker said, tech firms have become more proactive about their relationships with restaurants.
But the demand for delivery remains, years after the worst waves of the pandemic receded.
“I wouldn’t call it a necessary evil anymore,” Dunker said. “It is an operational reality that is finding equilibrium.”
In 2023, 65 percent of all restaurants in the country had a higher proportion of delivery sales than they did in 2019, she said. That number is higher even for full-service restaurants — 58 percent of which have seen higher demand.
Dunker said 31 percent of restaurant operators expect their off-premise sales to increase next year. Another 55 percent expect those sales to remain steady.
“What this tells you is that the market has evened out, and they’re understanding better how to integrate strategies for delivery into their revenue models,” Dunker said.
The vast majority of restaurants that offer delivery — 70 percent — do it solely through third-party applications.
“What we’re seeing with the market in general is that third-party delivery is here to stay,” Dunker said. “The caliber and quality of food that people expect to have available for delivery has evolved beyond pizza and Chinese.”
Why Chomp left Cedar Rapids
Chomp, a very similar concept pioneered by Sewell in 2017, briefly served the Cedar Rapids market before its departure in August 2022. It continues to serve the Iowa City metro, where the platform first launched.
The lack of traction for Chomp in Cedar Rapids, even as it found success in Johnson County, came down to a lack of local vested interest. Initially, its board of directors hoped to simply expand the service area without creating a new entity.
“It wasn’t owned by Cedar Rapids restaurants,” Shriver said.
While Chomp offered better commission rates and more local customer service, many restaurants in Cedar Rapids treated it like the other big services, Sewell said
“It was difficult to compete against the marketing (from competitors) in a community like this. The carrot we were missing was equity and control of the product,” Sewell said. “That’s what we’re doing differently this time.”
At the local level
The reality of delivery demand has hit home with many restaurant owners in Cedar Rapids, too.
Justin Zehr, co-owner of the Fun Not Fancy restaurant group with Linn County holdings like Cliff’s Dive Bar, Sacred Cow, Taco Gato and The Hip-stir, said delivery services were the only way for restaurants to survive at the beginning of 2020. Now, they still bring too many sales to ignore.
“It changed (our customers’) habits,” he said. “I don’t see it going away.”
While his restaurants still pay commissions ranging from about 15 to 30 percent, the cumulative volume helps keep the restaurants in the black.
“Even if your (commission rates) aren’t where you want them to be, a sale is a sale,” he said.
Local ownership with buy-in from Cedar Rapids investors could keep prices down for restaurants and consumers — something he calls a “win-win.” But he doesn’t envision Loco’s launch to cause the local demise of Silicon Valley-founded apps.
Zehr’s restaurant group, one of the largest locally-owned ones in Cedar Rapids, is one of several that have expressed interest in helping get Loco off the ground. Others, like Kory Nanke’s Epic Catering group with establishments like Crosby’s, Midtown Station and Midtown Reserve, have also voiced interest.
So far, Loco has received verbal commitments from 60 restaurants. The company hopes to have 100 on board by the launch in the final quarter of 2024.
“That’s what’s important. We need a concentration of restaurants to be relevant to the consumer,” Shriver said.
A balance of restaurants — both popular independents and a variety of cuisines — also will be important, Sewell said.
“If someone is in mood for Thai, we need to have one or two Thai places,” he said.