Food delivery service has become the norm in Covid times but food delivery platforms cream off 30% of margins. Should they not join the war effort?
Estimated reading time: 5 minutes
Restaurants have thin margins. That is one truth that has been exposed during our Covid tribulations. Food delivery service is key to survival for many restaurants. That is another truth. When dine-in is prohibited or restricted, as it has been for the last 18 months and counting, online orders are indispensable.
In times of peace before Covid, online food was a source of bonus revenue. Nobody counted on it, and nobody would have collapsed without it. Now, we are faced with a different proposition: food ordering online is here to stay in a big way, lock-downs or no.
What started off as online menus to temporarily ride out the circuit breaker, has become a question of survival in the long run. Food delivery is now a sub-sector of its own. Whereas home-based food businesses have jumped on the band wagon to milk the trend, restaurants play only because they must.
But with rentals to pay and employees to feed, that 30% food delivery commission paid to the likes of Deliveroo, Grab Food, and Food Panda could strip restaurants bare.
COMMISSION CAPS
While restaurants struggle to make ends meet, should the largest beneficiaries of the online food sensation share some of the spoils?
In June 2021, San Francisco imposed a 15% permanent cap on food delivery commissions. More recently, New York City passed a 23% permanent cap and announced a new licensing regime to regulate food delivery platforms. Media reported that 68 locations in the US had ordered temporary commission caps in the height of the pandemic. Regions of Canada such as Ontario, Quebec, Calgary, and B.C also set similar caps. Such laws are not without controversy, but they represent a determination to correct a destructive imbalance.
In all these places, food delivery commissions hovered around 30% before the caps.
COVID PETITIONS
During the first of Singapore’s Covid dine-in lock downs in May 2021, F&B owners petitioned for similar legislative assistance. Unfortunately, at that time, Parliament dismissed legislation as not being the appropriate solution. It believed that market competition would keep food delivery platforms on their toes. Today, food delivery platforms continue to charge high commissions, while F&B operators fight for their lives.
The Food Delivery Booster Package offered by Enterprise Singapore certainly helps, but it does not signal to food delivery platforms that they ought to join the war effort. Subsidies during lock-downs do not solve the long term problem. Perhaps when the issue was first petitioned, the country did not look further than the first and second lock-downs. As with all matters with moving parts, however, we ought to relook at it now.
MARKET NOT CORRECTING ITSELF
Contrary to what was hoped, the market has not produced competitors sufficient to check the bigger players. Unlike in Australia, where Kneaded could disrupt the status quo with its subscription-based 0% commission food delivery service, the Singapore market does not appear to be correcting itself.
Initiatives like The Dine-in Movement and SupportLocalSG try to return control over deliveries to F&B operators but these are not capital-rich commercial platforms. Specialised delivery platforms like WhyQ, which focuses on delivering hawker food, offers 0% commission to hawkers but shifts delivery costs to customers, and as such becomes less competitive.
F&B operators who choose to set up their own e-commerce platforms and work with independent delivery solutions face logistical burdens. Not every operator has the technical knowledge or resources to pull off an additional layer of operations.
So is legislation an appropriate solution now?
FOOD DELIVERY PLATFORMS ESSENTIAL
If we accept that online ordering is the new black, and restaurants are dependent on that source of revenue even after lock-downs, then we also recognise that we need food delivery platforms. They are an essential piece to the puzzle.
Food delivery services offer cross-marketing among F&B options, customer retention through promotions, and ease of logistics. They also offer expertise and devotion to managing this leg of the food chain.
Restaurants need the reach and assistance of food delivery platforms to maximise food delivery revenue. There is no doubt that restaurants benefit from a partnership with these platforms. The only question is how much can restaurants afford to pay?
Given rents, salaries, CPF and levies, utilities, and cost of goods, the commission percentage could make all the difference. While fair tenancy is fought on a different front, we also want the co-dependence of food delivery companies and restaurants to work.
ONLINE ORDERING FUTURE
Food delivery platforms need to lower commissions, restaurants depend on it. But they are not rushing forward to do so.
So here we are. We can choose to regulate the free market in order to save the whole industry. The domino effect between restaurants closing and online orders disappearing is obvious.
Or we can sit back and hope for the best, which may not be enough.
