— Feature —

Losing Money to Stay Open

Without regulation, third-party delivery apps could be the end of local restaurants

In the early months of 2020, before most of us had heard about the COVID-19 virus that was sweeping across China, Samuel Lee and his family decided to close the dining room of their two Hanjan Korean restaurants in Edmonton. They were the first in the city to do so, even before it became mandated. It was not an easy decision as Hanjan, with 650 seats across its locations, makes the majority of its money from hosting big groups for sit-down meals.

“Because we have family in Korea, we saw what was happening over there and they gave us insight into what is going to be happening in Edmonton,” Lee said. Hanjan switched from dine-in to delivery and pickup only. “And I’m really glad that we hopped on it fast because it gave us time to adjust and get everything down pat before all the other restaurants.”

This quick thinking likely saved the business and, in fact, Hanjan opened a third location in Oliver in the midst of the pandemic in September 2020. The Oliver location was a lucky find during deliveries at the Hargate building.

“When we were signing the lease it was during the pandemic when dine-in was still closed [for the first time],” Lee said. “But we were looking into the future and thinking this is going to end sooner or later. I really loved that it was inside the heart of Oliver because we’re really community and family-focused and we really love the population density there. That neighbourhood always has really friendly people.”

When the Oliver location was found, Hanjan was doing all of its own deliveries rather than relying on third-party delivery services like SkipTheDishes, Uber Eats and DoorDash. “We used to just do our own delivery because I really didn’t want to pay those fees, but then as someone who also uses Skip and Uber, I know that it has the convenience [factor] and it’s really well thought out,” Lee said. “What we do now is we do use a third-party, but when people order delivery we always put a nice message and coupon with it saying: “Hey if you enjoyed us this time, we have our own home delivery system.” And include our website and a discount for their first order.”

Dealing with delivery

Because dine-in services in Edmonton restaurants have been closed twice now due to COVID, restaurants have the options of closing, using their own delivery drivers or using third-party delivery apps. But what many customers don’t realize is that none of these options are in the best interest of our local businesses. Closing means no revenue coming in. Using their own delivery drivers comes with its own challenges. Using third-party services is convenient, but with fees reaching up to 30 percent, it means restaurants are often losing money on orders.

Scott Crockatt is Vice President of Communications and External Relations with the Business Council of Alberta and has seen how the pandemic has been hitting small and medium businesses, particularly local businesses, harder than larger ones. Third-party delivery services swooping in and taking a huge bite of profit isn’t helping.

“I think that those companies take a very substantial cut and it makes it really difficult for businesses to make money. They provide a valuable service, but I understand why restaurants are looking for alternative ways. They’re looking for more competition in the market,” Crockatt said.

“I’d frankly really like to see the cut those businesses are taking come down because I think if it doesn’t they put themselves at risk of regulation.”

Will regulation work?

Actually, that’s exactly what the provincial NDP are calling for: a cap of 15 percent on third-party delivery fees. Deron Bilous is NDP Official Opposition Critic for Economic Development and Innovation and says 15 percent is a healthy margin that ensures third-party companies continue doing well, but also protects local businesses.

“Because of the COVID restrictions [local restaurants are] in this precarious position where they’re reliant on delivery. There’s no dine-in. So for many of these restaurants, they can’t afford to have their own driver and it’s inefficient to have one driver anyway,” Bilous said. “So they have to use these third-party deliverers, whether it’s Uber Eats or DoorDash or SkipTheDishes. The challenge is with some of these folks charging up to 30 percent [in fees], restaurants are losing money. They’re actually losing money to stay open.”

When we’re in a pandemic like this it would’ve been really nice for the government to put a cap on those fees and maybe help out the restaurants a little bit more.

Bianca Condren

Bilous said the solution is pretty straightforward by putting a cap on third-party fees in order to protect local businesses. “We value all businesses, but at the end of the day when you have these international food delivery companies taking a huge chunk out of our local and small businesses at risk, then we need to step in to ensure that we’re protecting our own local small businesses and communities. That’s what governments do. If we do nothing, by summer there will be a significant number of businesses that will no longer exist.”

Black cloud effect

The quality of life for residents in the core could change, and not in a good way if restaurants and other businesses begin closing and aren’t able to re-open.

“So in the normal course of operations when a few businesses close and there’s a normal cycling, that is actually beneficial,” Crockatt said. “It can keep things fresh, it can even bring in new restaurants and new retailers. But what we get really concerned about is if many close at once around a similar timeframe. It can have a bit of a black cloud effect, as I call it, on the surrounding community. It can act as a drag on even the other businesses that are open because people are less inclined to come to an area and get back involved in it.”

One local business that decided to close its operations for a few weeks in early 2021 is DOSC, a steakhouse, cocktail bar and café located downtown. “DOSC is really passionate about creating an experience with people, so translating that into take-out just doesn’t really work.

That’s kind of why we had to end up closing that down,” Bianca Condren said, head of Human Resources, Events and Communications at the Hoot Company, which also owns Seoul Fried Chicken, Dorinku and Japonais Bistro. The restaurant did re-open for dine-in beginning Valentine’s weekend.

“While in a shutdown with a restaurant of that size you’re actually hemorrhaging money. Even with government funding,” Condren said. “So to kind of keep the business open long term, without having to go into bankruptcy and shut it down completely, our plan was to just close it temporarily.”

During the first lockdown, DOSC was relying on their own delivery platform, which proved difficult for many reasons including competing with the third-party delivery companies, trying to get customers to visit the website to order and driver burnout. DOSC did switch to using third-party delivery for a while, but it left them with a sour taste.

“They take a massive chunk of your profits,” Condren said. “Restaurants run at a very low profit range anyway and when you’re doing take-out you’re not going to charge people the same as what you would if they dine in. So you’re already lowering your prices as they are. So it’s very slim margins.”

An eye on quality control

DOSC also had concerns about the safety of the food and the quality of experience third-party drivers were giving to customers.

“We’re all about making people feel safe when they’re eating our food for takeout as well. And I don’t want to slam any delivery drivers from third-parties, but you don’t really know what they’re doing with the food. And from what we’ve seen when they’ve come into the restaurant sometimes and how they act with the food, we were actually hesitant to give them the food in the first place. You don’t know if they’re being COVID-friendly,” Condren said.

“Then there’s also the minuscule things like not being able to
have an updated price and how long it takes to transfer the food products to their website and everything else that comes with third-party apps. They’re big corporations and that’s how they get there, by charging these fees, but when we’re in a pandemic like this it would’ve been really nice for the government to put a cap on those fees and maybe help out the restaurants a little bit more.”

Recovery in the core

It’s been a long year of COVID restrictions, health scares and stress, and with no clear end in sight, the thought that our local businesses are struggling so much is deeply disheartening.

Ward 6 City Councillor Scott McKeen, whose constituency includes Oliver and Downtown, said residents of the core are obviously frustrated. McKeen said being stuck in their homes has led to more complaints about things that might have seemed trivial before like noise from civic operations and snow clearing, as well as more concerning things like folks not wearing masks in public places such as transit.

But he’s heard positive stories as well.

“I’ve heard more than a few people say that pent-up demand will mean a flush of consumer dollars flooding into sectors like hospitality. Housing is already in a slow recovery and it might be that the future is brighter than some predicted. Some businesses expanded during Covid and even some restaurants did well in transitioning to a delivery model,” McKeen said. “But I don’t want to downplay, in any way, the small and medium-sized businesses that continue to struggle.”

The BCA has some pretty eye-opening stats on business recovery following a natural disaster: as many as 40 percent of businesses can be expected to never re-open. And of those that do survive, another 26 percent will close down within the next year to a year and a half. “Those numbers come from disasters and this is a little bit different, but I think in many ways it’s useful for us to think about it in a similar way,” Crockatt said.

Even though things may seem like they’re better because restaurants have re-opened, that’s not necessarily the case. So what can we do to help our local businesses now and over the next couple years until they’re past the re-opening and recovery stage?

“Supporting local is as easy as writing a review or buying a gift card if you don’t feel safe to dine out right now,” Condren said. “Even before we re-closed down again, we were still down 30 – 40 percent of sales from the previous year because we were still operating at a limited capacity. Just be aware of team members that are working behind the scenes and on-site. They’re putting themselves at risk.”