Are food delivery platforms profiteering?

(Addition: dbs just announced it is trying to help F&B and bring down commissions to 10%. If they can do it, great for everyone! Competition is the answer not regulation. Btw.. dbs is doing it to attack grab who is trying to enter banking space. Best way to fight is to hit your competition on their home ground! )

Let’s do the math for delivery providers before just slamming them.

1. For consumers, food delivery is not meant to be a eating out replacement.  It’s meant to be a way to eat restaurant food at home which is occasional. Meaning maybe 3-4 times a month max on average per household. Not daily which is how restaurants seem to hope it is used.

2. For restaurant, it’s meant to supplement their outlets income by using kitchen extra capacity. Normal times, it’s like 5% to 30% of total revenue.

3. Now let’s see it from delivery platform pov.

$50 per average order
30% fee is $15
Add $3 fee to consumer

Total is $18 to platform

-Cost per delivery is $8-10. Let’s say $9.
-epayment cost of 2% or $1

Gross profit per delivery is $8 or 45%. Bigger restaurants even a smaller gross profit as they negotiate 15-25% cut.

This 45% need to pay for overhead and marketing cost to acquire driver and restaurants. Don’t forget incentives for good drivers. And of course general admin and mgmt overhead.

4. Now, this does not mean commissions can’t come down. It can but it has to be by competitive behavior by restaurants, other platforms trying  get market share, maybe even taxi player muscling in? Saas player like Oddle is trying.

5. It also does not mean restaurant has to lose. They should charge 30% more to compensate. Or even 40% more to fully compensate. Btw big restaurants don’t pay 30%, they pay 15-25%.

6. The clear loser is the consumer as we have to pay more. But the fact is the service is expensive. Imagine what you are getting. Human drive to outlet, wait, get your food all packaged, deliver it right to your doorstep! Consumers who don’t want to pay will have to go hawker and take out. To me that is the best solution and not to subsidize delivery in a big way. Small way to help people who can’t leave their homes should do.

7. Another way to see this issue is to benchmark and check against grubhub numbers which is listed. They have a blended 23% commission charge.  5.9b gmv with 1.3b revenue in 2019.  Also if we check deliveroo and grabfood numbers I am sure they are all loss making still.

8. So for a much smaller scale Sg, 30% commission can cut down more but not much more. And don’t forget average basket size at grub hub is high at $80+usd.

The basic problem is this is an expensive service. It’s not reasonable to say everyone should be able to pay for it. And restaurants should not look to platforms to save them. Platforms are also a business and 30% does not look too high for our market size.

Btw I don’t think this crisis is restaurant and cafe owner fault at all. They deserve to be helped and govt is doing more for them. But making platforms the fall guy is barking up wrong tree.

In fact on a side note, the real monopoly making very fat profits is visa, MasterCard and Amex. But somehow everyone thinks it’s ok to pay them their cut of 1.5-3% fee on all transaction value!!!!