Governments must work with restaurants on a no-fee delivery app

To say it’s been a rough year for the restaurant industry is an understatement.

Restaurants across Canada have suffered immensely from stay-at-home orders, strict in-person seating capacity restrictions and other lockdown measures induced by the COVID-19 pandemic. Ten per cent of Canada’s independent restaurants have already permanently shut down in light of pandemic-related hardships, and recent estimates project that another 40 per cent may not survive beyond March 2021.

To remain afloat during these trying times, many restaurants have relied — often reluctantly — on food delivery applications like Uber Eats, Door Dash and Skip the Dishes, despite recognizing the untenability of the high commission fees they command, some as high as 30 per cent.

In an effort to help restaurants, several provinces have proposed capping food delivery fees and, while laudable, these efforts do not suffice. If the intent is to save restaurants, many of which are deeply woven in the fabric of neighbourhoods and communities across Canada, a bolder solution is needed. The Canadian government must partner with restaurant associations to create its own no-fee food delivery platform.

Monumental growth

In this past year, third-party food delivery apps have experienced monumental growth and have come to represent a significant share of restaurants’ overall business, making them all the more indispensable during these trying times. These apps work by connecting hungry customers to their favourite restaurants and enable seamless mobile transactions in exchange for a commission fee.

While it may be argued that such apps served as a lifeline for restaurants during the pandemic, many restaurant owners are quick to point out that the increase in delivery app sales did not necessarily translate to higher earnings. That’s because the revenue generated through these apps were largely negated by exorbitant commission fees.

Whatever modest short-term revenue gains restaurants did experience through delivery apps has also come at the expense of their long-term chances of success. At the best of times, restaurants operate on razor-thin margins and simply cannot afford to have delivery apps shave off an additional portion of their revenues.

Restaurants’ reliance on delivery apps may have been necessary during the pandemic, when trying to avoid bankruptcy. But it cannot be sustained indefinitely, especially if online orders end up permanently replacing those that would otherwise have been made through restaurants directly.

Many have accused food delivery companies of being greedy given how much restaurants have suffered during the pandemic, and have pressured governments to intervene. Heeding to mounting concerns from their constituents, mayors and premiers across Canada passed legislation to cap food delivery charges.

Only minor concessions

But unfortunately, these efforts have only led to minor concessions from food delivery apps and are largely regarded as insufficient by Canadian restaurant associations, many of which saw their members lose upwards of 80 per cent of their business at a time when food delivery apps were registering soaring profits.

This sentiment was further echoed by many Canadians who did not place much trust in these temporary measures — nor in bargaining with Silicon Valley-based companies — and did not wish to imagine their cities devoid of the life, vibrancy and diversity that restaurants contribute. To ensure the survival of restaurants, governments must go beyond capping food delivery charges, and must offer a no-fee food delivery platform.

Admittedly, government agencies are not often top of mind when it comes to app development. But they could easily use a portion of the $1.5 billion promised as part of the federal government’s Regional Relief and Recovery Fund to outsource this task.

Or they could use some of this fund to support existing efforts led by Canadian restaurant associations. The Ontario Restaurant Hotel and Motel Association, for instance, is in the midst of launching a food delivery app in Toronto that promises to charge less than 10 per cent commission fees and expects to expand its services to other jurisdictions in the near future.

Partnering on such initiatives and offering financial support to enable restaurant association-backed apps to reduce their commission fees even further during the pandemic would not only provide restaurants with much-needed relief. It would also prepare them for a future in which app-based deliveries account for a sizeable share of their overall sales.

Apps are here to stay

According to a recent study by researchers at Dalhousie University, 64 per cent of Canadians have ordered food online in the past six months. But even more striking is that almost 50 per cent say they intend to keep doing so at least once per week once the pandemic is over.

Food delivery apps are here to stay, but bargaining with large tech companies or passing temporary legislation to limit their fees will do very little to help the restaurant industry succeed in a post-pandemic world.

Instead, the federal government must support grassroots efforts led by restaurant associations to create a no-commission-fee delivery app option during the pandemic. The fees can later be increased to cover the app’s operating costs, at which point it will hopefully have garnered a large enough base of users to compete with the food delivery giants.

Only then will the Canadian restaurant industry have the tools necessary to ensure its survival both during and beyond the COVID-19 pandemic.