For restaurants, delivery services usually make up no more than a third of total sales. But during the Covid-19 lockdown, restaurants have to survive solely on sales through delivery and take-outs.
The charge levied by delivery platforms such as Grab Food is known as GP (Gross Profit), basically it’s the commission.
In Thailand, GP can be as high as 30%, depending on the scheme or the platform, and some restaurateurs aren’t happy about it.
A restaurateur urges customers to order direct
Aesop’s Bangkok is one of many restaurants around the world that have publicly urged its customers to, where possible, use the in-house ordering system, while at the same time still being listed on a delivery platform.
“Most of us in the restaurant business are operating on quite a slim margin,” said John Gamvros, co-owner of Aesop’s Bangkok.
According to Gamvros, there’s an industry standard to the prices on the menu and the salaries for the staff, but he questioned the standard for GP set by delivery platforms.
“Some transparency would be helpful in times like this. If they could help us understand why they want 30% commission, then it may help both parties to work out the fees,” he said.
Many restaurateurs we talked to also expressed the same sentiment.
“Many of us doubt that bigger players like McDonald’s are paying the same 30% commission to the platforms,” Gamvros continued.
“And if they were to charge 30%, they should have a level of service that justifies it.”
Gamvros explained an instance where the system doesn’t allow for flexibility:
One of his customers ordered a menu that is no longer available, despite the restaurant having already removed the item. The restaurant had no way to communicate with the customer and thus having to cancel an entire basket of order.
How things work in other countries
The GP problem isn’t unique to Thailand. Some authorities in other countries have chosen to intervene to make sure that local businesses can remain profitable.
For example, in response of COVID-19, the city of San Francisco has imposed a temporary cap of 15% on food commission since mid-April.
In New Zealand, Prime Minister Jacinda Ardern publicly urged Kiwis to avoid using delivery platforms that charge restaurants excessive fees and to support local restaurants with local delivery options instead.
While Aesop Bangkok’s in-house ordering system is sleek, fast and efficient, the final delivery cost is still significantly higher than a similar order through a delivery platform. The system also doesn’t support credit card payment.
However, the vendor did try to add an extra touch to the order, with things like Greek smashing plates and cookies.
The food delivery business model
The head of Grab Thailand, Tarin Thaniyavarn, outlined in an interview that there are four key actors in a food delivery transaction. The customer, the vendor/restaurant, the delivery man and the food delivery platform.
The customer selects a restaurant, finds a menu, calls the restaurant and then pays the full price to both the restaurant and the delivery man. There’s no delivery platform involved. The downside? It’s also the most expensive and time-consuming option for the customer.
Enter delivery platforms, to do the work on behalf of the customer and to scale the vendor’s delivery cost. Customers may focus on what they want most: eat. Restaurants may focus on what they do best: cook.
Removing the customer from the equation, the platform deals directly with the delivery man and the vendor. The result? Cheaper delivery charge, hence cheaper total bill. And perhaps, with everything cheaper, more sales for the restaurant.
Win-win for everyone, at least in theory.
But how does the delivery man make money?
Guaranteed income for the delivery man
According to a delivery man who is a partner at Grab, for all Grab Food orders, he is guaranteed a minimum of 40 baht per trip and possibly more, if the travel distance is longer than four kilometers.
He would earn a bonus of 200 baht, once he exceeds 60 trips per week.
“It doesn’t matter if it was for a 50 baht cup of coffee or a 1,500 baht dinner meal, we are guaranteed 40 baht per trip,” he said.
“I know that the customer pays 50 baht for the food, plus 10 baht delivery. But we get paid 40 baht. So someone along the line has to absorb our delivery cost.”
Furthermore, the Grab rider said he receives higher commission for non-food delivery for the same distance, and it also costs the customer a little more.
This is why it appears “more expensive” when you send a parcel to your friend than when you order from a restaurant within the same distance.
Platform owner says they are still operating at a loss
In the early stage of the lockdown, Grab toyed with the idea of increasing its GP on vendors by 35%. When social media protested, the plan was scrapped.
Here’s the reason behind the 35% idea:
Before mid-February, Grab was signing up 200-300 new vendors per day. Since then and until late March, it was signing up to 1,400-1,500 new vendors per day. That was too many to handle. There were not enough delivery men. A commission fee hike was meant to discourage new sign ups.
In any case, with public reaction, they decided to cap GP at only 30%.
But while the business grows rapidly in times of COVID-19, that doesn’t mean the profit follows.
Factor in costs for running promotional campaigns, back-end infrastructure and loyalty programs, plus other operations, a delivery platform such as Grab operates at a loss.
As the head of Grab stated in the interview mentioned earlier:
“A high growth business doesn’t mean that it’s highly profitable… While our loss-making food business saw a massive growth from Covid-19, our profit-making ride-sharing business saw a big slump.”