Summary List PlacementFor restaurants in 2020, the economic impacts of the coronavirus pandemic have upended business models and sunk revenue and profits.
But for third-party delivery operators like Uber Eats, DoorDash and Grubhub, 2020 was a pretty good year.
Delivery orders more than tripled, representing 10% of transactions compared to 3% two years ago, according to market research firm The NPD Group. Revenue soared and at least one delivery operator, DoorDash, briefly turned a profit during a quarter when most US restaurants were forced to rely on delivery and carryout to survive.
The pandemic highlighted the importance of having a robust digital business and it opened the door for online ordering players to promote their services as an affordable antidote to third-party delivery companies.
Read More: Restaurant insiders say well-capitalized restaurant companies will seek even more M&As in 2021.
New players know they'll never truly beat the big delivery operators on market share, especially amid consolidation in a space that is expected to reach $61 billion in sales in 2023, according to Cowen. Instead, rival services are focusing on niche offerings such as delivering specialty cuisines and meals served by drivers trained like fine dining servers.
"Third party delivery has their hands full because there are simply too many competitors," said restaurant industry consultant Gary Stibel, founder and CEO of New England Consulting Group.
The competition comes as third party delivery conpanies face other headwinds in 2021.
Temporary commission caps implemented by city and state officials during the pandemic to protect restaurant profits remain intact and could be mandated even in a post-vaccinated world.
In California, a new law goes into effect Jan. 1 that bans third-party delivery companies from delivering meals from restaurants without consent. The controversial tactic is common among Grubhub, DoorDash and Uber Technologies-owned Postmates.
Requiring signed agreements is likely to go national.
"We are working on model legislation that makes it very clear that before a restaurant is listed on a platform, there needs to be consent," said Mike Whatley, vice president for state and local affairs for the National Restaurant Association.
The end goal for the NRA and these startups is to give restaurants a fighting chance to survive the aftermath of the pandemic. Here are the companies helping restaurants own their digital sales:Chowbus
Chowbus was founded by Linxin Wen in Chicago in 2013 after he grew frustrated by the lack of authentic Asian restaurants listed on various delivery apps.
Wen, who moved to the US from China to study public administration at The Illinois Institute of Technology, did what many frustrated entrepreneurs do when they can't find a product that suits their needs. He created his own company — Chowbus.
In the early days, Chowbus delivered bundled meals from 50 to 100 restaurants to a central point in Chicago.
Two years later, Wen partnered with friend and software developer Suyu Zhang, who created a sophisticated mobile ordering platform. That allowed the company to expand and nab its first round of seed money in 2018.
Chowbus now has more than 4,000 restaurants on its app from 27 cities in the US, Canada, and Australia.
Kenny Tsai, chief operating officer, said consumers turn to Chowbus over third-party apps for a few reasons. Chowbus offers authentic Asian meals from independent restaurants not found on third-party apps and features long distance (up to 100 miles) delivery in a few markets including Chicago to Milwaukee; Lansing, Michigan to Ann Arbor, Michigan and Houston to College Station, Texas.
The delivery service also bundles meals so customers can order their favorite milk tea from one restaurant and their ramen from another. The company is getting into Instacart territory by adding grocery delivery, now available in 23 cities. That service, along with long-distance delivery, is expected to expand to new markets in 2021.
Chowbus did not provide its commission rates to restaurants, but Tsai, who previously worked at Uber Technologies, said the company's fees "are much lower than competitors."
The company shares data with restaurants to help them understand which dishes are top sellers on its network.
"We're only successful if the restaurants themselves are successful," he said.
To date, the company has raised $68 million with its most recent Series B round of $30 million coming in October. Key investors include Altos Ventures, Left Lane Capital, Hyde Park Angels, Fika Ventures, FJ Labs, Silicon Valley Bank, Meritech Capital and Luxor Capital Group.
Crave Hospitality Group, which is developing a string of virtual food halls across the US, recently raised $7.3 million in a seed funding round led by StageDotO Ventures
Restaurant delivery is rapidly growing, but the key reason for the investment was Crave's unique hospitality-focused approach, said Mike Self, general partner at StageDotO Ventures.
Crave opened its first virtual food hall, dubbed Crave Collective, in Boise, Idaho, in November. The culinary-focused ghost kitchen facility houses delivery-only restaurants created by well-regarded local and national chefs including World Pizza Champion Tony Gemignani and award-winning chef and restaurateur Michael Mina.
The company distinguishes itself from other delivery companies and ghost kitchen operators by bundling meals and employing its own fleet of uniformed drivers. Proprietary tech allows customers to mix and match dishes from any of Crave's 16 restaurants.
When drivers deliver food, they make suggestions to customers on what meals or daily specials to try on their next order.
"Crave has brought together a collection of top chefs and restaurateurs on one platform to provide an elevated experience that is well beyond that of third-party delivery companies," Self said in a statement. "The result brings the restaurant dining experience into your living room like never before."
Though the concept is in its early stages, the white table-cloth approach has helped boost frequency beyond projected expectations, Devin Wade, CEO and co-founder of Crave Hospitality Group, told Insider in a recent interview.
Wade said the group plans to use its recent round of funding to add 10 more Crave-branded virtual food halls by 2022 in rapidly growing cities such as Salt Lake City, Utah; Dallas-Fort Worth area in Texas; and Denver, Colorado.
As chief marketing officer at Bareburger in New York City, Nabeel Alamgir helped grow the better burger casual dining chain to 50 locations by 2019.
But expansion came with a few digital growing pains.
The tech savvy Alamgir said partnering with third-party delivery companies led to injustices as they skimmed profits away from restaurants with high commission fees and denied restaurants access to consumer data.
So passionate about developing alternatives to third-party delivery companies, Alamgir left Bareburger in 2019 to help launch Lunchbox. The startup provides independent restaurants and small chains, who can ill-afford their own I.T. department, the tools to grow a healthy digital business.
Lunchbox's platforms look to emulate restaurant tech pioneers such as Sweetgreen, Panera Bread and Chipotle Mexican Grill – chains at the top of their game when it comes to owning their digital sales, Alamgir said.
Lunchbox's omnichannel services include online ordering, loyalty programs and email marketing for clients looking to build relationships with customers. Clients, which include restaurants by David Chang, pay anywhere from $200 to $300 per month.
Alamgir's latest experiment to lure consumers from third party companies has emerged in recent weeks.
Lunchbox is testing "mini-marketplaces" to promote delivery for multi-unit restaurant operators. The company has developed a white label delivery app for Sam Nazarian's C3, or Creating Culinary Communities.
The new division of SBE Entertainment Group is an incubator for direct-to-consumer concepts including delivery only restaurant brands and ghost kitchens. C3's Lunchbox-created marketplace bypasses third party delivery apps by creating one-stop shopping for C3's portfolio of brands.
Innovation like this has caught the eye of big investors. In late October, Lunchbox raised $20 million in a Series A round led by New York-based Coatue, an investor in DoorDash. Other investors participating in the round include celebrity chef Tom Colicchio, former Venmo executive Michael Vaughan, HelloFresh founder Bryan Ciambella, Planet Hollywood founder Robert Earl, and Girls Who Code founder Reshma Saujani.
After rebranding four years ago and launching its own app, Slice has grown from serving 4,000 pizzeria locations to 14,000 in 2020 — that's about 3,000 short of the number of Domino's restaurants around the globe.
Ilir Sela founded the company a decade ago to help family members who owned pizzerias in New York to compete in the digital world. That mission remains Sela's number one priority: Working side-by-side to help entrepreneurs grow their business.
"Our job is to be the first-party partner," he told Insider. Slice gives pizza operators the tools to run their e-commerce business by handling everything from online orders to digital marketing. Unlike third-party delivery companies that don't share consumer data, Slice provides customer data and insights to operators so they can optimize sales.
"We are actually an extension of their business," Sela said. "We share the responsibility and growth."
The company, which added about 2,000 restaurants since late spring, doesn't nickel and dime operators for its services, like charging a premium for priority placement on its app, a common third-party delivery practice. Slice, instead, charges a flat fee of $2.25 per order, whether it's one pizza ordered from the Slice app or 10 pizzas ordered from a restaurant's website.
That's equivalent to Slice taking about a 6% cut, based on the average order size of $37, Sela said.
"Compare that to 30% to 40% on third party aggregators, and you can see how that difference adds up pretty quickly," he said, adding that the Slice over the years has saved restaurants about $200 million.
Sela has started using Slice's large network as buying power to help reduce supply costs for clients. By negotiating with various pizza distributors, Slice restaurants are now getting pizza boxes at a lower cost.
In 2021, he plans to accelerate using Slice's scale to get more benefits for restaurants. In December, he also launched an accelerator program where Slice provides $15,000 worth of services to a group of local pizzerias to ensure they are "pandemic-proof" in the future.
Restaurants weren't the only companies forced to shift business models during the pandemic.
Toast, a $5 billion developer of state-of-the-art restaurant POS systems commonly found at emerging US restaurants, had just raised $400 million in a Series F funds in February 2020 when it was forced to reduce its workforce by 1,000 in April due to the pandemic.
The company quickly moved to expand and offer more relevant services to restaurants including pitching itself as an alternative to third-party delivery companies. In late April, during the peak of the pandemic when restaurants relied solely on off-premise sales to survive, the company debuted Toast Delivery Services.
It allows restaurants to offer on-demand delivery "free of unpredictable, high-percentage commissions," the company said at the time.
Instead of charging a commission fee, Toast charges a flat rate of under $8. Restaurants are not required to use Toast POS systems to use Toast Delivery. All guest data is captured and given to restaurant owners.
In contrast, third-party delivery companies charge a commission rate, sometimes as high as 30 to 40%, for delivery. That fee includes placement on their marketplace, and last-mile delivery. Most delivery companies also don't share consumer data.
When compared to fees charged by delivery aggregators, Toast estimates that a restaurant processing $5,000 in delivery can save about $600 per month by using its delivery program.
The company, founded in 2013 to democratize technology for restaurants and consumers, also introduced in late April a suite of online and app-based ordering tools offered to restaurants commission-free. Third-party delivery operators, by contrast, still charge restaurants a fee for pickup orders processed through their systems.
Aman Narang, president and co-founder of Toast, said the delivery and online ordering tools give restaurants control of the guest experience so they "can thrive when the industry begins to recover."