The COVID-19 pandemic has almost destroyed the Food & Beverage (F&B) industry in a matter of weeks. Singapore restaurant sales went down by 90% in March 2020 and with the recent introduction of Circuit Breaker in Singapore, restaurants, cafes and hawkers are unable to offer dine-in services for their customers and many F&B merchants have scrambled to join the main delivery apps in Singapore—GrabFood, Food Panda and Deliveroo.
Since the start of Circuit Breaker in Singapore, there are more and more food places in Singapore that started to offer islandwide food deliveries in Singapore. And it’s not just restaurants and cafes that are doing that.
Before COVID-19, most hawker stalls are not even on food delivery apps. But since then, many hawker stalls have started to offer islandwide food deliveries by partnering with courier companies and local drivers. Other food places have also come up with takeaway menus and promotions during the COVID-19 period in order to stay afloat.
At the same time, many F&B places have chosen to close temporarily as the Circuit Breaker situation simply isn’t in their favour (operating costs wise) to continue.
F&B merchants have been appealing to delivery platforms for weeks since the worsening of the COVID-19 situation to reduce their commissions. So far, the delivery apps refused, further profiting from the COVID-19 crisis.
We have been huge advocates of food delivery services since they first started in Singapore several years ago. We order our meals using food delivery apps at least 3-4 times a week. But we have to say that it is time for us to minimise using food delivery apps because they are charging up to 40% commission for deliveries and to order directly from restaurants, eateries and hawkers as much as possible to support them. #SaveFnbSG
RAZOR-THIN MARGINS FOR THE F&B INDUSTRY
We understand from various F&B partners that the delivery platforms—GrabFood, Food Panda and Deliveroo—charge a commission of between 20% – 40% for regular deliveries, and between 10% – 20% for self pick-up orders. GrabFood has announced that it will implement 0% commission rate for self pick-up until 4 May (it is unclear if Deliveroo and Food Panda are doing the same).
We applauded GrabFood’s decision when they introduced islandwide delivery last week because we believe that it will help smaller restaurants reach out to a wider audience around Singapore. More sales (at a lower profit margin) is better than no sales, right?
Or so we thought.
But as we discovered from more restaurants that the delivery apps are actually charging up to 40% (from the usual 20% – 30%) for certain deliveries, the whole situation really does not make sense.
Facebook user Derek Zhu summed it up perfectly. Yes, food delivery apps help F&B merchants reach out to a wider audience and acquire new customers during normal times. But it is hard to justify the steep commission of up to 40% during a crisis as they are primarily logistics providers.
For the uninitiated, the food cost of a standard F&B is usually around 25% – 30%. Add in the crazy rental, manpower cost, utility bills… The profit margin for the F&B industry is razor-thin. And to give another 40% to delivery apps? You get the idea.
COMMISSION CHARGED BY DELIVERY APPS & HOW MUCH F&B MERCHANTS ACTUALLY EARN
Here’s a summary of the Facebook post shared by Colin Chen, a restaurant owner, giving an elaboration breakdown of the commission charged by the delivery apps as well as the calculation on how much restaurants actually earn.
A typical delivery app charges anything between 30-35% off the order amount to the F&B outlet, citing to cover transactions fees, platform fees and delivery charges (which technically is paid by the customer) etc. So when an F&B outlet sells S$30 worth of food and drinks say for 2 mains and 1 side (which is a typical basket size for 2 adults), the outlet will get approximately S$19.50 back.
When you look at the printed order ticket, it shows S$30 worth of food ordered, $3 discount enjoyed by the customer, and so a net sale of S$27. Well, that’s right as promised. So basically, the outlet will receive $27 minus 30-35% commission which works out to be a grand total of S$17.55, for 2 mains and 1 side (for this case illustration).
So the typical food cost of a standard F&B (excluding fine dining establishments) is around 25-30%, meaning to sell S$30 worth of food and drinks, the cost works out to be around S$9, that is usually excluding packaging costs for the delivery, which can be around S$1-1.50 for takeaway bowls, cups, trays to hold the drinks and paper bags to store the order. Bear in mind, that is excluding the utilities, rent and manpower costs that are currently all still in full swing so as to operate the outlet to have a shot at doing delivery and takeout.
To keep it simple, Iet’s just count the total cost to be S$12. That means, the outlet earns S$17.55 – $12 = S$5.55 for that order.
So now let’s go to what a customer who is placing the order sees on their delivery app screen. S$30 worth of food and drinks, check. Add to cart, enjoys S$3 discount off delivery, check. Service fees S$14.50 check. Total bill charged to credit card S$41.50 (instead of the UP of S$44.50), check.
Well, as we all know, when you are running an empire, there is bound to be some overheads that you need to cover, a platform fee to pay for the IPs that they have created, money to fund the growth of the company for expansion and also to pay the drivers for their hard work. So let’s break it down now, S$14.50 for an 8.5km distance delivery for a basket size of S$27, that’s just a 45-50% service fee for my order, pretty darn good for these times yo. Well, in such times, we should all support our #LocalHeroes they say.
When a customer pays S$41.50, the outlet receives S$17.55 for the same order, credit card company charges around S$1.25 (approx 3% transaction fee on the S$41.50) which leaves us with a difference of S$22.70 in between.
Now let’s compare them side by side :
The F&B outlet gets S$17.55 (well technically earns S$5.55 after factoring in the cost of the team to cook, paying rent and utilities, plus COGS to offer a customer 2 mains and 1 side)
The driver gets S$8.50 (for 8.5km delivery, covers petrol costs and time)
Delivery App gets S$14.20 (for… being them)
You can read the full FB post here.
SAME SITUATION AROUND THE WORLD
It is not just in Singapore, it is the same situation around the world. In Melbourne, Deliveroo is taking more than 40% for the delivery charges (as seen in the photo above).
In the U.S., delivery apps have declined a plea for a 50% rebate for restaurants.
FOOD DELIVERY BOOSTER PACKAGE TO FUND 20% OF THE DELIVERY COST
Kudos to our government for coming up with the food delivery booster package to support F&B businesses with delivery orders. The package from Enterprise Singapore will fund 20% of the delivery cost per trip, for orders made between 7 April and 4 May 2020. There is no cap on the qualifying food delivery transaction value.
The support of 20% per delivery cost will be disbursed through the eligible third-party logistics providers, such as Lalamove and Zeek.
The package, however, only provides funding for 5% of the commissions charged by Deliveroo, GrabFood and Foodpanda for orders delivered between Tuesday and May 4.
It is not difficult to understand why the delivery apps are refusing to reduce their commission since they are earning 20% – 40% comfortably now and it will be an uphill challenge for them to revert back to the original rate after COVID-19 has ended.
Delivery platforms are running a business and nobody is asking them to offer zero commission to F&B merchants. But surely it is not too much to ask for a reduction of the commission so that all the restaurants, cafes and hawkers can survive this difficult period.
Afterall, F&B merchants are the core of delivery apps and the reason why they can make money. And without the F&B merchants, there wouldn’t be revenue for the delivery apps. If they were to continue with this route, it would be killing the geese (F&B merchants) that would lay the golden eggs (delivery commission) for them.
There is no denying that food delivery apps can help to expand the customer base for the local F&B sector. And yes, the F&B merchants are paying advertising and access to a huge consumer base. But we are not living in normal times. We are at a make-or-break point where many restaurants, hawkers and cafes will not survive this period.
Until the delivery apps revise their commission schemes to better help/ support F&B merchants, we urge everyone to order directly from restaurants, cafes and hawkers by self pick-ups or through the merchant’s delivery.
Several Facebook groups, including Singapore Restaurant Rescue and Hawkers United – Dabao 2020, have been created to help restaurants and hawkers promote their delivery and takeaway options. You can support restaurants and hawkers by finding out more about their delivery and takeaway options through the Facebook groups.