NYC Council Investigates Third Party Delivery Companies

This past June, the Small Business Committee within the City Council of New York conducted a hearing regarding third party delivery business practices. The investigation, entitled “The Changing Market for Food Delivery,” is arguably the first of its kind. The hearing endeavored to address the growing tensions between restaurant operators and third party delivery companies.

“New York continues to be a trailblazer,” said Committee Chairman Mark Gjonaj. “I’m proud to be part of this historic moment.”

Restaurant operators hope that the hearing will kindle new government regulations that better protect the needs of the industry. According to Robert Bookman, counsel for the local industry trade group New York City Hospitality Alliance, “We’re calling for both the federal government and the state attorney general to look into this matter.”

The Small Business Committee called on restaurant operators, third party delivery companies, and various trade groups to share their practices, concerns, and complaints. The hearing was open to the public. Discussion ran long, and largely focused on rate structures, questionable fees, and the future plans of third party delivery companies.

The difference in perspective between the restaurant operators and the third party deliverers was considerable. Operators like Robert Guarino, the co-founder of 5 Napkin Burger, argued that delivery companies have every intention of moving toward discarding restaurants and offering their own meals for delivery. Third party representatives emphatically denied this claim.

Andrew Rigie, the executive director of the Hospitality Alliance, provided the council with an extensive list of questions for third party deliverers. Some of the questions addressed:

  • If financial factors don’t determine where a restaurant is listed on a third party’s app, what variables do? How can restaurants be safeguarded against erroneous fees?

  • Who owns the information on a restaurant’s customers who order through a third party, and what happens to the data if the establishment pulls out of the arrangement?

  • Does the prominence and penetration of the big third-party delivery services constitute a restraint of trade?

Restaurant operators appear to universally agree that third party delivery companies need to interact with restaurants in a clearer and more transparent fashion, and third party representatives at the council pledged to provide that. Next steps for both sides of the industry, however, remain unclear.

Why Chains are Rolling out Virtual Kitchens

As restaurants ramp up off-premise business, the more orders kitchens have to accommodate for.

Starbucks and Chick-fil-A hire staff members specifically to handle mobile orders, but some brands are investing entirely in separate spaces strictly allocated for off-premise operations.

Chick-fil-A, Outback, Famous Dave's and Dog Haus are some of the chains using virtual kitchens as a solution to the influx of delivery sales. By prepping some of these orders off-site, it allows in-store kitchens to focus on in-store orders.

“Delivery is the hottest word out there in the food scene, and everyone needs to figure out how to adapt to it,” said Andre Verner, Dog Haus partner to “Restaurant Dive.”

According to Foodable Labs, over 30 percent of the U.S. Restaurant industry is using some form of on-demand third-party ordering solution.

But that number is still relatively low considering the number of consumers ordering delivery. Over 80 percent of consumers under the age of 35 are using on-demand food ordering apps about two times a week. Not to mention, as "Restaurant Dive" points out, according to Food On Demand, delivery sales are 75 percent higher than in-store sales. So there's a lot of potential in the off-premise market.

This is influencing established chains to jump on the virtual restaurant bandwagon.

"The Halal Guys and Canter’s Deli have spots at Kitchen United’s Pasadena, California, location. And Wetzel’s Pretzels, which partnered with Kitchen United in April, has already experienced growth in off-premise and in-store sales," writes "Restaurant Dive."

Want to learn more about these concepts? Listen to this recent episode of The Takeout, Delivery and Catering Show, where hosts explain the benefits of these virtual restaurants, also called ghost restaurants and how they are changing off-premise operations.