How One Innovative Restauranteur Gets Around Aggressive Food Delivery Apps
Venture capital-funded platforms aiming for market dominance have served neither restaurants, nor drivers.
Restaurants across the country have complained about the high commissions and hidden fees associated with the big food delivery platforms, but one in Indiana has built a new one of their own to get around the problem.
And they’re thriving.
When a representative of Door Dash, the food delivery company, approached Mike Cunningham about trying out their services in March, he was skeptical.
Cunningham—CEO of Cunningham Restaurant Group (CRG), which owns and operates 33 restaurants in Indiana, Ohio, and Kentucky—had previously resisted using food delivery platforms in the past for the same reasons as many other restaurant owners. These platforms have high commissions, often as much as 20-30 percent. And restaurant owners dislike losing their ability to control the quality of their food; once it leaves their facility with the delivery driver, things are out of their hands.
But the world was shutting down amid the COVID 19 crisis in March, which made Cunningham more open to trying a new way of serving his customers. It also didn’t hurt that DoorDash offered him the chance to try the platform for thirty days, free of charge. He gave it a try.
DoorDash’s delivery service worked well enough for the free trial period, but Cunningham decided to not re-up after that: with restaurant margins already so low to begin with, paying DoorDash’s commissions just didn’t make sense. Cunningham’s restaurants are popular and successful enough that he was able to make that choice, but many restaurant owners are in a much tougher position. They must choose between letting third party delivery services take a large chunk of their earnings, or losing revenue from delivery customers entirely.
Third party delivery services—which include DoorDash, GrubHub, and UberEats—have recently come under scrutiny for the power they have over restaurant owners. Buzzfeed has reported that GrubHub has replaced restaurant’s phone numbers on Yelp with their call-center numbers, which ensures that a customer’s orders are placed through GrubHub’s platform—thereby forcing the restaurant to pay GrubHub fees on each order.
And DoorDash is known to occasionally put a restaurant’s menus on its platform without the restaurant owner’s consent. In one circumstance, the owner of a pizza place incurred bad Yelp reviews and angry customer phone calls complaining that their pizza arrived cold—which was strange, since he didn’t offer delivery. When the owner went to DoorDash’s website, he saw a pizza that he charged $24 for was on offer for $16 via DoorDash. He then placed numerous orders for his own pizza through DoorDash and actually made money.
GrubHub and DoorDash have taken these shady moves because they, and their competitors, are relentlessly focused on customer acquisition. The reason: all of these businesses are privately held and raise funds from venture capital investors, who are more concerned with the prospect of long-term market dominance (which is measured in the short term by customer-acquisition numbers) than immediate profitability (these investors hope that, while not profitable now, these companies will be one day as they increase efficiencies and corner the market). Ironically, though, this focus on customer acquisition incentivizes precisely the sort of behavior that sabotages long-term success: it encourages companies to take underhanded actions that causes both restaurants and customers to lose trust—trust that is essential any delivery company’s long-term success.
In light of the challenges of working with third party delivery platforms, Cunningham partnered with another Indianapolis-based entrepreneur, Chris Baggott, to create a solution. Both by experience and by observation, Cunningham and Baggott understood the friction inherent to the relationship between delivery platforms and restaurants: they saw that customers gave delivery platforms poor reviews, that restaurants would avoid working with them if they could, and that even the platforms’ drivers are suing them.
ClusterTruck is their answer to these problems. ClusterTruck’s business model relies on vertically integrating the food delivery service. It derives its menu from a variety of Cunningham eateries. Chefs from Cunningham restaurants make all the food on offer, and the business hires its own drivers to deliver the food.
Indeed, from the beginning, ClusterTruck has focused on better serving the third, and often overlooked, person in the food delivery industry: the delivery driver. “Our focus on the delivery driver is our breakthrough,” said Baggott. “We wanted to bring dignity to the delivery driver job. We use the word ‘dignity’ a lot around here. We wanted to take the worst job, and make it the best.”
ClusterTruck uses sophisticated software to time food preparation and to track how far a driver is from ClusterTruck’s kitchen, all so that the food is ready just as the driver arrives—which ensures the food is at its freshest when it reaches the customer. One driver is a mother with three kids who drives three hours a day, five days a week, and earns nearly thirty thousand dollars per year—she doesn’t have to pay for child care as she would at another job in the food service industry.
ClusterTruck focuses on offering drivers four to six jobs an hour to ensure their work is more lucrative. And as a result of being taken care of, the drivers are courteous and efficient. When I placed a lunchtime order, it was thirty minutes from the time I checked out online to when my food was at my house. Happy drivers means happy customers, it would seem.
Happy drivers also translate into profitability. Launched in 2016, ClusterTruck now has five locations—in the Indianapolis area, Denver, Columbus, Ohio, and Kansas City—and they are looking to grow. ClusterTruck is profitable and growing all while also offering free food delivery to customers. Contrast this to other food delivery platforms which, despite charging both customers and restaurants delivery fees, while also paying drivers poorly, are still not profitable.
When market inefficiencies create problems, entrepreneurs such as Cunningham and Baggott are ready to innovate.
Alexandra Hudson is a 2019 Novak Fellow, a Young Voices contributor, and a former aide to Secretary Betsy DeVos at the U.S. Department of Education. She is writing a book on civility and civil society. Twitter: @LexiOHudson
This article was supported by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of the authors.