Struggling Aussie restaurants and cafes pivoted to groceries to survive the coronavirus outbreak. Then Deliveroo 'ate their lunch'.

Paul Kasteel, owner of Melbourne’s Hoo Haa Bar and Miss Kuku with staff. (Luis Enrique Ascui)
  • Australian eateries are battling to stay afloat during the coroanvirus crisis, with many moving into grocery delivery in the interim.
  • However, with platforms like Deliveroo and Uber taking commissions of up to 35%, the businesses are battling to make them sustainable.
  • Meanwhile, Deliveroo has launched its ‘Essentials’ service, directly competiting with many of the platform’s partners.
  • Visit Business Insider Australia’s homepage for more stories.

Necessity is said to be the mother of all invention, with the coronavirus giving businesses plenty of reasons to reinvent at the very least.

With cafes and restaurants largely forced to shut their doors on normal trading by a combination of government lockdowns and dwindling demand, many Australian eateries have tried to pivot to one of the few markets still thriving: groceries.

Hoo Haa bar and Miss Kuku restaurant on Melbourne’s Chapel Street were two such businesses, deciding to deliver fresh produce for the interim, but owner Paul Kasteel is struggling to make the new business work after delivery platforms take their cut.

“We did about $900 in sales in our first pivot week. After taking out our cost of goods and GST we are left with $476. Uber and Deliveroo then come along and hit us for another 30% which leaves us with about $230,” he told Business Insider Australia in an email. “My wage bill to keep my visa workers employed on a bare minimum was $2,500 and l haven’t even included fixed costs. Even if we can make $1,000 per day, with only two to three staff working, we won’t survive with these guys taking 30% and no other revenue coming in.”

As unsustainable as the business was, Kasteel said he was incredulous when Deliveroo then went and launched its new ‘Essentials’ service, to deliver its own groceries to customers, directly competing with the businesses on its own platform.

“Like many restaurants on Chapel Street, we’ve started selling essential grocery items as a part of our delivery menu. Our business now relies on deliveries and Deliveroo Essentials is the final nail in the coffin. Rather than support us they want to cut our lunch,” Kasteal said.

Neighbouring businesses, like Italian restaurant Ladro, deli LaManna and Sons, and Lucky Penny cafe, are all in the same boat. Chapel Street Precinct Association (CSPA) general manager Chrissie Maus is calling on Australians to show where their loyalty lies.

“We recommend Australians help independent businesses by ordering direct from restaurants because every dollar counts during these exceptionally tough times,” Maus said in a statement. “Many of our cafes and restaurants are jumping through hoops in order to survive and selling essentials was an innovative way to pivot and get money through the door during this harrowing period.

“Deliveroo’s action is short-sighted and a simple money grab at the expense of the Chapel Street Precinct cafes and restaurants they will need on the other side of this pandemic.”

While they attempt to grow their customer base, many are now looking to Mr Yum, a food ordering startup, which charges just a fraction of the commission.

“Mr Yum is only charging 4.5% on the transactions,” Maus said. “This is such a brilliant and innovative way for staff to utilise their workers who are now employed under JobKeeper and would otherwise be underemployed.”

However, Deliveroo has hit back maintaining its commission is largely in place to pay its riders.

“Deliveroo offers a suite of services to restaurants, including pickup, delivery and ordering only — for restaurants who have their own delivery riders. The commission rate is scaled according to the degree of service and support that Deliveroo provides its restaurant partners for each order type,” a company spokesperson said, noting the commission charged by Mr Yum to restaurants did not include a delivery rider.

“Deliveroo is working hard to provide restaurants with another method to stay in business during this difficult time when venues aren’t allowed to welcome in-store diners.”

While Uber wouldn’t comment directly, it did point to other initiatives it was undertaking to take pressure off its partners, including waiving fees for new restaurants on the platform and not charging service fees for pick up orders. It did, however, rule out lowering its commission.

But while the coronavirus crisis may have forced businesses to diversify into other markets, it may become the new status quo.

“The pivot to takeaway and selling produce is more than a survival strategy during the COVID crisis, the silver lining is that these are sustainable new revenue streams,” Mr Yum co-founder Kim Teo told Business Insider Australia.

As the coronavirus crisis looking to stretch on for months yet, the reality ismany businesses will simply not make it to the other side.

Deliveroo and Uber were both contacted for comment.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.