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COVID-19 decimated the restaurant industry and forced it to adapt. With takeout orders expected to stay higher than they were before the pandemic, businesses are adapting again

Raven Ward delivers food from Vancouver's Pidgin restaurant, which pioneered a delivery service called FromTo as an alternative to larger platforms such as DoorDash and Skip the Dishes.Jimmy Jeong/The Globe and Mail

At Vancouver’s Pidgin restaurant, there was a time when a single sleeve of takeout containers would last for up to a year.

Making food to go just wasn’t what they did: Before the pandemic, Pidgin prided itself on sit-down service with multicourse tasting menus. Early 2020 was the first time, out of necessity, that the owners looked at the contracts for big delivery platforms such as Uber Eats, SkipTheDishes and DoorDash.

That’s when co-owner Brandon Grossutti realized “this was going to be a very tough year indeed,” if Pidgin relied on those apps. “We were seeing 30 per cent of our revenue going out the door. That was not sustainable.”

So Mr. Grossutti decided to create his own alternative. At first, they took orders by phone – both for themselves and for other local restaurants – and asked Pidgin staff to work as drivers while they had no one to serve during lockdowns.

Within weeks, two companies with experience creating logistics and e-commerce platforms approached him, and they created an online ordering and delivery service called FromTo.

Brandon Grossutti is co-owner of Pidgin restaurant and co-founder of FromTo.Jimmy Jeong/The Globe and Mail

The startup is just one example of how restaurant owners have been forced to adapt fast amid soaring demand for takeout and delivery. Digital orders have increased by 155 per cent in the past two years, according to data released last month by research firm the NPD Group.

Customers have gotten used to the convenience of delivery, and options have proliferated. Even as restrictions ease and in-person dining resumes, demand is expected to remain higher than it was before the pandemic.

But many restaurants have struggled to make money on takeout, and the shift has not been financially sustainable. Restaurants already work with slim profit margins and cannot always absorb the high cost of third-party delivery apps, whose commissions can gobble up to 30 per cent of every order. Even when customers pick up orders themselves, many kitchens can’t keep up with serving both in-person diners and those ordering from home.

So restaurants are now taking matters into their own hands. That means controlling the delivery process themselves, or abandoning delivery options altogether. Others are building cost-efficient ghost kitchens, locations that only prepare takeout, to keep costs to a bare minimum.

As the industry looks to the future, restaurant owners are figuring out how to meet customers’ expectations – without tech companies eating their lunch.

Saying goodbye to takeout

When Jen and Steve Wall opened Supply and Demand in Ottawa nine years ago, they wanted to create a neighbourhood spot that would draw people through the doors – and into seats. Occasionally a regular would call, asking for a favourite dish, such as the squid rigatoni, to go. But takeout was never a focus.

COVID-19 changed that. After staying closed during the first weeks of the pandemic, they began offering fixed menus for pick-up: kale salad, Parker House dinner rolls, handmade pasta dishes that changed each week and dessert. They took orders by phone.

Takeout orders provided them some much needed revenue during lockdowns. But now that restrictions on indoor dining have ended in Ontario, Supply and Demand is taking a break from takeout. A big reason is logistics: The Walls’ 60-seat restaurant is open concept and small. Ms. Wall said there is nowhere to do takeout without altering the vibe in the dining room. And beyond that, the restaurant just doesn’t have enough staff in the kitchen and front-of-house to handle many more orders each night.

“We are putting out a high-end product and we’re also trying to provide a really special experience to the people that are within our four walls,” she said.

This is a common occurrence, said James Rilett, a vice-president at industry group Restaurants Canada. Many restaurants reluctantly offered takeout as a way to connect with customers during the pandemic, but didn’t find it was sustainable in the long term. “It never was a value proposition,” he said. “It was, ‘How do we lose less money?’ ”

According to Restaurants Canada’s surveys, only about half of restaurants who started doing takeout during the pandemic are planning to continue.

In Como Taperia’s case, takeout was a tough sell to begin with. Much of the Spanish cuisine at the Vancouver restaurant – such as fried foods and high-quality seafood – would not travel well in a box, and they had never done delivery or to-go orders in the past.

But last spring, when indoor dining restrictions went into effect, Como’s patio was too small to serve enough people to make ends meet. So they did something completely off-brand: “smash burgers,” pressed patties cooked on a flat-top grill that were perfect for takeaway, and helped keep the restaurant connected to its customers during the restrictions.

“We had lineups for them, because they were very Instagram-popular. I had friends texting me to see if I could save them some,” co-owner Shaun Layton recalls.

There were other takeout experiments too, such as cook-at-home kits that addressed some of the concerns about food not faring well in transit. When the restaurant was allowed limited capacity indoors, the owners removed half of the tables, converting part of the space to a market selling items such as wine, olive oil and imported tinned fish. They also launched an online store where people could order those items for pick-up, which is still going.

But Mr. Layton says Como’s main focus is once again on serving people in person, and they are putting takeout on hold: “We’ll never do it unless there’s another lockdown.” But he added that it definitely will be a part of new businesses he launches.

“I still don’t think I’d ever use the big delivery apps, but it’s on my mind for future projects to be able to sell stuff out the back door, as well as have people in the front door,” he said. ”Because it is the future, and I understand that things do change.”

Nuit Regular, chef and co-owner of PAI Northern Thai Kitchen, prepares a noodle dish with husband Jeff, rear, at the Toronto commisary site of Kitchen Hub. Several restaurants now operate out of the centre, which opened just a month before the first COVID-19 lockdowns of 2020.J.P. Moczulski/The Globe and Mail

All in on delivery

Chef Nuit Regular and her husband, Jeff, have started some of Toronto’s most popular Thai restaurants, including PAI Northern Thai Kitchen. Takeout and delivery had always been a big part of their operation, even before the pandemic.

At the busiest times of day, their restaurants would operate two kitchens: one focused on in-person diners, and the other on takeout. But as demand grew, they were stretched thin. “We are a very, very small operation,” Ms. Regular said.

The solution was to set up a ghost kitchen.

Some ghost kitchens operate out of an existing restaurant – for example, a sushi restaurant that sells dim sum under a different name – while others are separate locations built specifically for delivery.

PAI has launched two ghost kitchens through Kitchen Hub, a Toronto-based start-up that operates facilities it calls “virtual food halls,” a sort of food court for ghost kitchens. The company charges tenants a fixed monthly fee to cover rent, utilities and other costs, and charges a percentage of revenue based on the tenants’ growth.

Kitchen Hub’s first location opened in Etobicoke in west Toronto weeks before the pandemic began. It now has three such food halls, with plans for at least 50 across Canada. The tenants are responsible for paying commissions to the delivery apps. But ghost kitchens can be more cost-effective, because without a dining room the real-estate footprint is much smaller and fewer staff members are needed.

The Kitchen Hub facility.J.P. Moczulski/The Globe and Mail

Kitchen Hub’s Etobicoke facility was profitable both for the company and for the kitchen operators within the first year, the founders said.

“The restaurants are profitable quicker than we are,” co-founder Adam Armeland said.

The cost to restaurants of using delivery apps – up to 25 or 30 per cent of every order – became better known to customers during the pandemic.

Winnipeg-based delivery company SkipTheDishes says the number of ghost kitchens on its platform have quintupled in the last two years while order volume serviced by ghost kitchens has soared more than sevenfold. Chief operating officer Howard Migdal said he believes criticism of the apps’ commissions is unfair. “Delivery, in itself, is just very expensive,” Mr. Migdal said. “You have to pay a driver to get something from point A to B. That’s an extra $6 to $10 in the value chain that needs to come from somewhere.”

Shilpa Arora, Canada general manager for San Francisco-based DoorDash, would not answer questions about the average commission the platform charges to restaurants. But she said she believes that the lower churn – the rate of restaurants leaving the platform – in 2021 compared with the previous two years demonstrates customer satisfaction.

“Over the past couple of years, what we’ve learned about consumers, is that a lot of this convenience, and the immediacy that our platform brings, is here to stay,” Ms. Arora said.

At Kitchen Hub, orders from PAI awaid pickup; Jen Dowd, general manager of Cabanos, and Mauro Viseu, chef at Gusto 101, prepare meals. J.P. Moczulski/The Globe and Mail

Doing delivery their own way

Weeks into the pandemic, Vesuvio, an Italian restaurant in Toronto’s west end, closed after 63 years in business. A group of employees decided to open their own pizzeria that fall.

For the first few months, Juniors Pizza used delivery apps, including Uber Eats. At first, it was good for customer acquisition, owner Shane Lemieux said, but they quickly ran into problems. “What we were finding, personally, over time the quality control was a serious issue,” Mr. Lemieux said. He said he’s handed a pizza box to a delivery driver who put it sideways into a bag, or had someone leave the order sitting in their car while taking a break to get food for themselves.

“There’s no accountability,” he said. “They’re independent contractors. They can essentially do what they want.”

That can be a problem, said Jennifer Scott, president of Gig Workers United. Her union advocates for drivers to be classified as employees of third-party delivery companies. Such a change, as well as better pay and training, would address many concerns restaurants have about driver quality, Ms. Scott said.

Juniors Pizza switched to doing its own delivery, starting with one driver, and expanding over the past year to five or six. The operation is old school: Customers call orders in, which are tracked with pieces of paper on a big board.

“Our regulars oftentimes will know the phone operators by name,” Mr. Lemieux said. “‘Hey, I’m going to get my usual’ – small little interaction. But I think that familiarity and that consistency is actually attractive to a lot of people.”

Other restaurants are trying a more tech-savvy approach.

At Pidgin in Vancouver, Mr. Grossutti hands off a delivery to Raven Ward.Jimmy Jeong/The Globe and Mail

After FromTo built its app to provide an alternative to the big delivery platforms, the founders decided to waive any commissions, aside from credit-card processing fees, during the worst months of the pandemic. Customers paid a delivery fee of $6.50, plus optional tip, which went directly to the drivers. It was only in February that the team introduced an 8.5 per cent commission, still much lower than the 20 to 30 per cent most other platforms charge.

FromTo has grown to offering delivery for roughly 70 Vancouver restaurants with 620 drivers. The founders are considering partnerships in other cities or even outside of Canada. They are hoping to raise capital to be able to continue competing with the big guys. In its home market, FromTo counts roughly 15,000 users, who are looking to support local haunts. Most orders come to the platform from the restaurants’ own websites.

“All these little McDonald’s orders, and bubble tea, and Starbucks – they’re never going to be a partner with us,” Mr. Grossutti said. “We don’t accept people that want to get a coffee delivered to their house in 20 minutes. There are certain things that break the world.”

He argues that high commission fees are not just bad for restaurants; they affect customers in hidden ways. Even when the apps’ delivery charges seem reasonable, he said, restaurants sometimes have to raise prices to make up for some of the profit margin they lose to commissions. For example, a dish Pidgin charges $22 for on FromTo is listed for $31 on other platforms.

Mr. Grossutti recognizes that customers’ expectations have changed over the course of the pandemic. “My concern is that it goes the way of Amazon if we don’t intervene with independent options. … Otherwise we won’t have a choice in a few years, and we’ll be run by ghost kitchens,” he said, referring to the industry in general. “And that whole connection to that individual restaurant is gone.”

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When the pandemic hit, restaurants in Canada lost a huge share of their work force and had trouble filling those jobs again. Therese DeGrace, who has worked in restaurants as a chef and consultant, spoke with The Decibel about her experience and why so many people left it in a hurry. Subscribe for more episodes.

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