Local restaurants claim a new service Deliveroo has launched is the final nail in the coffin in the fight to stay open amid lockdowns.
Local restaurants claim a new service Deliveroo has launched is the final nail in the coffin in the fight to stay open amid lockdowns.

Deliveroo’s new move ‘screws’ restaurants

Restaurants in Melbourne's Chapel Street precinct are furious at Deliveroo, accusing the multi-billion dollar tech giant of taking away their much-needed business through a bold new move.

Melbourne restaurants in the district have turned to the grocery trade to survive, in a move they describe as "pivoting to stay alive" during the current crisis amid COVID-19 disruptions to the industry.

However, they claim the launch of a Deliveroo Essentials store in the Windsor-end of Chapel Street, which delivers essential supermarket items right to people's doors, is undercutting local restaurants.

Locals now believe they can't compete against the delivery giant.

Paul Kasteel, owner of Hoo Haa bar and Miss Kuku restaurant on Melbourne's Chapel Street, started selling his own grocery staples a few weeks ago to bring in more customers.

But soon he says the new Deliveroo Essentials store took away his business, as they charged their groceries at cheaper rates.

They sell "essential" groceries including cereal, pasta, rice, bread and juices, as well as tinned and canned goods such as chopped tomatoes and baked beans.

"Deliveroo Essentials is the final nail in the coffin," Mr Kasteel told news.com.au. "I don't know how we're going to survive now."

Chrissie Maus, general manager of the Chapel Street Precinct Association, was also critical of Deliveroo's new essential store.

"Deliveroo's action is shortsighted and a simple money grab at the expense of the Chapel Street Precinct cafes and restaurants," she said.

Deliveroo assured news.com.au that, "We want to do everything possible to help people get the food they want and need during this worrying period.

"We hope we can play a role in supporting people who have to isolate to get the food they need whether that's household items or restaurant food."

A restaurant displays a closed sign in Melbourne’s Chapel Street.
A restaurant displays a closed sign in Melbourne’s Chapel Street.

PIVOTING

Mr Kasteel, who has run his restaurant Miss Kuku for 15 years, knew he had to make some drastic changes to survive after government restrictions were announced.

"We pivoted," he said, to use the new buzzword of the area.

"We've got wholesalers, so I went to see if we could make some money out of selling basic grocery items.

"We got toilet paper and we sourced hand sanitiser. We're trying to sell pasta and other basic stuff like everyone else."

Miss Kuku is struggling to turn a profit amid social distancing measures.
Miss Kuku is struggling to turn a profit amid social distancing measures.

On Miss Kuku's website, it says: "As well as wine and beer, there are weekly cocktail specials like Negroni's and Espresso Martini's, and an expanding range of groceries including pasta, cereal, milk, eggs, and toilet paper."

Ever the businessman, Mr Kasteel was hoping the promise of groceries would make more customers "pass through" Miss Kuku, who might then buy some of the restaurant's meals for takeaway as well.

"We're not even doing it to make money, we're just trying to get them to buy our normal food," he said.

His restaurant Miss Kuku is not the only one in the area selling grocery staples - Ladro Italian, Lucky Penny Café, LaManna & Sons Delivery and Alison's Corner Shop have also converted their eateries into grocery stores for the first time ever.

"All of a sudden these guys pop up a Deliveroo Essential store," Mr Kasteel said. "It screwed me."

A photo of food from Mr Kasteel’s Miss Kuku restaurant.
A photo of food from Mr Kasteel’s Miss Kuku restaurant.

RESTAURANTS STRUGGLING TO SURVIVE

Speaking on the phone to Mr Kasteel at 2pm after the lunch rush, he said that his business was dying.

"We've had one order today for lunch," he said. "Right now, I'm sitting here thinking I'm not going to survive.

"We need 200 orders a week just to survive, to maintain a pulse."

In his desperation, he even created a private Facebook event - begging friends and regular customers to come visit his business.

 

Before the coronavirus pandemic, home delivery services made up 1 per cent of profit for Mr Kasteel's business.

"We just tried to sell home delivery to make a bit more revenue," Mr Kasteel said.

"All of a sudden you find yourself (in this situation) where that's your only source of income."

Mr Kasteel doesn't know how he's going to pay his mortgage with his restaurant on its last legs.

A very quiet Melbourne city this morning, April 1, 2020. Picture: David Crosling
A very quiet Melbourne city this morning, April 1, 2020. Picture: David Crosling

COMMISSION PRICES

It's not the first time the Melbourne district has been upset by Deliveroo.

Mr Kasteel explained how Deliveroo charges a hefty commission fee for deliveries - which takes 30 per cent of his profit.

"We did about $900 in sales in our first pivot week," he said. "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 per cent which leaves us with about $230.

"My wage bill to keep my visa workers employed on a bare minimum was $2500 and l haven't even included fixed costs.

"Even if we can make $1000 per day, with only 2-3 staff working, we won't survive with these guys taking 30 per cent and no other revenue coming in."

And Mr Kasteel considers himself lucky. Restaurants can be charged up to 35 per cent of their profit from Deliveroo.

"In simple terms, the question should be asked - in light of what's happening why aren't they (delivery services) adjusting their percentages down?" he said.

WHAT YOU CAN DO

 

President of the Chapel Street Precinct Association (CSPA), Justin O'Donnell, has encouraged people to support local businesses rather than giants like Deliveroo.

"The best way to avoid the delivery giants' 35 per cent commissions and support your favourite local restaurants and cafes is to call them direct and collect," he said.

"By ordering direct you will be helping our businesses make it through and retain the staff you've come to know and love."

In a statement, Deliveroo said: "The commission rate is scaled according to the degree of service and support that Deliveroo provides its restaurant partners for each order type.

"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."

Are you a struggling hospitality worker? Continue the conversation @AlexTurnerCohen or alex.turner-cohen@news.com.au

Originally published as Deliveroo's new move 'screws' restaurants