Delivery Apps and Ghost Kitchens Are Killing Our Local Restaurants

In a world where we are trying to get people out of cars, to build strong communities and even 15-minute cities, the neighborhood restaurant is a key building block. They have been under threat for years, thanks to high taxes and competition from corporate chains. Having my kids and their spouses work in foodservice makes me particularly worried.

When another local favorite of mine announced its closure recently I was saddened, noting that it reminded me of a running joke in Demolition Man, where every restaurant in the USA is merged into Taco Bell. Or, where I live, it might be Tim Hortons, or another of the big chains that have pockets deep enough to survive the pandemic.

But there is another threat that might be even direr than the pandemic, which is going to end at some point. That's the combination of delivery services, sponsored by venture capitalists like SoftBank and Saudi Arabian investment funds, and cloud kitchens, developed by the likes of Uber founder Travis Kalanick.

Cory Doctorow points to a study by the American Economic Liberties Project written by Moe Tkacik that describes how apps like DoorDash and GrubHub charge large commissions to process orders, then to deliver them, then to provide promotion services. Small restaurants often felt they had no choice but to use the big apps if they wanted to get orders. But now Tkacik describes how they are getting killed through higher fees.

"What the apps have done, instead of competing to serve customers and restaurants, is use Wall Street money to accumulate market power, raise barriers to entry, and then merge with each other and set up regional monopolies.The people who have invested tens of billions of dollars in the four dominant delivery apps tolerate huge short-term losses purely because they see the likelihood of monopoly power."

They buy Google listings so that searches come to them instead of to the restaurant, do fake menus with the graphics or the name changed slightly, and do everything they can to siphon off business. But then there is "the real existential threat," the ghost kitchens that they are setting up everywhere.

Ghost Kitchens Are The Real Threat

We have covered these before on Treehugger, noting that when they take over we will all be poor, fat, and buried in plastic. But it is much worse than that; they are squeezing real restaurants out by drowning them in a field of fakes. "A journalist touring one Los Angeles ghost kitchen found that it was selling its food through the apps under no fewer than 127 fake 'virtual restaurant' names."

These are all backed by companies like Softbank, Google ventures, Walmart, and Amazon.

"Together with the in-house dark kitchen ventures run by DoorDash, Grubhub and UberEats, all the major dark kitchen startups have access not simply to vast pools of funding the restaurants don’t have, but data they don’t have—even though for the most part it was generated by them, and will now likely be used to copy and destroy their businesses."

I noted in our earlier post that these are not families running a local business and living upstairs on our Main Streets, but are industrial operations paying low wages to kids, often out of converted shipping containers. One operator bragged: “No chefs – I have 19-year-olds who have never worked in a kitchen. I can train them within a week and they can handle 12 different types of menus without having any experience.”

Joe Kukura of a San Francisco arts and culture website describes how "more than 20 'ghost kitchens' are operating out of this dump in South Market," noting:

"You may not care whether your food comes from an actual restaurant with qualified staff, skilled customer service, and fair wages and representation. Maybe you think it’s great that messiah-complex founder types like Travis Kalanick are 'disrupting' another industry that was doing fine before they came along, and changing the game with their fake restaurant profiles, below-minimum wage workforce, and demonstrated inability to never, ever make a profit. But people do at least deserve to know if their food is from a real restaurant or a ghost kitchen, because that phenomenon is making San Francisco’s legendary cuisine scene a ghost of its former self."

What Can We Do About This?

The first thing that my kids recommend and that we do is never order through these apps, if you can call the restaurant directly and have them arrange the delivery (or you pick it up).

Moe Tkacik and the American Economic Liberties Project have nine substantive recommendations that include investigation of unfair and deceptive practices by the Federal Trade Commissions, expanding local laws curbing predatory commissions, banning loss-leader pricing that incentivizes consumers to order in instead of going to the restaurant, and just banning the vertical integration where delivery services also own the ghost kitchens. If we don't control the giant app services, we could lose them all.

"The delivery apps have burned billions of dollars and broken dozens of laws with impunity while making it harder and harder for small restaurants to break even, and their vertical integration via the 'dark kitchens' could displace small restaurants entirely." 

In comments to the previous post, many complained that we should just learn to cook and not order in. "It's so easy to make your own food – factor in the delivery time and it's probably faster too." They have a point.

But small restaurants are a major source of activity on our Main Streets. They offer people working from home a place to go, a change of scenery. They don't rely on the single-use plastics that are at the core of the linear food delivery system. They provide thousands of jobs for entrepreneurs and immigrants and yes, even my kids.

Tkacik concludes that "there is still time to save America’s independent restaurants from going the way of our bookshops and toy stores." The first step might be to delete those apps from your phone and order from your local Main Street restaurant. Takeout is probably the only thing keeping it going in the pandemic, and they need your support.