Since it launched in 2013, Louisiana-based Waitr has been a game changer in the regional dining sector, with many restaurants seeing substantial new sales through the company’s delivery platform. Local diners by the thousands, charmed by convenience and loyal to the homegrown concept, routinely order from Waitr. By mid-year, the company had enrolled 785 Baton Rouge restaurant partners.
But the normally rosy mood surrounding Waitr darkened earlier this month when the company announced new contract terms that restaurant partners would have to sign by the end of the month. These include a new fee structure that replaces the current 15% commission with a sliding scale commission ranging from 15% to 25%, depending on sales. Restaurants with monthly sales of $1,000 or less will pay 25% per transaction—a rate Waitr contends is still less than what national vendors Uber Eats and Grubhub charge. Meanwhile, restaurants with $20,000 or more in monthly Waitr sales will pay a 15% commission. The rate will be adjusted each month according to the previous month’s sales.
Restaurants will also have to absorb the credit card transaction fee, adding another 3% to the cost of doing business with Waitr. And restaurant partners will not be allowed to charge a higher price for food ordered through the Waitr app than through any other food delivery option. That means restauranteurs who had already increased prices to accommodate a previous commission jump from 3% to 15% must lower prices to be consistent with their regular menu.
“These are very frustrating changes, and I think a lot of restaurants are going to reject the new terms,” says Jim Urdiales, owner of Mestizo Louisiana Mexican Restaurant, which does about $7,000 in monthly sales through Waitr, a rate that will require a 23% commission, not including the credit card processing fee. “I would bet that about half—if not a majority—of restaurants are going to drop out with terms like this. No one has a dish on their menu that has a 15 percent profit margin, much less one with 25 percent.”
Urdiales said he had scheduled a meeting with a Waitr sales rep to discuss the terms, and was also planning to reach out Uber Eats, one of the national third party deliverers now operating in Baton Rouge. UberEats typically charges restaurants a 30 to 35% commission and does not allow them to offset those costs with higher prices to the consumer.
Urdiales posted his discontent about Waitr’s changes on Facebook, prompting a handful of other restaurateurs and patrons to chime in, including White Star Market vendors Jay Ducote, who owns Gov’t Taco, and Jordan Ramirez, co-owner of Chow Yum Phat and Yuzu. Both expressed hesitation about renewing their contracts. Kalurah Street Grill owner Brad Watts told Daily Report he planned on discontinuing the Waitr partnership at the end of the month, as did Rocco Moreau of Rocco’s New Orleans Style Po-boys and Café, and Ruffin Rodrigue of Ruffino’s.
“I would bet that about half—if not a majority—of restaurants are going to drop out with terms like this. No one has a dish on their menu that has a 15 percent profit margin, much less one with 25 percent.”
JIM URDIALES, owner, Mestizo Louisiana Mexican Restaurant
Waitr founder and CEO Chris Meaux says he’s surprised at the negative reaction among some restaurant partners, since Waitr brought new sales revenue that didn’t exist before the platform. He also says the commission is still lower than national competitors.
“We’ve brought incremental sales to our restaurant partners– new sales they didn’t see before their relationship with us,” says Meaux. “If we’re bringing a company $5,000 in sales, and they’re paying us $1,150, it’s still sales they wouldn’t have, and they’re still paying less than they would with something like Uber Eats or Grubhub.”
The beauty of the Waitr app, says Meaux, has always been that it allows users to explore local dining options in a visually robust manner. Being on a platform like Waitr, he adds, levels the playing field for local restaurants that don’t have the marketing budgets of national chains.
Waitr went public in 2018 after Landcadia Holdings purchased it for $308 million. A few months later, the company acquired Minnesota-based Bite Squad, doubling in size and growing revenue more than 200% by the end of the year. Waitr Holdings now trades on the NASDAQ and reaches 24,000 restaurants in 700 cities. In the past few weeks, the company streamlined personnel and laid off an undisclosed number of workers companywide. Meaux says the number represents a tiny fraction of total employees.
Meaux says that the new contract terms with restaurants are being introduced because of market pressure and increased competition from Uber Eats, Grubhub and DoorDash, which all operate in Baton Rouge. By incentivizing restaurant partners to lower their commission fees with higher sales, Meaux is hoping they’ll see Waitr as the preferred third-party deliverer.
“If you’re trying to accumulate as many sales as possible through Waitr to keep your commission down, you’ll be less likely to divide up those sales with another delivery company,” says Meaux. “We have to find ways to stay competitive as well.”
Another thorny issue for the company this year has been about driver wages. Two separate federal lawsuits were filed in Louisiana this spring by former and current Waitr drivers who contend they were paid less than minimum wage, citing automobile expenses. Waitr drivers are paid an hourly rate that can fluctuate in busy periods, and they keep all of their tips. The optional tip function is built into the app and defaults at 20%, but users can increase, lower or eliminate the tip altogether. Meaux maintains the company follows fair wage practices and that drivers do pretty well.
“Our drivers earn healthy wages in every market, averaging $12 to $15 an hour,” he says. “We have a mix of full-time and part-time drivers.”
However complicated things have gotten lately for Waitr, it’s unlikely consumers will opt out of third-party restaurant delivery anytime soon. According to the National Restaurant Association’s 2019 State of the Industry Report, one of the biggest sources of new revenue for restaurants is from off-premise sales. Thirty-eight percent of adults in the U.S. and 50% of millennials say they are more likely to opt for restaurant delivery than they were two years ago, according to the report.
“Consumers are going to continue to use the platform,” says Meaux. “If a restaurant drops out, they will find another restaurant they want to order from.”