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'Ghost' restaurants popping up to corner Uber Eats market

By Jordan Bond of rnz.co.nz

The food delivery app Uber Eats is being accused of taking such high commission fees that it's running some restaurants into the ground.

It has so many customers and such a large share of the ready-to-eat delivery market that many restaurants want a share - even if it costs them something.

"It's absolutely an adapt or die situation. A lot of restaurants have already died," said Tyler Kerlin. He's chief operating officer of a Mariposa Restaurant Holdings, which owns more than 40 outlets of Mexicali Fresh and Burger Wisconsin - and now, two "ghost" restaurants - Ha! Poke and Hot Lips.

He says Uber Eats is a massive deal. It now has over two-thousand active restaurants across six New Zealand cities.

"We've run restaurants for a couple decades now and there's been no bigger disrupter than Uber Eats," he said.

"Delivery's not going anywhere - it's convenience for customers - but it's a real battle. A lot of people are really struggling to figure out how to make that work. We're just trying to figure out how to ride the wave."

Another resturant owner in Auckland, who didn't want to be named, said Uber Eats has such a large share of the food market, with so much customer money attached, that you have to jump aboard or you'll miss out.

"Do I want to deal with Uber Eats? No. Would I rather just have a normal restaurant operation? Definitely yes. You're a bit cornered really - you jump on the train and you get used to the extra turnover, you've catered for it, you've staffed for it... You would doubt whether your numbers would bounce back up if you stopped."

He says Uber takes a hefty commission, plus GST. So for them to make the same amount on a meal as a walk-in customer they'd have to add that much on top of normal prices - but that would put customers off.

One of the things they're both trying is "ghost" resturants. You can't walk in, there's no shop front, no seats - it's a restaurant that exists virtually, purely to deliver food through Uber Eats, often with multiple "restaurants" operating out of one kitchen. Overheads are lower, but all the benefits of online delivery remain.

"It gives you multiple revenue streams to pay the same rent," said Mr Kerlin, who has two ghost operations.

"I figure we could do a few more brands and you get that scale where you can make it work. It's about adapting, if you've got the capability to create a new brand," said Mr Kerlin.

But not all restaurants are able to just create a new brand, and many don't have the money to buy a new kitchen. So instead they're selling food for a tiny margin, and in some cases at cost price.

The anonymous restaurant owner has three ghost restaurants which people can order from online, and expects them to only grow in number.

"People are all about comfort, about putting on Netflix, and being at home. Uber Eats has tackled that market. It means we don't really get as many customers coming through the door."

The president of the Restaurant Association, Mike Egan, said it's affected the industry, but some types more than others. Fine dining, for example, doesn't come in a paper bag.

He said for a lot of people food is now about convenience.

"What we have to do as an industry is get what they call a 'share of stomach'. In America I think about 50 per cent of all food is consumed outside the home, in Hong Kong it's about 90 per cent; we think in New Zealand it's about 10 or 15 per cent. We can grow that portion, there's a lot of room in the market," said Mr Egan, who also owns Monsoon Poon.

In a statement, Uber says it places a lot of value on long-term relationships and wants the businesses they partner with to thrive.

"Uber Eats is proving popular with more than 2,000 active restaurants in six New Zealand cities and they choose to be on our platform because it helps them grow their business and reach new customers with fast, reliable and efficient delivery," the statement said.

"Restaurant service fees give restaurant partners access to a large network of delivery partners and contribute to 24/7 customer and operational support, as well as app development, marketing campaigns and business insights. Uber Eats can be a cost-effective channel for reaching an entirely new customer base."

Mr Kerlin says somehow - maybe through competition - Uber will have to drop its commission rate.

"Without the drivers and the restaurants, they don't have a business... It's not working. It's too high. Ultimately they're going to have to drop that because long-term they won't have enough restaurants able to be on the platform."

Gold Coast, Australia - May 5, 2019: Customer with Uber Eats' bag in a paradise beach in the middle of nowhere in Gold Coast area.
The food delivery app Uber Eats is being accused of taking such high commission fees that it's running some restaurants into the ground. Source: istock.com