Third-party food deliverers are booming, helped by mobile apps, but they sometimes leave a sour taste with restaurant owners with fees amounting to 30% of an order.
Restaurants looking to cut down on those fees and gain more autonomy over the process may see Minneapolis-based startup Foodsby as a potential solution — at least for lunch orders.
“They [third-party food delivery services] charge those high fees to pay for the cost of the delivery,” Ben Cattoor, Foodsby’s founder and chief executive, said. “The other way to combat that is if you get enough people to place an order, then you don’t have to charge those high fees.”
Foodsby’s customer base is office workers who are either too lazy or busy to leave their desk for lunch or who seem to always have a meeting scheduled during lunchtime.
Unlike third-party services such as GrubHub and Uber Eats that deliver orders on behalf of restaurants, Foodsby’s restaurant partners deliver orders themselves to office buildings that have signed up for Foodsby’s service.
Foodsby targets office buildings with 200 or more people. It partners with office building managers and companies renting office space to sign up the first 100 office employees so that they qualify for its service.
Foodsby customers place lunch orders through its smartphone app or its website. They check the app in the morning to see that day’s selection of restaurants. Customers can also sign up for a daily e-mail that lists their restaurant options for the day.
Each restaurant on Foodsby’s app lists a specific time that they’ll be at their building and a morning cutoff time for customers to place their orders. Restaurants deliver orders either before or after their peak lunchtime rush.
For each order, Foodsby charges customers the menu cost of the food plus $1.99 and sales tax, with no tipping or minimum order requirements. Restaurants pay Foodsby less than 10% per order, Cattoor said.
On average, restaurants see a 15% to 20% increase in lunch sales after partnering with Foodsby, said Rob Wormley, senior manager of brand communications at Foodsby.
Cattoor came up with the idea in 2012, when he was an accountant at CHS Inc., the giant agriculture and energy co-op headquartered in Inver Grove Heights.
He noticed a delivery driver made five trips in 45 minutes to the CHS office and figured that there was a better way to coordinate lunch deliveries.
After bootstrapping the company for the first five years, Cattoor raised about $19.4 million in Series A and B funding rounds led by Piper Jaffray Merchant Banking and funding partners Greycroft, Corazon Capital and Rally Ventures.
Foodsby used the capital to expand into new markets and increase its sales, marketing and development teams. It has restaurant and building partners in 18 metro areas and plans to be in 30 by year’s end, Cattoor said.
The company now has 150 employees, most of whom work in downtown Minneapolis. The firm is expanding to nearly 200 employees and will occupy 34,000 square feet of renovated space in downtown’s Baker Center later this year.
The food-delivery system, which is used by more than 4,000 businesses, has processed more than $150 million in gross sales since 2016, half of it last year. It expects to double revenue this year, all of which comes from lunch orders.
Cattoor said its business model won’t work if Foodsby delivers to homes or to places with low population density.
“If I send a restaurant to that person [in a house], they’re only going to get one order,” Cattoor said. “Then the restaurant, now they don’t see value. So, now I have to charge the customer a massive fee, which is not that exciting to pay 50% to 100% the cost of your food in just fees to get it there.”
Because restaurants know when to send employees out for deliveries and what their daily order volume will be, they know in advance whether they need to staff up.
This helps them solve staffing challenges, one of the biggest issues restaurants face, Cattoor said.
Foodsby last month introduced Foodsby Meetings, which lets meeting attendees choose their own orders and lets meeting organizers schedule the delivery for a specific date and time for a $10 group order fee.
The option is available in Minneapolis and the surrounding area, Des Moines and Charlotte. Cattoor hopes to make it available in all of its markets this fall.
Cattoor said his long-term goal is for Foodsby to accelerate until it’s at the forefront of the food-delivery industry.
And he said he was confident the platform could reach the same revenue levels and number of restaurant partners as third-party deliverers. “Depending upon the next hundreds of employees that we bring into this company, that will decide how fast we get there.”