For diners in Dubai’s varied and cosmopolitan food scene, the coronavirus pandemic hasn’t necessarily limited options: between delivery aggregators like Talabat, Deliveroo, and Careem, menus from the city’s most exclusive restaurants to inexpensive staples are available at their fingertips.
But for restaurants in the Gulf city, fierce competition between delivery apps has meant higher fees out of already dwindling profit margins. The apps are able to leverage their vast delivery infrastructure and fleets of drivers to dictate fees for restaurants desperate to reach customers at home. In the fight for a majority share of the $3 billion Middle East food delivery market, delivery apps are gouging restaurants dependent on their services with commission fees as high as 35% per order.
In a bid to gain the upper hand, two of the region’s biggest delivery companies, Noon and Careem, have announced changes to their delivery offerings. On February 2, Emirati e-commerce platform Noon announced that its pivot to food delivery would see commission fees for restaurants cut in half. The same day, Uber-backed Careem, which also offers ride hailing, grocery shopping, and bike rental, said it would do away with commission fees altogether and instead charge restaurants a fixed monthly subscription price to use its services.
Both Noon and Careem claim these changes will help the struggling restaurant industry. Noon founder Mohamed Alabbar — best known as the chairman of the property group behind Dubai’s iconic Burj Khalifa — called on other delivery platforms to match the company’s 17% commission fee and “serve restaurants beautifully.”
But Dubai’s embattled restaurant industry, heavily reliant on tourism — in 2020, the emirate received less than a third of the international visitors as previous years — is wary. Food industry consultant Andre Gerschel says food delivery platforms are focused on their own bottom line. “It’s a gimmick to be the last survivor,” said Gerschel, who is also COO of Loud Table, a hospitality investment group in the Gulf. Gerschel sees the battle between the many delivery apps available in the Gulf as a race to a less competitive market. “What they’re all hoping for is to be the ones that last the longest, until there’s only two left,” he said.
Careem and Noon’s lower fees and subscription model are the latest attempts by delivery services to translate fans of restaurants into loyal app users. There’s the tit for tat: Noon said restaurants could pay just 12% commission on orders for the first six months, but only if they would agree to drop menu prices by 20% during the same time period. There’s the gambit for exclusivity: Last April, the region’s largest food ordering platform, Talabat, which owns delivery service Zomato’s UAE operations, threatened that, if restaurants wanted to keep using their service, they had to cancel agreements with other delivery platforms.
Gerschel said it’s been disappointing to see how little the delivery companies have supported restaurants during the pandemic, when foot traffic has decreased for a city accustomed to tourists year-round. “This was a time period to show solidarity and generosity,” said Gerschel. “Unfortunately, many of the biggest players in that industry did not really step up.”
With the deep pockets of Uber and the Saudi wealth fund behind them respectively, Careem and Noon have cash to burn in their quest for dominance in an already crowded market. Careem has ambitions to become the region’s “superapp”; CEO Mudassir Sheikha said the company’s food delivery business grew four times over the pandemic. Food delivery now contributes nearly a third of Careem’s total business. The subscription model will reduce the effective commission fee for restaurants to to as low as 6%, Sheikha told CNBC. But in place of the commission fee, Careem’s charges to the restaurants now come in “bundles”: a fixed monthly subscription fee, a fee to process digital payments, and the actual cost of the delivery.
Noon, backed by $500 million of Saudi Arabia’s $1 trillion Public Investment Fund, promised the company wouldn’t “hold restaurants ransom” and instead charges restaurants a total of 17%: 15% for the commission on the order and 2% to process the payment.
Neither Noon nor Careem responded to requests for comment from Rest of World.
A part-time chef in Dubai predicts the delivery landscape is going to get messier before it gets simpler. The chef, who spoke to Rest of World on condition of anonymity, fulfills food orders from his home but isn’t licensed to do so. “There still aren’t cost-friendly delivery models that support the restaurant owner,” he said. The chef said his business took off over social media during the pandemic, and he runs it entirely through delivery and pickup orders. “There is always room for someone with a deeper understanding of the restaurant business who can disrupt it,” he added, “but it’s a function of people’s habits, and that’s tough to break.”
Akmal Anuar, a celebrity chef with somewhat of a cult following in Dubai, has cut out delivery apps altogether. The veteran chef opened two restaurants during the pandemic: a yakitori spot called Goldfish and a breakfast bar inside a futuristic library in Sharjah. Both locations rely entirely on foot traffic. Anuar understands the appeal of the variety and convenience that delivery apps offer customers, “But for a restaurant, there are costs,” he said, “costs which relate to operations. Everything matters.” On top of paying the delivery platforms, fine dining can’t compete in a sea of lower-priced delivery options, said Anuar. The designer vibes don’t fit into the takeout box.
Dubai’s restaurants are also competing with a growing crop of startups like Kitch, which operates delivery-only kitchens, also known as ghost kitchens, as well as discount meal delivery membership services, like Munch:On, that offer meals delivered for as low as $6 from a rotating cast of restaurants, with no delivery fee.
In such a crowded space, the flood of affordable delivery food risks the already precarious position of independent, dine-in restaurants. Gerschel said that the aggregators are prioritizing competing with each other over supporting the restaurants that are the foundation of their businesses. “It’s symbiotic,” said Gerschel. “If there’s no restaurants, there’s no aggregators.”