It’s no secret that there’s a little bit of animosity between restaurants and food delivery apps like Uber Eats, DoorDash and Grubhub. Restaurants often hemorrhage up to 30% of their off-premise sales as part of the commission the apps charge them, and when places like New York City pushed back, the companies opened their collective coffers and jointly sued. Their actions have even earned them the title of “modern day Mafia” among some restaurateurs, who say that the apps are killing their businesses.
New York City is at the epicenter of the battle between restaurants and food delivery apps. The city was one of the first to implement caps on the amount of commission the apps could charge restaurants and establish minimum payments for trips, and the City Council has approved a bill that would force restaurants to share customer data for off-premise orders with restaurants on request.
But what if New York City could flip the entire third-party food delivery model on its head? It might be a tall task for city lawmakers, but a startup nestled within Manhattan is already changing the game. Meet Sesame, the food delivery app that’s returning power to restaurants.
“We don’t believe in a commission approach. We don’t believe in closed and restrictive data,” Josh Morgan, Sesame’s founder and CEO, told Modern Shipper. “We believe that the merchant, and ultimately the restaurants that we’re trying to help, should be the true beneficiaries of using this product.”
You read that right — Sesame, which was founded just last month, charges restaurants zero commission. That’s a vast departure from the dominant third-party food delivery model used by Uber Eats (NYSE: UBER), DoorDash (NYSE: DASH), Grubhub (NASDAQ: GRUB) and others.
“Over the last couple of years, even pre-COVID, what we saw as restaurateurs was just the complete monopolization of our off-premise customers, and the aggregators kind of came into the market,” Morgan explained.
The big food delivery apps, which Morgan refers to as aggregators, had sold restaurants in New York City, and all over the country, on the idea of incremental sales and an influx of new customers. But that’s not exactly what happened.
The reality is that we’re paying these extremely high commissions, sometimes north of 30%, for our own customers to order from a marketplace.
josh morgan, founder and ceo, sesame
“The reality is that we’re paying these extremely high commissions, sometimes north of 30%, for our own customers to order from a marketplace,” Morgan said. “And, by the way, we get no access to the customer data.”
It’s true that off-premise orders have skyrocketed for many restaurants, sometimes making up well over half of their sales when they used to make up less than 10%. But that hasn’t always translated to a rise in profits because according to Morgan, the same customers that would normally have ordered in store are now being diverted to food delivery apps. And the apps are taking a huge piece of that pie.
“I think the industry was a little bit duped. I mean, it’s a compelling thing, like, ‘Hey, we are digital entrepreneurs, we can bring you new customers and bring you additional sales and contribution.’ And the whole industry kind of jumped right in and took advantage of it,” Morgan lamented.
As aggregators flooded the market and began to take over, restaurants started to shift their focus toward building out their proprietary channels, like websites and apps, in the hopes that they could recapture some of those off-premise orders. Instead, people stuck to the aggregators.
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“Consumers are addicted to the Amazon e-commerce world. Like, why go to 10 different places when they can just go to one?” Morgan explained. “And I think that the industry as a whole kind of got it wrong in thinking that we could just build out our own destination channel and then go out there and convince all of our consumers that when they want something from our restaurant, they can go direct.”
But now, restaurants are exiting their honeymoon phase with food delivery apps. Tensions are as high as they’ve ever been, with the restaurants becoming increasingly vocal about their grievances and the apps delivering lawsuits left and right. That’s where Sesame can help.
Putting restaurants first
Borne out of Aurify Brands, a restaurant operator in New York City that has been in the brand-building space for the last decade, Sesame is shaking up the established food delivery model.
Rather than charging commission to restaurants, Sesame charges a flat rate that’s often multitudes lower than what an app like Uber Eats would charge. For example, a restaurant making $100,000 in off-premise orders at just a 10% commission rate would pay food delivery apps $10,000. Raise that number to 30%, which is the commission rate in many cities, and restaurants are sometimes paying as much in commission as they do in rent. Sesame, though, charges only a flat $125 fee per month.
That flat fee also applies to customers — hungry New Yorkers who order with Sesame will only pay a flat $3 service fee rather than the variable service fees that most apps charge. And with Sesame, restaurants will be able to access that customer data at will, which isn’t the case with the larger food delivery apps.
But how exactly does Sesame accomplish all of this? One area where the startup differs from the food delivery giants is in its fleet — rather than build, manage and maintain its own fleet, which can be incredibly expensive, Sesame leverages its partnership with logistics company Relay, which focuses on fulfillment for small packages.
“This is one of the ways that we’re able to be leaner, to provide a different kind of model that is much less expensive to manage but allows us to pass through some of those savings to the restaurants in the form of a fixed, lower SaaS fee,” Morgan explained.
We want to arm the restaurants with a solution that allows them to maximize and optimize the profit.
Josh Morgan, founder and CEO, sesame
Whereas Uber Eats, DoorDash and Grubhub rely on commission to balance out the cost of maintaining a nationwide delivery network, Sesame can get away with charging restaurants much less.
For example, for an order of $30, Relay would bill a restaurant $5, which is how much it costs Relay to fulfill an order of that size. From there, the restaurant can decide whether it wants to pay that cost upfront or subsidize part of it by passing some costs on to the consumer. So while Sesame still charges a delivery fee, it’s the restaurants that are setting that price. And unlike Uber Eats, DoorDash and Grubhub, which pocket that money themselves, Sesame gives delivery fees directly to the restaurant.
“We want to arm the restaurants with a solution that allows them to maximize and optimize the profit,” Morgan told Modern Shipper. “Because ultimately, when push comes to shove, you can have as much incremental sales as possible, but if you’re earning very little on it, it’s not moving the needle for your business.”
Sesame’s business model also benefits the consumer. As aggregators have eaten up restaurant sales, it’s forced many restaurants to raise their menu prices, creating costs that most consumers can’t even see. Customers who use apps like Uber Eats are also paying a variable service fee that increases with order size, rather than the fixed $3 service fee that Sesame charges.
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“We can lead with the restaurant-first mentality and make sure that we’re doing everything we can to help them create more sustainable businesses. We think that that produces a kind of a runway for a fairer system, a better system, and when the restaurants win, the consumers will win in the long run. Because that’s the restaurant’s job, it’s to cater to their customers and to provide them ultimately with value,” said Morgan.
But that doesn’t mean Sesame can’t also provide value directly to its customers. Through a loyalty system, customers can accumulate what the startup calls “impact points,” credits that can be used on free food, free delivery and charitable donations through the platform. And through a charitable partnership with City Harvest, Sesame feeds one hungry New Yorker for every order placed on the app.
Trials and triumphs
Of course, Sesame’s triumphs have not come without challenges. One of the biggest obstacles according to Morgan was building a technology solution that could offer the same level of digital convenience that apps like Uber Eats, DoorDash and Grubhub would.
“We knew that in order to solve for the consumer’s desire for search and discovery and convenience, we needed to build damn good tech,” he said, “and Uber and Grubhub and DoorDash have spent tens, if not hundreds, of millions of dollars on their tech over the years.”
Another challenge has been making consumers aware of the flaws in the dominant third-party food delivery model, but COVID-19 has helped expose some of those shortcomings as consumers become more aware of where the money is going.
“As hard as it is to educate consumers, we’re in an environment where consumers are just hearing about the realities of this industry more than they ever have,” Morgan explained. “And we’re just trying to continue to ride on that opportunity to share the truth of what’s happening.”
But despite those hurdles, Sesame has a unique advantage that has helped it get to where it is today. Morgan and Aurify Brands, of which Sesame is a part, have been in the restaurant business for 20 years, and most food delivery apps simply can’t compete with that reputation.
That’s made life much easier when it comes to recruiting restaurants onto the platform. Despite the app being in its infancy, Morgan said that Sesame is welcomed with open arms almost without fail whenever he speaks at restaurants.
We’re not like some Silicon Valley tech company, calling and dialing restaurants trying to pitch them on a tech product. We’re literal operators that run brands that most people we speak to know and respect and have a lot of appreciation for.
Josh morgan, founder and ceo, sesame
“We’re not like some Silicon Valley tech company, calling and dialing restaurants trying to pitch them on a tech product,” Morgan joked. “We’re literal operators that run brands that most people we speak to know and respect and have a lot of appreciation for.”
Looking to the future, Sesame will try to leverage one of its other advantages to spur growth. Sesame and its logistics partner Relay have a perfect synergy, Morgan explained — Relay’s business is solely centered around fulfillment, but the company lacks a way to generate demand, which is where Sesame comes in. Relay fills the gap in Sesame’s logistics, while Sesame acquires new customers for Relay.
According to Morgan, one way to grow Sesame would be to keep that synergy going and simply follow Relay as it expands. The company has an established presence in New York City, Philadelphia and Washington, with plans to expand into Chicago and Miami in the coming months, making those cities prime locations for a Sesame expansion.
But soon, Relay might be just one of many partnerships for the startup: “I think there’s other companies that are doing similar things to Relay, and I think there’s going to be more and more companies coming out that are trying to figure out how to put downward pressure on the cost of small package fulfillment,” Morgan predicted.
As more and more companies enter the fulfillment space, it becomes easier and easier to run a third-party food delivery company using the Sesame model — by leveraging logistics partnerships and keeping costs low, the next generation of food delivery apps has an opportunity to return power to the restaurants they purport to serve.
“What we’re excited about is really just putting restaurants first, truly being restaurateurs and understanding what it takes to live and breathe in this business.”
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