The pandemic has been the defining event of 2020 for consumers and businesses around the world, with entire industries experiencing enormous impacts from social distancing and stay-at-home orders intended to curb the virus’s spread.
Few sectors have been more affected than the restaurant industry, with nearly 100,000 eateries closing either temporarily or permanently due to the pandemic.
Mobile ordering has been a lifeline to helping eateries keep their doors open, with many restaurants that previously offered only on-premises dining quickly scrambling to maintain their customers by adopting takeout and delivery capabilities. Large chain restaurants may have the resources to develop these services in-house, but independent restaurants often need to partner with third-party services to adopt such capabilities. Online food ordering system ChowNow is one third-party provider specifically tailored for independent eateries, offering its services at a flat rate rather than on a commissions-per-order basis.
“The [restaurant] industry is critical to American life,” Co-Founder and Chief Operating Officer Eric Jaffe said in an interview with PYMNTS. “Ten percent of all of workers in the United States have some kind of tie to the restaurant industry, whether [as] a server, a cook or a manager or [as] a supplier or a servicer to the industry. We’ve got to keep these things afloat because it’s important [not only] for the American economy but [also] for the culture of our society and the microcommunities that we live in.”
Jaffe gave PYMNTS an inside look at the struggles the restaurant industry has faced in a tumultuous year, including the growing threat of digital fraud that is likely to endure long after the pandemic is behind us.
How Independent Restaurants Have Taken A Hit
Independent establishments were at a huge disadvantage compared to their large chain counterparts due to two main factors: a lack of existing digital ordering infrastructure and a lack of resources to create or contract one. Consumers still wanted to patronize their favorite restaurants, according to Jaffe, but the restaurants were hard-pressed to provide digital ordering channels for them.
“The challenge of being an independent eatery is that you probably don’t have the resources or the knowledge to be able to navigate some of the very problematic [hurdles] that came your way, like trying to market to customers who still want your product but have less access to you,” he explained. “If you’re a large eatery, you probably had already implemented a big marketing strategy to talk to these clients. You probably already had a big email list, and you probably already had some kind of online ordering. There were a lot of consumers who just absolutely decided to leave a brand they loved because they just knew that brand hadn’t built the muscle to service them in this particular time.”
Restaurants frequently turn to third-party delivery services like DoorDash and Grubhub to outsource marketing and delivery expertise, but these platforms come with hefty commission fees per order — a difficult pill to swallow for small businesses. These commissions would have been an acceptable cost of doing business in normal times, but as delivery has become a much larger share of overall business, these costs have grown untenable.
“The quick fix is just [using ordering services like] Grubhub or Postmates or Uber Eats, but suddenly your costs really skyrocket, since those platforms charge between 20 [percent] and 40 percent of an order,” Jaffe continued. “Maybe you’re OK with paying those commissions when 20 percent of your revenue comes through that channel, but when the model flips and suddenly 80 percent of your revenue is taxed by those commissions, your business model breaks.”
Services like ChowNow sought to resolve this problem by offering less-expensive ordering models, but other problems like the ever-present specter of fraud still loom over digital ordering systems. The company relies on back-end order tracking and cooperative data sharing to address these problems.
The Fraud Lessons To Take Into 2021
Jaffe said that the most common type of fraud ChowNow sees is not the attempt to steal funds or data directly but rather the use of mobile ordering apps as test subjects for stolen credit cards or passwords. Fraudsters often get their hands on passwords from either large data breaches or phishing emails, and both techniques are on the rise in 2020 and are expected to grow more prevalent in the coming years.
“There’s not a lot of money in this for fraudsters,” said Jaffe. “What you do see fraudsters doing is if there are large events where lists get out of email addresses connected to passwords, they may actually go to easily accessible platforms and try to put through an order to see if this account exists on this system. If it’s there, they can access information about this person to then go use that in another platform where they could try to get additional value.”
Protection against this type of fraud is still important, however, as the restaurant’s customers are still getting defrauded even if it is against one of their other accounts. ChowNow, for its part, handles fraud through algorithmic analysis, scoring individual transactions on a number of variables to determine its propensity for fraud. Jaffe said he recommends that restaurants not be afraid of looking for help in this endeavor.
“Fraud’s a moving target, and you just constantly have to be vigilant with how you are approaching it because they’re always changing their tactics,” he said. “You’ve got to change yours as well. If you’re going to partner with somebody out there, look for somebody that’s also attached to another network that shares information about known fraudsters so that you have access to that database, and then you can choose to … decline an order if you see a profile like that coming through, depending on how it is scored.”
The restaurant industry will likely face a vastly different landscape on the other side of the pandemic, but the need to defend against fraud will remain unchanged. Teamwork will be vital to addressing the issues wrought upon the industry in 2020 and in the years to come.