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Restaurants in Melbourne’s Chapel Street precinct are furious at Deliveroo, accusing the multi-billion dollar tech giant of taking away their much-needed business through a bold new move.

Melbourne restaurants in the district have turned to the grocery trade to survive, in a move they describe as “pivoting to stay alive” during the current crisis amid COVID-19 disruptions to the industry.

However, they claim the launch of a Deliveroo Essentials store in the Windsor-end of Chapel Street, which delivers essential supermarket items right to people’s doors, is undercutting local restaurants.

Locals now believe they can’t compete against the delivery giant.

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Paul Kasteel, owner of Hoo Haa bar and Miss Kuku restaurant on Melbourne’s Chapel Street, started selling his own grocery staples a few weeks ago to bring in more customers.

But Deliveroo Essentials can deliver grocery items for cheaper rates using its own drivers and people are now flocking there.

They sell “essential” groceries including cereal, pasta, rice, bread and juices, as well as tinned and canned goods such as chopped tomatoes and baked beans.

Local restaurants, on the other hand, can’t sell groceries for quite as cheap because they have to pay Deliveroo a commission fee, which can be up to a staggering 41 per cent of their gross profit.

“Deliveroo Essentials is the final nail in the coffin,” Mr Kasteel told news.com.au. “I don’t know how we’re going to survive now.”

Chrissie Maus, general manager of the Chapel Street Precinct Association, was also critical of Deliveroo’s new essential store.

“Deliveroo’s action is shortsighted and a simple money grab at the expense of the Chapel Street Precinct cafes and restaurants,” she said.

Deliveroo assured news.com.au that, “We want to do everything possible to help people get the food they want and need during this worrying period.

“We hope we can play a role in supporting people who have to isolate to get the food they need whether that’s household items or restaurant food.”

DELIVEROO “SCREWED ME”

Mr Kasteel provided news.com.au with a copy of his latest invoice, from April 7, which shows the staggering loss his restaurant is experiencing.

He claims Deliveroo is largely to blame.

“This a copy of our latest invoice from April 7th,” he said.

“Deliveroo encourages us to discount to win more business... We offer the customer a 20 per cent discount on the total of $220 ($44), yet Deliveroo still charges us 30 per cent plus 10 per cent GST for their commission on the full amount before discount.

“We end up with $103.40 but still have to pay the Government GST on the sale, leaving us with $94, Deliveroo end(s) up with $66 plus whatever the customer paid for the delivery.

“So Deliveroo's commission now jumps to 41.25% plus a deliver fee!”

“It screwed me.”



Mr Kasteel encourages people to buy direct from local businesses to avoid the commission fee.

“This is the reason we all need to campaign our customers for support #savehospitality #supportlocal,” he said.

“Convincing our customers to purchase directly means nearly all the money goes back into our venues and supporting wages.

“In simple terms, the question should be asked – in light of what’s happening why aren't they (delivery services) adjusting their percentages down?” he added.

PIVOTING

Mr Kasteel, who has run his restaurant Miss Kuku for 15 years, knew he had to make some drastic changes to survive after government restrictions were announced.

“We pivoted,” he said, to use the new buzzword of the area.

“We’ve got wholesalers, so I went to see if we could make some money out of selling basic grocery items.

“We got toilet paper and we sourced hand sanitiser. We’re trying to sell pasta and other basic stuff like everyone else.”

On Miss Kuku’s website, it says: “As well as wine and beer, there are weekly cocktail specials like Negroni’s and Espresso Martini’s, and an expanding range of groceries including pasta, cereal, milk, eggs, and toilet paper.”

Ever the businessman, Mr Kasteel was hoping the promise of groceries would make more customers “pass through” Miss Kuku, who might then buy some of the restaurant’s meals for takeaway as well.

“We’re not even doing it to make money, we’re just trying to get them to buy our normal food,” he said.

His restaurant Miss Kuku is not the only one in the area selling grocery staples – Ladro Italian, Lucky Penny Café, LaManna & Sons Delivery and Alison’s Corner Shop have also converted their eateries into grocery stores for the first time ever.

“All of a sudden these guys pop up a Deliveroo Essential store,” Mr Kasteel said.

RESTAURANTS STRUGGLING TO SURVIVE

Speaking on the phone to Mr Kasteel at 2pm after the lunch rush, he said that his business was dying.

“We’ve had one order today for lunch,” he said. “Right now, I'm sitting here thinking I'm not going to survive.

“We need 200 orders a week just to survive, to maintain a pulse.”

In his desperation, he even created a private Facebook event – begging friends and regular customers to come visit his business.

Before the coronavirus pandemic, home delivery services made up 1 per cent of profit for Mr Kasteel’s business.

“We just tried to sell home delivery to make a bit more revenue,” Mr Kasteel said.

“All of a sudden you find yourself (in this situation) where that's your only source of income.”

Mr Kasteel doesn’t know how he’s going to pay his mortgage with his restaurant on its last legs.

WHAT YOU CAN DO

President of the Chapel Street Precinct Association (CSPA), Justin O’Donnell, has encouraged people to support local businesses rather than giants like Deliveroo.

“The best way to avoid the delivery giants’ 35 per cent commissions and support your favourite local restaurants and cafes is to call them direct and collect,” he said.

“By ordering direct you will be helping our businesses make it through and retain the staff you’ve come to know and love.”

In a statement, Deliveroo said: “The commission rate is scaled according to the degree of service and support that Deliveroo provides its restaurant partners for each order type.

“Deliveroo is working hard to provide restaurants with another method to stay in business during this difficult time when venues aren't allowed to welcome in-store diners.”

Are you a struggling hospitality worker? Continue the conversation @AlexTurnerCohen or alex.turner-cohen@news.com.au