Loco Launches New Food Delivery Option for Cedar Rapids Restaurants

CEDAR RAPIDS — It’s not as crazy as it may seem.

Loco, a new restaurant delivery service set to launch later this year, is trying to do what other third-party apps have failed to do: offer local, knowledgeable service that is still profitable for restaurant owners in a dining world that has been permanently changed by the pandemic.

A new app that draws investment and leadership exclusively from Cedar Rapids restaurant owners is hoping to make a second attempt to reduce the outsized power that big players like DoorDash, Grubhub and Uber Eats have over local restaurants. Its name, which works as a combination of the words “loyal” and “local” and also an acronym for “locally owned cooperative,” hopes to offer an alternative as big tech companies tighten their grip on market share.

“We’re all getting our asses kicked by the (other delivery apps) of the world,” said Steve Shriver, co-owner of Brewhemia in Cedar Rapids and chairman of the Loco board. “They’re taking up to 40 percent of our revenue through their platform and leaving the community.”

What makes Loco stand out

With plans to launch by the end of the year, Loco will start local and stay local. Investors must be local restaurant or retail owners, and profits will be returned to restaurants that use the app — whether they are investors or not.

Investors can get involved for as little as $500. The app is seeking to raise between $200,000 and $300,000 before launch.

The cooperative model, which President Jon Sewell has pioneered with other delivery brands like Chomp in Iowa City, has several advantages that strengthen its sustainability. The brand will never expand beyond the Cedar Rapids metro area.

“This service will be run the way a restaurant owner wants delivery to be run,” he said. “There are no retired restaurant owners in the DoorDash executive suite.”

Commissions on orders will be lower than the average charged by other apps. Most orders will be charged between 15 and 20 percent. Other apps have introduced lower commission rates in response to restaurant backlash, but they come with some limitations, Sewell said.

“If they offer a 15 percent commission, they will only deliver within a mile,” he said as an example.

Delivery drivers, who typically rely on tips, will earn more. All drivers will be guaranteed a minimum wage of $15 an hour, with the potential to earn much more.

Perhaps most importantly, local ownership will provide a service that resolves conflicts without harming the restaurant’s reputation or revenue. Quality control is a common complaint from restaurant owners who use outside vendors.

Restaurant owners will be able to maintain more control over the platform itself, as well as the transactions that take place on it.

Shriver said DoorDash recently threatened to demote Brewhemia in search results because of the discrepancy between DoorDash’s menu prices and those at restaurants. Restaurants often raise their menu prices by a nominal amount on delivery platforms to account for the additional fees and make their profit margins manageable.

“But in the same message, they offered me a lower commission if I signed an exclusive contract with them,” he said. “Their deception and marketing have so many levels, it’s scary.”

Investors see potential for Loco to have business-to-business applications beyond food delivery.

Permanently changed habits

In an industry where margins are thin and margins for error are slim, the relationship between restaurants and third-party delivery apps is complicated at best.

As restaurants face the need to adapt to pandemic threats, new customer habits and new challenges like labor shortages, the president and CEO of the Iowa Restaurant Association called delivery apps a “necessary evil” in 2021.

Early in their popularity, apps would post restaurant menus and logos on digital platforms without the restaurant’s consent. Once an order was placed, the app provider could buy food from the restaurant and deliver it without a direct transaction between the unwitting restaurant and the delivery customer.

Quality control was an issue in the days when there were fewer regulations and drivers could smoke, carry animals and charge other passengers while delivering food.

The Iowa legislation, which took effect in July 2022 thanks to lobbying by the Iowa Restaurant Association, has stopped most of the biggest complaints about misrepresentations and quality control. Since then, said the association’s CEO Jessica Dunker, tech companies have become more proactive in their relationships with restaurants.

However, the demand for supplies still exists even though the worst waves of the pandemic have passed.

“I wouldn’t call it a necessary evil anymore,” Dunker said. “It’s an operational reality that finds balance.”

In 2023, 65% of all restaurants in the country had a higher share of sales from delivery than in 2019, she said. That number is even higher for full-service restaurants, with 58% of them seeing higher demand.

Dunker said 31 percent of restaurant operators expect off-premise sales to increase next year. Another 55 percent expect sales to remain stable.

“This shows that the market has stabilized and that companies have a better understanding of how to integrate delivery strategies into their revenue models,” Dunker said.

The vast majority of restaurants offering delivery (70%) do so exclusively through third-party apps.

“What we’re seeing in the market as a whole is that third-party delivery is here to stay,” Dunker said. “The caliber and quality of food that people want in delivery has evolved beyond pizza and Chinese food.”

Why Chomp Left Cedar Rapids

Chomp, a very similar concept developed by Sewell in 2017, briefly served the Cedar Rapids market before withdrawing in August 2022. It continues to serve the Iowa City metropolitan area, where the platform first launched.

Chomp’s lack of traction in Cedar Rapids, even as it found success in Johnson County, came down to a lack of local interest. Initially, management hoped to simply expand its service area without creating a new entity.

“It did not belong to a Cedar Rapids restaurant,” Shriver said.

Although Chomp offered better commission rates and better local customer service, many Cedar Rapids restaurants treated it like other big-box services, Sewell said.

“It was hard to compete with (competitors’) marketing in that community. The carrot we were missing was equity and control over the product,” Sewell said. “That’s what we’re doing differently this time.”

At the local level

The reality of delivery demand has also hit many Cedar Rapids restaurant owners.

Justin Zehr, co-owner of the Fun Not Fancy restaurant group, which owns Linn County eateries such as Cliff’s Dive Bar, Sacred Cow, Taco Gato and The Hip-stir, said that in early 2020, delivery was the only way restaurants could survive. Now, they still generate too much business to ignore.

“It’s changed (our customers’) habits,” he said. “I don’t think it’s going away.”

Although his restaurants still pay commissions of 15 to 30 percent, their overall sales volume keeps them in the black.

“Even if your (commission rates) aren’t where you would like them to be, a sale is a sale,” he said.

Local ownership with Cedar Rapids investors could lower prices for restaurants and consumers—a win-win, he calls it. But he doesn’t expect Loco’s launch to cause a local decline for Silicon Valley-founded apps.

Zehr Restaurant Group, one of the largest local restaurants in Cedar Rapids, is one of several that have expressed interest in helping launch Loco. Others, like Kory Nanke’s Epic Catering Group, with locations including Crosby’s, Midtown Station and Midtown Reserve, have also expressed interest.

Loco has received verbal commitments from 60 restaurants so far. The company hopes to have 100 restaurants on board by launch in the last quarter of 2024.

“This is important. We need restaurant concentration to be relevant to the consumer,” Shriver said.

It will also be important to ensure there is a balance between restaurants — both popular independents and those offering a variety of cuisines — Sewell said.

“If someone wants Thai food, we have to have one or two Thai restaurants,” he said.

Comments: Reporter Elijah Decious can be reached at (319) 398-8340 or [email protected].