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Caps have been introduced by cities in an attempt to protect a restaurant industry being price-gouged at a time when delivery is really the only option for making sales.

Photo: Bloomberg via Getty Images
A Grubhub delivery rider
Power

Delivery companies are fighting city commission caps. Does anybody win?

Uber tacked on fees and Postmates organized petitions to push back against delivery fee limits.

On May 7, Jersey City capped delivery app fees charged to restarurants at 10%, instead of the typical 15% to 30% many such platforms take. The next day, Uber Eats added a $3 delivery fee to local orders for customers and reduced the delivery radius of Jersey City's restaurants.

Now, fewer people are ordering from the restaurants via Uber Eats and instead are shifting to other platforms, the company and the town's mayor both confirmed to Protocol.

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That example illustrates a core argument that food delivery companies like Uber, Grubhub, Postmates and DoorDash are all increasingly using to fight back against such caps, introduced by cities to protect a restaurant industry being price-gouged at a time when delivery is really the only option for making sales. Limits on commissions like the one imposed by Jersey City, delivery companies argue, will likely result in higher fees being passed along to the consumer, which could in turn generate lower demand for the restaurants and less work for gig economy drivers, a job laid off employees are turning to.

The real pain could come if other delivery companies feel they have little choice but to follow Uber Eats. "The bottom line is it's just going to hurt everybody," said Postmates board member and Spark Capital investor Nabeel Hyatt.

Jersey City is not alone in introducing a cap. San Francisco first introduced such a cap via an emergency executive order, and it has sparked a chain reaction throughout North America as cities including Seattle, New York and Washington, D.C., have passed similar limits. Chicago, Los Angeles and Boston are also reported to be considering a crackdown.

Inside the delivery companies, the sudden rash of executive orders has sent policy teams scrambling to defend their positions. Rather than a normal legislative process, most of these caps have come through emergency orders, and any negotiating or lobbying is having to take place over Zoom and far faster than usual — or often after the fact.

And in Uber's case, it's not just lobbying. In San Francisco, it cut off delivery to a neighborhood. In Jersey City, it's fighting back with surcharges.

"We support efforts to help the hospitality industry, which is why we've focused the majority of our efforts on driving demand to independent local restaurants, which we know is a key concern of our partners during these unprecedented times," an Uber spokesperson said. "Regulating the commissions that fund our marketplace — particularly during these unprecedented times — would force us to radically alter the way we do business, set a far-reaching precedent in a highly competitive market, and could ultimately hurt those that we're trying to help the most: customers, small businesses and delivery people."

Jersey City Mayor Steven Fulop told Protocol that he was "not surprised that Uber responded by putting a surcharge" on deliveries. "Uber's entire culture of a company is based on taking advantage of working families, taking advantage of their drivers, exploiting their workers and then discarding them with layoffs like trash as soon as the waters get a little rocky," he said.

He had, after all, gone through a similar ordeal last year with Airbnb, which pushed back after the city imposed stricter regulations on the short-term rental company. Despite Airbnb spending millions, residents still voted in favor of stricter regulations, a victory for Fulop and Jersey City over the tech industry. "I share that with you because we have no intentions of backing down from the policy put in place here, either," Fulop said.

When it came to this executive order, he said the city focused first and foremost on talking with restaurants and then looked at the West Coast cities that had passed their own orders to determine a reasonable action. The city's interaction with the tech companies beforehand was admittedly limited, but Fulop did email Uber after it instituted its fee and reached out to customers.

"Our priority wasn't to figure what works for Uber Eats," he said. "Our priority was to figure out what works for the restaurant industry. That's our focus. We're not going to try and negotiate with the company that's trying to exploit our restaurants."

That leaves other delivery companies fighting a rearguard action, trying to find a middle ground before they're also forced to take similar steps.

Grubhub's CEO Matt Maloney already said in the company's earnings call on May 7 that the company had seen a 10% decrease in orders to local restaurants in San Francisco as a result of the commission cap and subsequently raised fees. "That is not good for small businesses and even worse, these lost orders also result in lost wages and tips for our delivery drivers," Maloney said at the time. The company has continued to push back against other cities through its policy team. In a letter sent Monday to Chicago politicians, Grubhub head of policy Amy Healy wrote that the caps result in "damaging, unintended consequences" for businesses, customers and delivery drivers. "And we believe that any cap on fees represents an overstep by local officials and will not withstand a legal challenge," she added.

So far, DoorDash and Postmates have not raised fees, but are leaving the option on the table.

At the core of DoorDash's lobbying arguments are the unintended side effects of artificially limiting one side of the marketplace. While the caps do help restaurant margins, they also mean less money for the delivery platforms, which still have to pay delivery drivers. All of the platforms make money through a combination of customer service fees and restaurant commissions, so when the commission fees are capped, companies like DoorDash are forced to evaluate how they will recoup the difference, either through more consumer fees or cutting driver pay or both. Already, DoorDash had cut some of its commissions as a measure to help local restaurants that were signing up during the crisis.

"DoorDash's top priorities are the physical and economic health of our community, and we're disappointed that, in the midst of this crisis and when food delivery is more essential than ever, we've seen arbitrary caps imposed that can have the unintended consequence of reducing sales for restaurants when they in fact need them most," a DoorDash spokesperson said. The company, which has tried to engage with Jersey City's council, said that it is "looking forward to working with Mayor Fulop and other elected officials" so it can continue to offer affordable delivery services.

Postmates, on the other hand, is advocating that cities institute a per-order fee or percentage instead of a rate cap, and put the money toward a longer-term restaurant relief fund — a surcharge that it estimates could generate $7 million to $10 million a month for restaurants in Los Angeles alone. In anticipation of an upcoming vote on Wednesday in Los Angeles, where Postmates is the dominant delivery service, the company created a widget so that its driver fleet could easily send letters to the city council; nearly 17,000 letters have been submitted in the last two weeks, the company said. Postmates also helped facilitate a petition from more than 20 restaurants that, in a rare move, wrote in to oppose the delivery caps. (Overall, many restaurants have been supportive of the efforts to cap delivery commissions, a position that garnered public support after a Grubhub receipt went viral.)

"The blunt force of rate setting pits on-demand delivery apps and our local brick-and-mortar business partners with the unintended consequences of increasing customer costs, reducing restaurant orders and services, harming worker pay, thus shrinking city tax revenues," a Postmates spokesperson said. "As a durable, longer-term alternative, Postmates has been working with lawmakers, community leaders, restaurants and public unions to explore a 'restaurant resiliency fund,' which would enable local restaurants to keep their lights on, cover commercial rents, and ensure workers continue to be paid with a per-transaction surcharge that would raise $7 million to $10 million month over month for restaurants and workers in cities like LA."

So far, commission caps across the country are temporary, but there's also concern that they could become permanent, particularly if the proposed Uber Eats and Grubhub merger goes through — especially considering that the merger has already caught the attention of lawmakers. "We believe it is unlikely that these fees caps are eliminated anytime soon, and especially if both companies merge," BTIG analyst Peter Saleh wrote in a note to clients last week.

Meanwhile, in Jersey City, Fulop is satisfied with the outcome so far. Orders on Uber Eats have gone down, he said, but for now customers have switched to other delivery platforms that aren't yet adding a surcharge. Anecdotally, one restaurant he spoke to is seeing the same amount of volume as before just with better margins, which is exactly what Fulop wanted for his restaurant businesses.

And when in doubt, he's still advising constituents to take a low-tech approach to helping local restaurants: Order from the restaurants directly, and bypass the delivery companies altogether.

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