Price Controls on Food Delivery Apps Don’t Make Sense

Ashley Johnson May 7, 2020
May 7, 2020

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During the COVID-19 crisis, apps like DoorDash, Grubhub, Uber Eats, and Postmates are helping restaurants stay afloat by alerting consumers to local restaurants that are open, facilitating online orders, and enabling meal deliveries while also providing an important lifeline to consumers who cannot leave their homes. Unfortunately, several cities have started passing laws to cap commissions on third-party delivery services, undermining these business models at a crucial time.

Unlike some apps which rely on advertising for revenue, food delivery apps make their money from delivery fees and commissions. With the restaurant industry under an immense amount of pressure and facing even thinner margins than usual, some cities have implemented or are considering measures that would limit these fees. San Francisco, Seattle, and Washington, D.C. have all capped commissions at 15 percent, either until shelter-in-place orders are lifted or until restaurants can once again offer dine-in service. Los Angeles and is also considering 15 percent commission limits, Chicago is considering capping delivery fees at 5 percent, and New York City was already considering a 10 percent commission limit before shelter-in-place orders went into effect.

Although the restaurant industry—like many others—is struggling during the pandemic, these price controls don’t make sense. The food delivery market is incredibly competitive. The top four apps—DoorDash, Grubhub, Uber Eats, and Postmates—vie for customers, subscribers, and partnerships, and a significant percentage of customers use more than one app. There are also many smaller competing apps, and many restaurants have their own online or telephone-based ordering systems or delivery services, more now than ever. Price regulation is unnecessary in such a competitive market.

If commissions are high, it’s because running a food delivery service isn’t as easy or cheap as it may look. Third-party delivery services need to develop and improve their apps. They must pay and certify their drivers, who have seen their hours decrease as restaurants close earlier and may have lost their side gigs as rideshare drivers with far fewer people using services like Uber and Lyft. They also have marketing costs, and many of these third-party delivery services have been providing financial support to restaurants in this time of need. Uber Eats has waived delivery fees for over 100,000 independent restaurants in the United States and Canada, Grubhub has deferred collection of over $100 million in commissions from independent restaurants, and DoorDash has rolled out a series of initiatives to provide restaurants with commission relief and marketing support.

In cities that put caps on the fees food delivery apps can charge restaurants, these apps may have to recoup their costs by charging consumers more to use their services. This would lead to fewer people ordering food from restaurants—cutting even further into restaurants’ bottom line—or to more people who are at high-risk deciding to physically go to restaurants to pick up their food to avoid fees, putting their health in greater danger than if they stayed home.

Local governments should avoid the temptation to solve the restaurant industry’s problems with counterproductive regulation. The COVID-19 pandemic has been devastating for restaurants, but imagine how much more devastating it would have been 10 years ago, when food delivery apps weren’t widespread and the infrastructure didn’t already exist for restaurants to safely get food to their customers. Food delivery apps are an important tool for enabling physical distancing and keeping people fed and restaurants in business during these uncertain times. Disrupting a competitive market that provides such an important service is, now more than ever, a bad idea.