Cost Reduction

Delivery App : California AB 286 and the Chicago Lawsuit

The battle between cities and food delivery platforms is heating up this week. This week, California Governor Gavin Newsom will be deliberating AB 286, which will require food delivery platforms to provide a transparent, itemized cost breakdown for both consumers and restaurant owners. The law also requires all tips go to the driver. 

Chicago Lawsuits

Chicago has filed twin lawsuits against DoorDash, claiming that the app charged users a $1.50 “Chicago Fee”. City lawsuits against delivery apps aren’t new. Cities like San Francisco, Washington D.C., and New York City have also filed lawsuits against excessive delivery fees during the pandemic and even moved to establish permanent fee caps. The Pennsylvania state legislature is also currently debating House Bill 1617, which would limit delivery fees to 10% and prohibit apps from adding restaurants to the platform without permission. 

Delivery Platforms Respond

The delivery platforms have retaliated at every turn. From filing their own lawsuits against cities like San Francisco, or as of yesterday, New York, apps like Uber Eats, DoorDash, and Grubhub band together to fight against the fee caps and other price controls that “don’t work” and are “unconstitutional.” 

Independent restaurant owners have been lodging complaints against delivery app platforms for years. From adding restaurants to the platform without consent to the ever-increasing commission fees, delivery platforms have been profiting off of small businesses ever since they became a popular form of ordering in the late 2000s. While national chains are able to eat the cost of delivery apps due to scale—keeping a larger percentage of the revenue per order—smaller businesses cannot. 

Grubhub, DoorDash, Uber Eats, and Postmates control 99% of the restaurant delivery app market. While the restaurant industry continues its struggle for stability, MarketWatch reported that these companies doubled their summer quarter earnings in 2020 compared to 2019. 

Delivery Competition

Smaller food delivery startups are looking to break into that oligopoly, appealing to restaurant owners with lower commission rates. Toast TakeOut relies on pick up and doesn’t charge additional software fees for existing customers. Black and Mobile delivers exclusively for Black-owned restaurants and charges 15-20% per order compared to the industry standard 20-30%, and is currently available in Atlanta, Baltimore, New York and Philadelphia. Fast-growing startup Chowbus specializes in local Asian cuisine with an average 20% model that focuses on using digital-savvy outreach to cultural communities. Brooklyn-based Traiilo brands itself as the go-to same-day delivery service for Latin food, groceries, and alcohol. 

For some restaurant owners, they’d rather take the middlemen out altogether. With thousands of dollars of revenue siphoned away by delivery app companies, restaurant owners with independent delivery capacity are imploring their customers to do it the old school way and order directly through phone. For others, especially those with limited foot traffic due to the pandemic, exposure to digital customers is the key to survival. 

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