Restaurants push for regulations on food delivery apps like Grubhub, DoorDash
But tech companies are pushing back
Local restaurant owners say national third-party delivery app companies charge them exorbitant fees — upwards of a 30% commission — that cut deep into their already thin profit margins. (Photo by Chris Yarzab via Flickr, CC BY 2.0)
Throughout this pandemic, many hungry consumers have embraced food delivery services like Grubhub, DoorDash and Postmates as a way to stay at home safe while still supporting their favorite local restaurants. But some restaurants say the reality is far less appetizing.
Restaurateurs say these third-party food delivery companies often charge them exorbitant fees that cut deeply into their profits, partake in shady practices in an attempt to force them into partnerships, and hurt their reputation by providing bad service that consumers incorrectly associate with the restaurant. They’ve been lobbying state and local lawmakers to take steps to rein in practices they say are hurting the restaurant industry.
A proposed bill in the Nevada Legislature is attempting to set some boundaries and bring transparency to the relatively new industry, but heavy lobbying from the tech companies behind the popular food delivery apps is resulting in substantial compromises.
Senate Bill 320 passed the Senate unanimously on April 20. An amended version is now being considered by the Assembly Committee on Commerce and Labor, which held its first hearing for the bill on Friday. The bill would put a cap on the commission percentage that third-party delivery companies are allowed to charge a restaurant. But that cap would only apply if there is a declared state of emergency that affects restaurants’ ability to operate normally.
“If no pandemic, if no social distancing is in play, (the cap) is not in play,” said state Sen. Dina Neal (D-North Las Vegas), the bill sponsor. “The argument was made (that) it’s a free market, you can’t limit a free market, so we’re not willing to allow this to go into perpetuity.”
Neal said lobbyists had successfully convinced enough lawmakers to reject the bill if it includes any sort of ongoing, post-pandemic fee cap.
“(This) is the only way we will be able to successfully get a vote on this bill,” she added.
In August, Clark County Commission passed an emergency ordinance to cap the delivery fees charged by third-party delivery services at 15% during the pandemic. The Commission revisited the ordinance months later after learning Grubhub was skirting the spirit of their ordinance by charging restaurants a separate 15% “marketing” fee in addition to their delivery fee. In November, commissioners amended the ordinance cap to include both delivery and marketing fees.
Similar delivery commission caps have been implemented in dozens of jurisdictions across the country and in several states.
The latest conceptual amendment to the proposed statewide bill in Nevada mirrors Clark County’s 15% cap. It excludes any charges for opt-in marketing, subscriptions or promotions services. It also clarifies that the bill applies only to third-party food delivery companies and not businesses like TaskRabbit, an online platform where people can pay others to complete errands, including delivering food. The Ikea-owned company reached out that concern, according to Neal.
SB320 also addresses some specific practices within the food delivery service world, including issues involving intellectual property rights violations and “menu stealing” — where a company puts up a restaurant’s menu and information and takes orders without having permission from the restaurant to do so.
Alexandria Dazlich of the Nevada Restaurant Association said third-party delivery companies are often uploading incomplete or outdated information as many restaurants have changed their hours of operation or pared down their menu as part of adapting to the pandemic. When orders are affected, customers blame the restaurant, not realizing the problem arose from the third-party app not securing the right information.
“It was an issue before the pandemic,” she added, “but it’s now exacerbated.”
Assemblywoman Melissa Hardy (R-Henderson) said she was grateful for the bill, noting her own experience as a franchise owner of a Port of Subs who hadn’t signed any agreement with food delivery companies but still saw delivery workers picking up orders.
“We had to deal with our corporate office (saying) ‘you got a bad review on Yelp,’” she said, referencing the online restaurant review website. “It wasn’t because of us. It was a (delivery) service.”
SB320 would also require delivery services to include a statement on their order confirmation or receipt informing consumers that restaurants are being charged a commission fee for the order. That provision, too, is a compromise. The original language of the bill would have required the delivery services to disclose what the commission percentage was, but delivery services argued that information was proprietary and sensitive. Restaurant owners say it can be upwards of 30%.
Dazlich said the statement is meant to educate consumers, many of whom don’t understand the nature of the financial relationship between customers, the delivery service and the restaurant. They may incorrectly assume the delivery fee they are charged is the extent of it.
“There’s an overall lack of understanding, a lack of clarity, a lack of transparency,” she added.
Delivery services have boomed during the pandemic. DoorDash, Grubhub, Uber Eats and Postmates raked in $5.5 billion in combined revenue from April through September last year, according to Marketwatch. That’s more than twice what they brought in during that same period in 2019.
Grubhub, the delivery company identified by Clark County Commissioners as being particularly problematic, reported $504 million in revenue for the fourth quarter of 2020 — a 48% year-over-year increase.
In addition to being criticized for taking advantage of the pandemic’s impact on restaurants, delivery companies have taken heat for their working conditions. The people delivering food for these companies are independent contractors –aka “gig workers” — and not subject to minimum wage, overtime, health insurance or other benefits provided to employees. Drivers have shared stories of making the equivalent of $2 per hour and peeing in Gatorade bottles when no public bathrooms are available.
Hash House A Go Go co-0wner Jeff Trent, who testified in support of SB320, told lawmakers there are also legal liability concerns related to food safety issues that may arise as part of the delivery process.
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