Fee caps are here. Will they work?

Delivery companies say no, legislators clearly think yes

Hi! Expedite is taking a break next week and will return on Wednesday, July 14. Happy summer!


Last week, San Francisco became the first U.S. city to advance a permanent cap on fees restaurants pay to delivery companies. San Francisco City Council voted unanimously to pass the measure, which will soon be signed by the city’s mayor. It caps commissions at 15 percent, but leaves a yet-to-be-determined carve-out for large companies to charge more for marketing. In an Eater piece, Golden Gate Restaurant Association executive director Laurie Thomas called the additional marketing fees “kind of a give,” but as a business owner, she said, she has no problem with the structure. 

The move was expected, and is likely to be replicated in cities across the country. DoorDash, Uber Eats, and Grubhub have historically spoken out against these regulatory caps, saying that they’ll actually cause prices to go up, shifting a higher percentage of the cost of delivery onto the consumer. This, in turn, will result in fewer orders. Fewer orders, that is, through these third party channels. In an April blog post, DoorDash explained its position: price controls limit a restaurant’s ability to market itself and pay for what it needs, the post said. It detailed three U.S. markets that saw single-digit reductions in order volume after DoorDash added an additional consumer fee to offset the caps. 

But it’s not as if these companies were doing great business without regulation. They regularly lose money, even if parts of the businesses — as people love to point out to me on the internet — are profitable. 

Fee caps are an example of government overreach, say detractors of the regulation. Jason Droege, a longtime Uber executive who helped launch and scale Uber Eats (but has since left the company) said on Twitter that the San Francisco legislation would “[protect] consumers permanently from lower prices.” That is: restaurants are free to adjust their business by raising prices for delivery to make the services work — plus, competition in the U.S. market is enough to regulate prices without regulation from on high. 

Large delivery companies almost certainly have plans to hedge against legislation. In an announcement this spring, DoorDash introduced a new pricing model that seemingly complies with San Francisco’s legislation — restaurants who wish to be listed on the app pay commission rates starting at 15 percent, a “basic” plan that also includes a limited delivery radius. The new pricing structure was not introduced as a result of any legislation, according to DoorDash chief operating officer Christopher Payne, but as a result of DoorDash listening to restaurants. But by allowing — encouraging? — restaurants to pay more for certain marketing services, DoorDash might be able to make up some of the difference. As I wrote for Eater weeks ago, the company has been clear that a basic plan might not be enough for some businesses who want to use third-party delivery to grow. As the business continues to evolve amid government regulation, restaurants will need to make a decision whether to use third-party services to grow and support their businesses. It’s clear that there’s a significant investment necessary to thrive on these platforms — one that’s worth it for plenty of businesses — but attempting to shoehorn everyone into one bracket under one set of pricing controls could honestly have opposite the intended effect. 


Room service by Grubhub

Speaking of big-delivery-for-big-businesses, Grubhub signed a deal with Las Vegas’s newest resort, Resorts World. The newly opened property features 40 different food and beverage concepts, and guests are encouraged to order food through Grubhub — in their rooms, at the pool. A press release calls it “the first of its kind” but, as any journalist who has been burned by an unchecked use of the word “first” will tell you (ahem), be skeptical! (In all likelihood, the “first” here refers to the first hotel/casino combo, this is splitting hairs, my favorite pastime.)

In 2016, my former colleague Deanna Ting reported on a partnership between Grubhub and Hyatt Centric, a line of full service hotels. Hotel staff were tasked with creating lists of local restaurants on Grubhub, and hotel guests were prompted to order through the Grubhub app or by calling the front desk to facilitate delivery. (Food could only be charged to the room by calling.) Five years later, the new Las Vegas partnership is significantly more developed. Guests can add Grubhub restaurant charges to their room bill. 

I find the use of Grubhub here to be a little puzzling given all of the first-party and white labeled ordering technology. Why inject another consumer brand into the entire operation when you have a captive audience of resort guests trained by the last year to scan QR codes to read digital menus and place orders from their phones? Really, I’m asking. 


Down with Domino’s 

Slice founder Ilir Sela keeps no secrets about his mission to unseat Domino’s as the most successful pizza purveyor online; the digitally focused chain shows up in most of the company’s press releases and blog posts. The latest is no exception, as Slice formally launches payments and delivery management. “Slice Register is the mPOS (mobile point of sale) system that enables independent pizzerias to compete with the likes of Domino’s,” it reads. 

The company’s goal is to arm independent pizzerias with the same tech tools the big chains use and customers have come to expect. By focusing exclusively on small pizzerias, Slice can build tools tailored exactly to their needs, keeping pizza delivery a category all its own. 


What else is happening? 

What do the Jonas Brothers, Steve Aoki and Kevin Hart have in common? They’re all investors in Snackpass, a social e-commerce platform for restaurants that just announced a $70 million Series B funding round. The startup is not trying to enter an already crowded delivery market; consumers order through the app and then retrieve the food themselves. They also benefit from a loyalty program that has traditional perks but is also somewhat of a social network hybrid; users can check out what their friends are ordering and also send them gifts of points and food. So, it’s not surprising that most of Snackpass’s 500,000 users are college students. The company has an impressive 80 percent adoption rate when it enters a new campus. Snackpass plans to expand by following students to common post-grad destinations. 

-Danielle Hyams


It turns out that pizza robots are to cyclists what bicyclists are to drivers: a nuisance. The launch of 10 semi-autonomous pizza-delivery machines in Central Austin has irritated cyclists. The battle is ongoing.

-DH 


Another day, another “distributed kitchen” fundraise. The virtual food hall started by ex-DoorDash employees has raised $25 million to expand beyond San Francisco. The company licenses menus from local restaurants and offers customers the ability to order from multiple brands in one order with all food coming from the same facility.


Is it staffing or is it tech? A short piece in Wednesday’s Wall Street Journal talks about the trend of full service restaurants turning to ordering and payment tech. The so-called labor shortage in restaurants is a convenient backdrop for this story, but mind this paragraph: “Fast-food restaurants have been supplementing servers and cashiers with self-serve kiosks for about a decade, in a bid to bump up profit margins and keep the ordering process speedy.” 


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