Regulating the Unregulated

A new California law makes delivery companies go partner-only, and they're not mad.

California Governor Gavin Newsom signed a new law last week that requires third-party delivery platforms to list only partner restaurants on its apps. Beginning January 1, the companies may only list restaurants who have explicitly signed on to work with these services.

An earlier version of the bill was written to require third-party delivery platforms to share customer information with restaurants; it was since rewritten with this simpler language requiring an agreement. The outcome is essentially the same: restaurants have control of the channels through which they appear in California. No more scraping the internet for restaurants and menus to add to the service without explicit permission from the business. (What if Yelp was required to do this?!)

Some third-party delivery companies have already said they’ll comply with the new regulation. DoorDash and Grubhub have both publicly agreed — an Uber Eats representative didn’t immediately return my request for comment today. But they’ll all likely comply because, while non-partnered restaurants might be good for growth, they’re bad for the bottom line. Delivery companies make more money from partnered restaurants. Plus, the consumer usually pays less in delivery fees, something delivery companies have said increases the amount of orders they receive.

Had this directive come down a year earlier, it would be a different story, since third-party delivery companies used this tactic to grow. Obviously a lot has changed recently, but really, these companies are now mature enough to stop venture capital-fueled growth at all costs. (Plus the last of the large companies, DoorDash, is set to IPO this year.)

In a statement, Grubhub said it welcomes the change in order to “level the playing field.” This is presumably because Grubhub did not employ the tactic of adding non-partnered restaurants until 2019. When it did, CEO Matt Maloney said it was necessary for growth and competition. This move was panned by critics for angering restaurants, especially after Covid. But I suspect it was also the first time that many people — the dining public, maybe state legislators — realized that the newer third-party delivery companies had been employing this tactic for years. Intentional or unintended consequence?

Answer: it doesn’t matter, because the pandemic has only encouraged restaurants to sign up for delivery services.

“I think our investments in the sales force and with that restaurant team that we built up toward the end of last year and through kind of January and February put us in a place to convert a lot of leads to live partner restaurants,” Grubhub CEO Matt Maloney said on a company earnings call earlier this year. “I mean, at one point, we had so many inbound leads that we weren't making outbound calls.”

Of course, January 1 is still months away, giving big delivery the entire fourth quarter of the year to convert non-partnered restaurants to partnered ones. I’ve seen no word from other states about adopting similar legislation, but I expect it’ll come.

Fun fact: the California Assemblywoman who introduced this legislation is also behind AB5, the bill that required companies like Uber and DoorDash to reclassify its drivers as employees. That should have happened, by law, at the beginning of 2020, but instead companies have spent tens if not hundreds of millions of dollars fighting the measure. Proposition 22, which would exempt Uber, DoorDash, et al. from the law intended to target companies like Uber and DoorDash.


What else is happening?

OpenTable’s New CEO on Leading Through a Pandemic

Wednesday self-promotion! My interview with OpenTable’s new CEO is on Business Insider. It’s not the first, but among the first interviews of her new role, and a good sense of where things stand at one of the restaurant-tech OGs. We talked through the speed at which OpenTable is launching new products — not historically something it was known for but in my estimate something that will continue. We laughed as our respective children screamed in the background, talking through what it’s like to lead a large company through challenging working conditions. And I’ve heard from some OpenTable employees that they’re happy to continue to see female leadership at the company. [Link is subscription only.]

Another Peek Into Postmates

In August, Uber CEO Dara Khosrowshahi announced that Postmates had achieved a $4 billion annualized gross bookings run rate in Q2. (Run rate is a tricky metric, but does display potential.) In a new filing, Uber says Postmates had $160.8 million in revenue in the same time period, more than doubling year over year.

Tech Highlights Black-Owned Restaurants. Is It Helping?

In the midst of the George Floyd protests in June, third-party delivery companies quickly moved to highlight Black-owned restaurants. Protocol has a good look at how those efforts have gone, and speaks to owners who say that the companies aren’t doing enough to address their concerns.


About:

Expedite is produced by Kristen Hawley, a San Francisco-based journalist with over six years of experience covering the restaurant technology industry. Contact her at kristen@kristenhawley.com.