The Lawsuits

Regulators are taking aim at big delivery, but the companies aren't going quietly.

Short term regulation is unpredictable, according to Uber CEO Dara Khosrowshahi. During a Tuesday Goldman Sachs conference, he addressed fee caps and other legislation aimed to rein large delivery companies. “Long term regulation is smart,” he said; it follows common sense. 

Khosrowshahi was referring to passed legislation in two U.S. cities that caps the amount of money delivery companies like Uber Eats can charge restaurants on the platform. Uber is involved in at least one lawsuit over the caps, joining competitors DoorDash and Grubhub in a rare moment of solidarity to sue New York City over new regulations. Philadelphia has signaled it could be the next city to make fee caps permanent. A current emergency order in the city caps commissions at 15 percent. 

If it wasn’t clear already, large third-party delivery companies are looking to litigation to protect their business models. “We will challenge the commission caps in court,” Khosrowshahi said. “We don’t think the government should be setting prices between businesses, it makes no sense.” 

Fee caps cost Uber tens of millions of dollars per quarter. 

As I’ve addressed in this newsletter (many times) before, a defense through legal strategy is hardly surprising. You’ll remember the companies’ involvement in California’s Proposition 22 which exempts certain gig economy companies from classifying drivers and couriers as employees. Had the ballot measure failed, the companies’ business model would take a huge hit. So big, in fact, Uber threatened to pull out of California if voters didn’t pass the measure. 

The money, the threats, the advertising worked and 22 was made law. (Recently, a California judge deemed it unconstitutional, but it remains in place pending legal appeal.)

Commission caps aren’t the only regulation these companies are challenging.

Last week, DoorDash sued New York City again, this time for its new law requiring delivery services to share customer information with restaurants. This has long been a challenge for restaurants, but became especially pronounced during the pandemic. As it works now, the customers belong to the delivery company, not the restaurant. When you order via DoorDash marketplace, you are a DoorDash customer, even though the restaurant is proving the goods. DoorDash provides the service, you see, and for that it deserves to know who you are and what you order. The restaurant doesn’t; it’s merely a fulfillment channel for delivery’s business. (Important to note here that all the major third-party delivery companies offer direct ordering storefronts for restaurants to implement. Of course, plenty of consumers are already conditioned to opening big-name apps to get food

If it feels like you’ve read this story a hundred times, that’s because I’ve written it just as many. But the fact that this remains such a core part of 3pd (that’s third-party delivery)’s business model that companies would sue over the right to keep it in place tells you the threat it might pose. 

Recent data from Second Measure shows DoorDash capturing 57 percent of the share of domestic delivery sales in August. It’s continued to grow, recently announcing alcohol delivery and introducing Goldbelly-like national shipping from certain restaurants. As I wrote in a recent piece for the San Francisco Chronicle, DoorDash is making itself indispensable to restaurants that want to grow in an era of digital convenience. 

Of course, there’s the question of where all of this litigation leaves the restaurants that have come to rely on the platform for some business.

Eater ran a scathing critique of DoorDash’s recent lawsuit, comparing the company to a parasite who cares only about its host’s wellbeing for its own survival. I dislike the parasite comparison, but only on specific grounds. 

Like them or hate them, third-party delivery services are providing a service. The basic service, delivery logistics, is one that plenty of restaurants can’t or would prefer to not offer on their own. The problem, though, is that historically the true cost of a delivery has been heavily subsidized by venture capital dollars, hooking consumers on convenience in the name of growth without attaching an appropriate price tag.

 The other service, marketing and discovery — that is, getting consumer eyes onto a restaurant listing — feels a little trickier to quantify with a price tag. There’s certainly value in the exposure of being included on a large delivery app that spends tons of cash marketing itself to consumers. But something feels fuzzy thinking about apps that have created this modern culture of convenience only to insist that they and they alone can help restaurants navigate it. 

The assumption here, of course, is that a commission model is the only way to make a delivery model work. Of course, this marketplace model is not the only way — even if it is the most popular. ChowNow, a Los Angeles-based tech company, has been offering direct ordering functionality for years — an anti-Grubhub of sorts. It charges restaurants a monthly fee to accept orders for takeout and delivery, no commission required. And Toast — a point of sale system that is, of this moment, worth roughly $30 billion in its first day of trading on the public market (Roughly $60 per share at the moment, up from a $40 starting price, which was up from an original expected range in the low $30s.) — offers easy direct ordering via a dedicated website or mobile app that’s easy for restaurants who already use Toast to integrate. (And there are many, many others.)

The difference is that ordering directly, at least for now, means more work for the customer. Third-party delivery companies argue that any friction — fees, increased regulation, data privacy concerns, reduced consumer marketing — will mean fewer diners on the platforms who order less often, in turn hurting restaurants. Right now, it’s up to the consumer to seek out alternatives.

What recent lawsuits have made clear, though, is that large companies are disinterested in challenges to their business model. I’m confident there will be more suits to come (Uber’s CEO indicated as much!) and pretty confident that delivery companies will come out on the winning end of most of them. It’s almost a classic don’t-hate-the-player-hate-the-game situation, except the big delivery companies have already set the rules in their favor. 


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What else is happening? 

Bank of America’s CEO declared the business “a subscription business.” … In case you were wondering how many more content and/or lifestyle brands and companies will get bought by banks. This happened at a company conference


Toast IPO’d on Wednesday. It set a price of $40 Tuesday evening, but debuted with a price in the $60s. (I’m old enough to remember the company’s first billion dollar valuation. We all are, even my toddler!)


More required reading to humanize food delivery. In the New Yorker, a search for the delivery worker who went viral in a video that showed him wading across a flooded street during Hurricane Ida’s surge in Brooklyn. I won’t summarize it — just read it. 


Uber Eats takes on Google Maps. A just-released feature from Uber lets hungry app users quickly find food for pickup with a map function similar to Google Maps. One difference: instead of pins, the restaurant locations will be marked by food emojis. You can search by emoji, too. 


Sunday raised $100 million. The announcement comes not too long after Sunday announced its seed round (of $24 million!) to create a digital checkout system for physical restaurants. It involves a QR code. Sunday’s founders are also restaurant industry veterans in Europe, and according to the company over a million people have already used Sunday in 1,500 restaurants worldwide.


Chick-fil-A goes virtual: The chain is debuting its new delivery kitchen concept, Little Blue Menu, at a pilot location in Nashville this fall, with a location in Atlanta set to open next year. In addition to Chick-fil-A menu items, customers can order from virtual restaurants Flock & Farm, Garden Day, and Outfox Wings. The company will employ its own delivery fleet (at $11 per hour plus 100 percent of tips) who deliver food in hybrid electric cars. And delivery might be a good option: According to a drive-thru study from QSR, Chick-fil-A ranks lowest in speed of service, with an average drive-thru time of roughly nine minutes (KFC had the shortest average time, about four-and-a-half minutes). In other news, Chick-fil-A named a new CEO: Andrew Truett Cathy will assume the role from his father, Dan T. Cathy, on Nov. 1.

- Danielle Hyams


A virtual concept drums up interest with… an IRL food truck. George Lopez Tacos is a Nextbite-created virtual brand backed by the actor and comedian. But its latest move is very much not virtual: a food truck in Denver will offer menu items from the concept, conveniently timed to Lopez’s comedy show performances in the area. (Also the tacos are free.) Guests also receive Uber Eats discounts to order tacos at home — you know, the real way to interact with a virtual brand.


The subscription boom continues. Pret A Manger has introduced a subscription plan in New York City and Washington D.C. locations following a successful subscription launch in the U.K. For a monthly fee, subscribers can order up to five drinks per day. At $19.99 per month, Pret’s classic plan includes all organic coffees and teas with a flavored syrup add-on, while the premium plan $29.00 per month also includes espresso-based, barista-made drinks.

-DH


What “Uberization” means for the hospitality industry: Eater London writes about the growing gig economy for temporary restaurant shifts and what implications that has for hospitality work, already traditionally undervalued. Companies like Stint, which connects students to open positions during peak periods — about two to three hours each day — have been multiplying exponentially, trying to address the labor shortage created by Brexit and the pandemic. This, Eater writes, “encourages businesses to cut costs by doubling down on the use of precarious work, which is low-paid, insecure and unpredictable. An already difficult way to make a living, rife with erratic working patterns, night shifts, and zero-hour contracts, which allow employers to take on staff members without guaranteeing them minimum working hours, risks being made less secure still.”

-DH