The litigious future of third-party delivery
Anyone else feel like we're driving in circles?
Another week, another story about lawsuits and regulations in third-party delivery. The courts continue to slowly poke at the industry’s business model as a flurry of laws, regulations, and lawsuits make their way through the system. As a whole, the efforts to regulate the big business of third-party delivery by targeting individual — but vital — parts of their businesses. But will anything actually change?
Last week, a federal judge refused to throw out a class action lawsuit targeting Grubhub, Uber Eats, and Postmates. (The suit was filed in April 2020, months ahead of Uber’s Postmates acquisition.) The suit alleges that diners — even those not using delivery apps — faced higher prices at restaurants because of the commissions and fees food delivery companies charge restaurants. Here’s the logic: according to the filing, restaurants facing so-called exorbitant fees from food delivery companies can’t offer customers lower food prices when ordering directly from the restaurant, for take-out or dine-in. It seeks damages for customers who purchased food directly from restaurants that were also listed on big services dating as far back as 2016.
There are others. Separate challenges target permanent commission caps levied by cities and sharing customer data with restaurants.
Plenty of cities levied commission caps at the start of the pandemic, but many fell off the books as restrictions eased. New York is among a handful of cities vowing to keep the caps permanent; the delivery services meanwhile have made good on their executives’ promises to fight the changes in court.
Also last week, the US Chamber of Commerce backed the big delivery services fighting the caps. In a brief, the organization — which is not a government entity but instead the country’s largest lobbying group — said that the caps will harm the same restaurants they purport to protect. The rationale: government-imposed caps will force delivery companies to raise prices for consumers and cut back on services, reducing demand for restaurant delivery on third-party platforms. Andrew Rigie, executive director of the NYC hospitality alliance, said the organization “delivered a horrible message that they support billion dollar 3rd Party Delivery Companies at the expense of struggling independent restaurants in NYC.”
Then there’s the data. New York lawmakers also instituted another set of guardrails on the delivery apps last year, requiring them to share customer information with restaurants. Delivery companies pushed back immediately, and the city agreed not to enforce the regulation as the case plays out in court. This one, like the others, is ongoing.
Experts say the lawsuits aren’t surprising given the new laws and regulations represent exceptionally serious constraints on the apps’ pricing power. One expert I spoke to for a piece last fall called the regulations an existential threat to their business. He also questioned the laws’ ability to stick — it’s rare for the government to impose such strict pricing controls on business, he said.
Delivery companies have also adjusted practices; for example, I’ve heard a once-contractual clause requiring restaurants to maintain pricing across channels — that is, they can’t charge more for food on the apps — is rarely enforced. Plenty of restaurants, including huge ones, like Chipotle, publicly share that third-party delivery economics require them to charge higher prices.
They’ve also expanded.