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As efforts to regulate food-delivery apps have risen along with the demand for their services, some of the biggest companies in the space are embroiled in new legal battles.
DoorDash Inc.
DASH,
and GrubHub, which is owned by Netherlands-based Just Eat Takeaway.com
GRUB,
sued San Francisco in July and New York this month over the cities adopting permanent 15% caps on how much the companies can charge restaurants in delivery fees. Uber Technologies Inc.’s
UBER,
Uber Eats, also known as Portier LLC, joined the New York lawsuit. DoorDash also sued New York City last week over its new requirement that the company share customer information with restaurants. And Chicago hit DoorDash and Grubhub with a lawsuit in August, accusing them of deceptive and predatory practices.
The legal skirmishes come as delivery — with the help of a deadly pandemic — has become more popular, and in some cases indispensable. As COVID-19 led to lockdowns and restaurant shutdowns, delivery became a lifeline for both restaurants and their patrons. But as they tried to help struggling restaurants stay afloat, municipalities around the country imposed emergency delivery fee caps on DoorDash and other platforms, some of which they are now making permanent. In their lawsuit against New York, DoorDash, GrubHub and Uber Eats say that’s unconstitutional, an overreach and “sets a dangerous precedent.”
“The Ordinance is unconstitutional because, among other things, it interferes with freely negotiated contracts between platforms and restaurants by changing and dictating the economic terms on which a dynamic industry operates,” the companies’ lawsuit against New York reads. The lawsuits also contend the caps will be harmful for the consumers to whom the companies have already shifted increased costs, and the couriers whose ability to make money will be affected.
“I think DoorDash’s tactic to pit restaurants against Dashers is wrong and unfair to both Dashers and restaurants,” said Jon Wong, a DoorDash worker in the San Francisco Bay Area. “Restaurants should not be slapped with high fees while they struggle to survive and Dashers should not be reliant on tips to earn a decent income.”
Laurie Thomas, executive director of the Golden Gate Restaurant Association in San Francisco, said the association had been working with local officials on amendments for the permanent fee cap the city adopted in July. That included things like additional marketing and processing fees the companies could charge restaurants. “With the filing of the [DoorDash and Grubhub] suit, all communications on further amendments have ceased,” she said.
Andrew Rigie, executive director of the New York City Hospitality Alliance, said the laws being adopted by his city and others are “creating a fair and equitable marketplace” that can also help open up the market to other third-party delivery companies. The big delivery platforms like DoorDash, Uber Eats and Grubhub — which charge about 30% in delivery fees — will “try to defeat anything reasonable… any commonsense regulations that get in their way,” he added.
See: Chicago sues DoorDash and Grubhub, alleging deceptive fees and predatory practices
DoorDash and Grubhub said Friday they were forced to take legal action, while Uber did not return a request for comment.
Asked about the company’s lawsuit against New York City, a Grubhub spokesman said: “While Grubhub remains willing to engage with the City Council, we unfortunately are left with no choice but to take legal action.”
“The harmful, unnecessary, and unconstitutional permanent price controls passed in New York City and San Francisco left us no choice but to resolve this matter in court,” a DoorDash spokesman said, and pointed out that the company has explained that its price hikes in response to fee caps have resulted in decreased orders in some markets.
The companies are protecting increasingly lucrative businesses.
DoorDash, the U.S. market leader, saw more orders than ever in its second quarter, though it forecast a softer third quarter. In addition, the San Francisco-based company’s shares closed at a record high Thursday after an analyst raised his rating, citing DoorDash’s rising success in non-restaurant deliveries. The stock climbed higher Friday, closing more than 27% higher at $222.91, another record.
Also in the second quarter: Uber Eats continued to outperform Uber’s rides business, even as Uber’s rides volume returned close to normal in some markets, the company said.
In August, DoorDash had 57% of meal-delivery market share, according to Bloomberg Second Measure. Uber’s Uber Eats and Postmates were next with 26% combined, while Grubhub had 16%.
Tom White, analyst for D.A. Davidson, said he expects online food delivery to continue to face potential increased regulation, though he said “I don’t think that any of these battles are existential threats for the industry.” Because the fights are happening “market by market and city by city… I view them more as total addressable market-limiting threats.”
