Antitrust hawks, restaurants want to rein in food delivery apps

Cost of delivery services squeeze restaurants

Grubhub, a food delivery service, is one of the businesses that restaurant owners say are taking too large a cut of their revenue during the pandemic. (Smith Collection/Gado/Getty Images)
Grubhub, a food delivery service, is one of the businesses that restaurant owners say are taking too large a cut of their revenue during the pandemic. (Smith Collection/Gado/Getty Images)
Posted August 11, 2020 at 6:00am

An online campaign that antitrust advocates are unveiling Tuesday will seek to limit the market power of online delivery apps like Grubhub Inc. and Uber Eats by getting local and state governments to limit the fees and commissions the apps can charge. 

The campaign, which also targets Postmates and DoorDash Inc., accuses the companies of using anti-competitive and predatory business practices during the COVID-19 pandemic to exploit restaurant owners and their employees — millions of whom are out of work — for profit while draining revenue from local economies, even as the food industry stands to lose $240 billion by the end of the year.

Led by the American Economic Liberties Project, a group that favors tough antitrust regulation, the campaign aims to help local business owners organize a push for local and state government action. The AELP is funded by foundations and individuals. Restaurants from around the country are involved in the campaign, including Washington establishments like Fiola Mare, Brasserie Liberté, and Ivy & Coney.

Prior to the pandemic, restaurant owners viewed the apps as a worthwhile investment even if it meant suffering losses due to commissions because takeout and delivery services were not a foundational aspect of their business models, Maureen Tkacik, a senior fellow at the American Economic Liberties Project, told CQ Roll Call.

“But when the pandemic hit, suddenly these companies that control the delivery and takeout business became their only possible source of revenue,” Tkacik said. “Immediately, it took a hard situation in which restaurants were guaranteed to lose money and it turned it into a situation that was completely impossible.”

Some big cities, like Seattle and New York, have already capped the commissions charged by the apps, which can eat up as much as 30 percent of the bill. But the campaign’s backers want restaurant owners in smaller cities to be able to wield the same organizing power.

“These delivery companies are taking a bigger chunk of the revenue than the employees and the owners are making from the restaurant,” said Stacy Mitchell, co-director of the Institute for Local Self-Reliance, a Maine- and Minnesota-based nonprofit organization that advocates against corporate control of local communities.

“The idea that Uber Eats is stepping in and taking a bigger chunk of the revenue right off the top than everybody who works in that restaurant begins to give you a sense of how exorbitant and out of balance these fees are.”

Pressuring FTC

The campaign’s other goal is to press regulators at the Federal Trade Commission, which probes anti-competitive behavior by corporations, to investigate the four companies for “charging exorbitant commission fees, usurping tips, creating impostor restaurant websites and faking phone numbers to mislead consumers, harm workers, and drain revenue from restaurants.”

Taylor Bennett, a spokesman for DoorDash, said the company has "always focused on empowering local businesses by providing a range of products and services to help them drive sales, grow their businesses, and meet their customers where they are."

"Our responsibility and commitment is all the more important during these unprecedented times when supporting restaurants is more critical than ever," he said.

Grubhub declined to comment. Uber Eats and Postmates didn't respond to a request for comment. 

The campaign begins amid increased antitrust scrutiny of the so-called Big Four delivery apps that has resulted largely from the pandemic. While Congress and federal regulators are in the midst of investigations of companies like Google, Facebook and Amazon, delivery apps had until recently avoided allegations of anti-competitive practices.

But that changed in May following news that Uber was targeting an acquisition of Grubhub. The potential merger sounded alarms among lawmakers including Sen. Amy Klobuchar of Minnesota, the top Democrat on the Senate Judiciary antitrust subcommittee, who asked the Justice Department and the FTC to investigate both companies if the deal went through.

“It is particularly troubling that this merger is being contemplated during a pandemic, when consumer demand has increased and when restaurants are more desperate for revenue than ever,” Klobuchar and several colleagues said in letters to the agencies.

When the negotiations were called off, Klobuchar said customers and restaurants alike would be better off. Then, in July, Uber announced it would acquire Postmates for $2.65 billion.

In addition to potential faceoffs with Congress and federal regulators, the companies are contending with class action civil antitrust suits filed since the beginning of the pandemic.

The cases, filed in the District Court for the Southern District of New York in April and July, accuse three or all of the companies with violating the Sherman Antitrust Act of 1890 by including price restraints in their contracts with restaurants preventing them from charging more for delivery items — perhaps to make up revenue lost to commissions — than for dine-in customers.

Each company has sought to help restaurants during the pandemic. Grubhub spent $85 million on coupons, reduced fees, and advertising for restaurants and gave an additional $7 million to organizations providing local relief to employees and their families. Uber Eats created a rewards program to incentivize customers to repeatedly support their favorite local restaurants.

DoorDash offered restaurants that were not already using its service the chance to sign up without paying commissions for 30 days and canceled commissions charged to restaurants for pickup orders. And Postmates extended a pilot program that waived commissions for businesses in Los Angeles, Detroit and the San Francisco Bay area.

Action by Congress

Meanwhile, lawmakers have sought other ways of providing relief to restaurants.

The food service and hospitality industry received around $41 billion in loans from the Small Business Administration’s Paycheck Protection Program, according to the news website Restaurant Business Online. Congress established the program in a law enacted in March.

Nearly 50,000 restaurants received loans of $150,000 or more, according to the site, which said restaurants hired back around 3 million employees in May and June as a result of the loans.

But many of those loans went to large chain restaurants, and lawmakers say more should be done to protect smaller, independent ones. Bipartisan legislation backed by Reps. Earl Blumenauer, D-Ore., and Brian Fitzpatrick, R-Pa., would create a $120 billion grant program to provide relief for privately owned, non-chain restaurants with fewer than 20 locations.

Grants from the fund, which would be managed by the Treasury Department, could be used by restaurants for a variety of costs including payroll, overhead, food, supplies and personal protective equipment. The legislation would reserve a portion of the funds for small restaurants with annual revenue of less than $1.5 million and owned by women or people of color.

The legislation has the support of major companies, including Grubhub and DoorDash, which also built a tool through which the app’s users could express their own support.

Sens. Roger Wicker, R-Miss., and Kyrsten Sinema, D-Ariz., have introduced companion legislation to the House bill. Lawmakers from both parties want the legislation included in a future pandemic relief package, but with Congress gone for August and negotiations stalled it remains unclear when any such package might reach Trump’s desk.