Saviors during the pandemic, delivery firms now under fire
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Meal delivery services became essential during the pandemic, when millions of Americans were under lockdown and restaurants were shut to visitors.
But these days the platforms are increasingly finding themselves under fire, with politicians seeking to regulate the industry and restaurateurs accusing the likes of DoorDash, Grubhub and Uber Eats of freeloading. And they are looking for ways to do without them.
In just the first nine months of this year, DoorDash has likely filled over 1 billion orders, most of them in the US, where the company is the market leader.
But Mathieu Palombino, founder of the New York-based pizza chain Motorino, calls the boost provided by delivery apps a “big illusion” because more orders don’t bring bigger profits to restaurants.
“When you receive 30 or 40 orders a day, you are happy. But the problem is that it does not translate into profits,” Palombino said.
Food delivery services can charge restaurants up to 30 percent of the bill for a meal, according to their websites.
To address that problem, in August the New York city council passed a law, capping third-party delivery fees at 15 percent.
“Small businesses should not be pressured into accepting these fees in order to remain viable and competitive,” said New York city councilman Francisco Moya, who initiated the bill. A similar law was passed in San Francisco in June.
Strong legal challenge
Food delivery giants have challenged the laws in courts, and some analysts think they have a point.
“We believe DoorDash will have a strong legal case against the permanent fee caps,” Bank of America said in a research note last month.
DoorDash, Grubhub and Uber Eats argue the cap is unconstitutional and that restaurants are free to negotiate their commissions.
The delivery giants also say they made huge investments during the pandemic that led to millions of customers who had never ordered meals online. And DoorDash says that restaurants that used its platform during the pandemic had a survival rate eight times higher than the industry average. The company also says that even before the laws were passed it already offered a 15 percent fee.
Put Palombino, the pizza chain founder, is unconvinced.
“The problem is that they have become so established that there no longer is a way back,” he said. “If you’re not on Seamless (one of the most popular delivery services in New York), you no longer exist.”
As for the 15 percent commission, Palombino said a successful restaurant can “only hope” for a profit margin of 15 or 20 percent.
“So at the end of the day, they take it all.”
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