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Food-Delivery Regulation Is a Drama Worth Watching

DoorDash, Grubhub and Uber Eats face a battle over commission caps and their impact on growth.

3/4/2021 11:58:00 PM

Food-delivery platforms face a battle over commission caps and their impact on growth. DoubleLJSquared explains why investors shouldn’t ignore it. WSJWhatsNow

DoorDash, Grubhub and Uber Eats face a battle over commission caps and their impact on growth.

.But consumers can only stomach so many costs. And the restrictions might be hurting the restaurants they are intended to help in less noticeable ways. A white paper published last week by the Progressive Policy Institute details some examples of this. It cites a particularly strict 10% cap on delivery-app fees in Jersey City, N.J. When implemented, it caused Uber Eats to put in place an additional consumer fee and to reduce its delivery radius for Jersey City restaurants. The result was fewer people ordering from restaurants via Uber Eats, according to a May Protocol article cited in the paper. That month, Grubhub Chief Executive Matt Maloney said San Francisco’s cap resulted in 10% fewer orders on its own platform.

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Tension over commission caps is stronger in some areas than others, and seems to be compounded by issues such as inequality and growing animosity between regulators and big tech companies more broadly. An April article in the San Francisco Examiner detailed how Uber Eats cut off food deliveries to one San Francisco neighborhood because of the caps, a move that one member of San Francisco’s Board of Supervisors called “despicable,” in light of the neighborhood’s high proportion of low-income residents and its lack of restaurant and grocery-store options.

Meanwhile, regulators aren’t backing down. In places such as New York City and California state, they are working to make caps permanent. Regulators in some cities are calling the implementation of small consumer fees by such well-capitalized companies punitive. In December, Cleveland City Council President Kevin Kelley said DoorDash’s $1 consumer fee showed an “astounding” level of arrogance and greed.

It has been hard to feel sorry for food-delivery platforms, whose business has surged during the pandemic. But investors should be more concerned about how well that growth holds after the pandemic ends. DoorDash shares are down 11% since the company reported fourth-quarter results last week, for example. But regulatory issues could easily result in further downside.

The company said it expectsgrowth of its gross order value to moderatefrom 227% year to year in the fourth quarter to less than 28% at the midpoint of its guidance this year. That forecast likely assumes commission caps ease, rather than persist, and it could explain why delivery companies have been so intent upon fighting back in the form of fees that on the surface might seem de minimis.

In food delivery, it often seems like everyone is getting fleeced. Investors left unawares could be next. Read more: The Wall Street Journal »

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