Boston Globe: John Schall: Restaurant industry’s survival of coronavirus depends on regulating delivery app fees

Op-Ed by John Schall
Boston Globe, April 28, 2020

COVID-19 and the resulting public health ban on dining out have plunged American restaurants into a crisis that many won’t survive. Those that remain open have become dependent on third-party delivery services. But the dominance of a few delivery companies creates its own dire financial threat to the survival of the very restaurants they serve. ...

In the United States, four restaurant delivery companies — DoorDash, GrubHub, UberEats, and Postmates — control 99 percent of the restaurant delivery market, a classic oligopoly. ... As a result, they, like all unregulated oligopolies, can set prices at an unfairly high level. The restaurants that purchase their delivery services have no choice about the price they pay for that service because all delivery companies charge the same price. In this case, it is between 25 and 30 percent of the total price of the food being delivered to the end-user, the individual customers ordering from their homes. ...

The need to regulate delivery companies is urgent at any time, but in the current COVID-19 environment the restaurant consumer is doubly and triply damaged. When restaurants are not allowed to have dine-in customers and can provide food for their customers only via take-out and delivery, they can no longer compete with the delivery companies regarding where their customers can consume their food. By public decree, diners can’t consume it in the restaurants; they must retreat to their homes. Forced to rely solely on delivery for 70-80 percent of their sales, restaurants have experienced a meal revenue drop from 100 percent to 75 percent on those delivery sales.

As take-out dining increases, delivery companies amass even more power vis-a-vis their restaurant clients. Restaurants that weren’t doing delivery or had delivery as only 5 to 15 percent of their sales are now doing 70 to 80 percent of their sales through the delivery companies. Rather than paying delivery companies 2 to 3 percent of their total revenue, they are now paying 15 to 20 percent. For restaurants which, even in good times average only 10 percent profit, this is unsustainable. If delivery company fees are not regulated now, even the restaurants that have managed to survive the COVID-19 shutdown may not survive the delivery company dominance over local restaurants. That will be a loss to the millions who depend on the industry for a paycheck and the millions more eagerly awaiting the chance to return to the experience of dining in at their favorite neighborhood restaurant. The Cambridge City Council unanimously passed a council order Monday night that caps delivery company fees at 10 percent. This is a good first step. Hopefully other cities — and more importantly the state Legislature — will take up this fight.

John Schall is owner of El Jefe’s Taqueria and a former instructor in the UMass/Boston economics department.

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Copyright 2020 John Schall

 

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