ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
search
Close Nav

Overcooked

back to top
eye on the news

Overcooked

New York City’s proposed restaurant-delivery fee-price cap threatens to upset a fragile market. July 20, 2021
Economy, finance, and budgets
Covid-19

During the pandemic, New York City’s months’-long restaurant shutdown pushed hundreds of eateries toward insolvency. Most pivoted by boosting their takeout business, which for many meant engaging with one or more of the app delivery-service companies that operate in the city. To help them make more money from their takeout sales, the city enacted a temporary cap on the fees that these companies could charge restaurants for the service. New York’s city council is now considering enacting a permanent cap at 15 percent of sales. Both city and state are also considering changing the status of delivery drivers to ensure that they earn the state’s minimum wage of $15 per hour and qualify for various fringe benefits, such as health insurance and paid time off.

Pursuing these two goals simultaneously risks some unwanted side-effects: more expensive food deliveries for the city’s stay-at-home diners, fewer jobs for restaurant workers and delivery drivers, and a drop in restaurant revenue.

The restaurant delivery market has four distinct players: restaurants, app companies, delivery drivers, and consumers. If restaurants and drivers are to get more for their services, then simple math dictates that app companies, customers, or both have to give something up.

The app companies responded to the pandemic-era fee caps by charging customers a $3–$5 delivery fee for their service instead. It’s unclear to what degree this affected takeout restaurant meals, but it’s a safe bet that the substitute of a fixed fee on customers rather than a proportionate fee paid by restaurants likely depressed sales somewhat, especially for less-expensive restaurants. Now that customers have the option of dining-in again, it’s safe to assume that they are more price-sensitive to food-delivery costs than they were during the lockdown. The number of takeout meals has already fallen significantly since the easing of pandemic restrictions, and it will likely decline further if the fee cap is made permanent.

That leaves the app delivery companies holding the bag—but given that none of them are earning a profit, they’re clearly not in a position to shoulder these costs, either.

At a city council hearing on the issue last month, council members clearly indicated that they expected the app companies to bear the cost of the price cap. In one exchange, a council member rejected an assertion made by a representative of Grubhub that the company was losing money, even though she pointed out that the company’s earnings statements are publicly available and must conform to Generally Accepted Accounting Principles.

Grubhub and its competitors may conclude in a year or two that it’s impossible to make a durable profit and abandon the market altogether, leading some restaurants to hire their own drivers and others to concentrate on in-person dining. Or the delivery-app companies will soldier on but enlist only more expensive restaurants or those whose patrons are less sensitive to higher delivery costs.

Either option would leave everyone worse off. Consumers would have fewer options and higher prices, delivery drivers would see their incomes fall, and restaurants would lose sales and profits, leading to more closures and fewer jobs. The city council’s efforts to help restaurants and stabilize the income of food delivery drivers will have gone for naught.

The app companies would also see their revenue in the city fall or even disappear entirely—but that seems to be the bill’s explicit intent. That this cannot be done without everyone else losing out as well does not seem to register with city politicians.

Photo by Rob Kim/Getty Images

Up Next
eye on the news

Electric Pipedream

A government takeover of New York’s power grid would be a recipe for disaster. Ike Brannon September 1, 2020 Infrastructure and energy, New York

Contact

Send a question or comment using the form below. This message may be routed through support staff.

Saved!
Close