Three of the nation’s largest online food delivery companies are suing New York City. They’re protesting a government-imposed limit on fees they can charge restaurants. The lawsuit reflects the attempts of new industries to cement their place in a competitive—and unpredictable—landscape.
Companies like DoorDash, Grubhub, and Uber Eats can deliver your cravings right to your door. These businesses provide a service to consumers who don’t want to go out. And they save restaurants from using their own staff and resources to provide delivery. So what’s the problem?
Risk and Reward
In a capitalist economy like the United States, privately owned companies set prices in order to make profits. They get rewarded for their efforts, but they also shoulder the myriad risks of running a business. In short, capitalism motivates people to work hard (risk) by offering the possibility of financial gain (reward).
When the pandemic hit in 2020, restaurant dining rooms closed. Folks couldn’t dine out. Suddenly, food delivery became the obvious choice. Demand multiplied—and many threatened restaurants stayed in business.
Help or Harm?
But with the growth of demand for deliver services, lawmakers began studying delivery company fees. Intending to help struggling brick-and-mortar restaurants, dozens of cities passed temporary fee caps on delivery services. NYC limited restaurant delivery fees to 15% of each online order. Now NYC wants to make those caps permanent.
New York City delivery companies are fighting back in court. The lawsuit calls the limit “unconstitutional,” saying “it interferes with freely negotiated contracts between platforms and restaurants.” Their point is that in a free economy, a company can charge whatever people (or other businesses) will pay.
The delivery services allege the new “legislation bears no relationship to any public-health emergency.” They call it “harmful and unnecessary government overreach.” But some lawmakers disagree, labeling high fees and some delivery app practices “predatory.”
Food delivery companies, despite soaring revenues, aren’t necessarily making a lot of dough. For example, DoorDash sales rose 83% in July. Yet the company lost $102 million. Delivery start-ups say they must spend thin profits to lure workers.
In a company blog post, Grubhub says, “We typically make only 1% of total food sales as profit—and that was before temporary price controls reduced that percentage to zero or less.”
The delivery companies suggest that the fee caps won’t help anyone in the long run. If the couriers can’t charge restaurants enough to make their businesses work, they’ll have to pass those charges on to customers. And if customer costs get too high, they’ll stop ordering takeout. Restaurants will still suffer from lack of business.
In a perfect world, people work hard (Colossians 3:22) and love one another. (Matthew 22:39) Rulers enact just laws. (Proverbs 29:2) Too often, the opposite is true: People want something for nothing and will fight to get it.
Grubhub, DoorDash, and Uber Eats all claim the law has cost them “hundreds of millions of dollars.” How might this affect consumers? It could mean no more midnight tacos—and a situation where nobody wins.
Why? To understand the economics behind choices and to analyze possible effects of restrictions in a capitalist society.
PRAY: For wisdom for lawmakers navigating the world of supply and demand, for a workforce that desires to work diligently, for compassion for those struggling with business decisions.