New York City’s commission cap spurs food delivery apps

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Shares of Just Eat Takeaway, owner of Grubhub, one of New York’s largest food delivery apps, fell more than 4% on Friday after New York City voted to limit the commission rate for food delivery services.

Some cities in the United States have restricted the food delivery fees that companies such as Grubhub, DoorDash, and Uber can charge restaurants during the coronavirus pandemic, spending hundreds of millions of dollars in total.

The two companies believe this is only a temporary measure, but now New York and San Francisco have taken action to make this change permanent, which severely weakens the future profitability of the application, and other major cities may follow suit.

On Thursday, the New York City Council voted to pass legislation to fix the commission cap at 23%, including delivery service cap at 15%, marketing and other additional services cap at 5%, and transaction fee cap at 3%. .

Committee member Francisco Moya (Francisco Moya) said: “We are not trying to make billion-dollar companies and their investors richer at the expense of restaurants.”

Previously, it was known that express delivery applications charge up to 30%. On Friday, DoorDash and Uber’s share prices were basically flat in premarket trading.

Grubhub said: “This permanent price control is blatantly unconstitutional and will harm local restaurants, delivery workers and diners in New York City.” “We will vigorously combat this illegal behavior.”

Wedbush analyst Dan Ives predicts that the permanent cap in New York will mean that all participants in the market face a “10% headwind” for growth.

This is particularly destructive for Grubhub, which regards the city as the jewel in its crown and an important part of its appeal to Just Eat Takeaway, which was announced earlier this year after the failure of negotiations with Uber. It was acquired in a $7.3 billion transaction.

Ives said the company should be prepared. “We expect this to be the main trend entering 2022, which will pose a challenge to industry growth,” he said.

San Francisco voted in June to maintain the 15% cap, which was originally scheduled to expire 60 days after the city announced that restaurants could fully reopen.

“We really need to protect independent restaurants from the exploitation and predatory behavior of third-party food delivery apps that are designed to extract wealth from our local economy,” San Francisco director Aaron Peskin said during the voting.

According to two people familiar with their plans, these companies have raised legal challenges in San Francisco and may take the same action in New York.

At the same time, other cities with temporary caps, such as Los Angeles, Seattle, Chicago, Washington, D.C., and Las Vegas, are considering whether to make them permanent.

Robert Mollins of Gordon Haskett Research Advisors stated in a report to investors: “The outcome of the legal dispute between New York City and San Francisco may determine whether other cities attempt to implement fee caps.” “We believe. Other cities will wait for the final legal result before deciding to implement a permanent cap.”

Grubhub’s European parent company, Just Eat Takeaway, stated in a recent report to investors that for Grubhub, the commission cap is currently an obstacle between it and ebitda’s profitability. It stated that in the first half of this year, Grubhub was affected by the commission cap of 88 million euros. Without it, Grubhub could have achieved an ebitda gain of 63 million euros-on the contrary, it would have a loss of 25 million euros.

The situation with DoorDash is similar. The company stated that the commission cap for the second quarter of this year is $26 million. DoorDash said: “Given the range of options available to merchants, we believe that this legislation and any similar legislation are unnecessary; it is harmful to consumers, [couriers], And restaurants that these policies are designed to help; and are unconstitutional. “

Uber has not disclosed its comparable data. It did not respond to requests for comment on New York City’s measures.

In the past year, DoorDash and Uber have both begun to provide pricing structures to reduce their reliance on commissions per order and instead allow restaurants to pay fixed fees for additional services, such as more prominent rankings in the app.

These changes signify that the delivery industry’s perspective is shifting, including grocery apps such as Instacart and Gopuff. Selling “shop window” spaces in their crowded apps may prove to be more profitable and sustainable in the long run. Business model-and the use of large amounts of data on consumer buying habits.

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