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The Spoon

Daily news and analysis about the food tech revolution

GrubHub

Uber to Acquire Postmates for $2.65B

Uber has agreed to acquire Postmates in a roughly $2.65 billion all-stock transaction, according to a press release from Uber. The deal is expected to close in the first quarter of 2021.

Uber first made the offer to buy Postmates at the very end of June, after a failed attempt to snap up Grubhub. According to sources close to the matter that spoke to Bloomberg, the two companies have actually been in talks on and off for about four years. 

The boards of both Uber and Postmates have approved the transaction, which is still subject to the approval of Postmates shareholders and also any regulatory approvals. Uber said in the press release today that it will keep the consumer-facing side of the Postmates app running separately from its Eats app, “supported by a more efficient, combined merchant and delivery network.” 

Acquiring Postmates would give Uber a larger presence in certain key markets, like Los Angeles, where Postmates is the leading third-party delivery app. In the past, Uber has said it will pull out of markets where it is not the number one or number two player.

Today’s deal is another piece of evidence that third-party delivery is consolidating fast. Grubhub itself was acquired by the newly formed Just Eat Takeaway.com in June. Elsewhere, Delivery Hero recently bought South Korean service Woowa Bros. for $4 billion and Brazil-based iFood announced a merger with Colombian delivery heavyweight Domicillios.com.

Notably, DoorDash, which is still the U.S. leader in terms of marketshare for third-party delivery, has not come up in this M&A flurry. At last check, the company secured an additional $400 million in funding. It filed to go public in February and still plans on a listing for 2020.

Uber Just Made an Offer to Buy Postmates

Just weeks after it lost the chance to acquire Grubhub, Uber has made an offer to buy Postmates, according to the New York Times. 

Three sources “familiar with the matter” and speaking anonymously told the NYT that Uber could potentially buy its third-party delivery rival Postmates for $2.6 billion and that the deal was in talks right now — though it could also fall apart.

It wouldn’t be the first time a deal fell through for Uber. Only weeks ago, the company looked to be buying Grubhub to bolster its Eats business. Those plans went awry after Dutch food delivery service Just Eat Takeaway.com swooped in and made its own deal with Grubhub for $7.3 billion. 

Antitrust concerns were one of the main issues with an Uber-Grubhub deal. Had the two companies combined, the new entity would have created a delivery service with as much marketshare as DoorDash currently holds (45 percent of the U.S. market) and rendered the on-demand food delivery arena much less competitive.

A Postmates deal would raise fewer regulatory flags, since the Bay Area-based service, last valued at $2.4 billion, is a much smaller player than Grubhub.

Even so, consolidation is in full swing in the food delivery world. Besides Just Eat Takeaway.com’s deal with Grubhub, Delivery Hero recently bought South Korean service Woowa Bros. for $4 billion and Brazil-based iFood announced a merger with Colombian delivery heavyweight Domicillios.com.

Uber has said Eats will only operate in markets where it is the number one or number two player. In the U.S., that feat that would have been easy to accomplish with a Grubhub acquisition. Were a Postmates deal to go through, it’s less certain how dominant Uber Eats would be across the country, since Postmates holds considerably less market share than the other major players.

Gaming, Glass Houses, and Other Signals of Restaurant Recovery

Everyone’s talking about Just Eat Takeaway’s acquisition of Grubhub this week, so let’s talk about mannequins in restaurants instead.

At a virtual workshop for The Spoon this week, Max Elder, a Research Director at the Institute for the Future, referenced restaurants that are currently using mannequins to fill up tables left empty by social distancing rules. The example is what he calls a “signal.” Signals are, as Elder explained, “small or local innovations happening today, with potential to grow in scale and geographic distribution.” They are one small thing happening right now that can eventually accelerate into a widespread trend that changes an industry or, as Elder suggested, the entire food system.

The restaurant industry is full of these signals right now as businesses struggle to adjust to the new reality of reduced capacity in the dining rooms, an emphasis on to-go orders, and social distancing guidelines. Some things, like curbside pickup, have already become full-on trends everyone is doing. But plenty of restaurants are innovating on a much smaller scale, whether it’s through a new technology, product, or creative approach to social distancing. See the mannequins example above.

Will all of the signals currently out there in the restaurant industry become widespread trends? It’s too soon to tell, but they all provide some specific, granular detail on about new restaurant experiences and unique ways businesses are working to change the way we eat. In the spirit of that, here are a few noteworthy signals that may or may not become widespread but show us that innovation is alive and well in the restaurant biz.

Gaming gatherings. Fancy a little D&D with your to-go latte? Hex & Company, a board game cafe in NYC, set up an online gaming service to keep customers in touch with its brand (and also probably give them something to do) during shelter-in-place restrictions. 

People in glass houses. A shoutout to virtual workshop attendee QQ for bringing this up during the session. A restaurant in Amsterdam is making it safer for diners to eat out by enclosing them in tiny greenhouse-like glass structures while they eat. (See image above.) The concept is compelling because it serves up a unique restaurant experience that’s socially distanced at the same time.

Virtual tip jars. We’ve written about this one before. Out-of-work servers and bartenders can receive Venmo tips from folks they may never have served, thanks to efforts like this one in Chattanooga. The contactless aspect of these virtual tip jars could make the concept at attractive sell even once we’re past the pandemic.

Restaurant relief kitchen. When fine-dining restaurant Alma Cocina Latina had to close its doors because of the pandemic, owner Irena Stein turned it into a relief kitchen for food-insecure individuals around Baltimore. The concept was so attractive it eventually got the backing of José Andrés’ World Central Kitchen.

If eating inside a glass greenhouse or playing Magic the Gathering via your local coffeeshop’s server seems kind of strange, that’s good. One of my favorite moments of this week’s workshop was when Elder said, “Any useful statement about the future should at first seem ridiculous.” As the restaurant industry enters a new era, we’ll need as many left-of-center ideas as we can possibly get.

Another Day Another Grubhub Rant

OK let’s actually talk about Grubhub. Or rather, let’s talk about what Just Eat Takeaway inherits if its deal to acquire Grubhub is approved by shareholders and goes through.

To quickly sum up the news, this week Amsterdam, Netherlands-based Just Eat Takeaway confirmed its $7.3 billion deal to acquire Grubhub. The sale creates a combined 360,000 restaurant clients across 25 countries, and roughly 70 million customers. 

Just Eat Takeaway, which is itself a newly formed company, also gets an automatic in with some of the strongest food delivery markets in the U.S., New York City and Grubhub hometown Chicago among them. It gets access to other markets across North America and therefore can take a hefty swipe at U.S. market leader DoorDash, and it will become the largest food delivery service in the world outside of China.

The deal, which is expected to close in the first quarter of 2021, also means Just Eat Takeaway will inherit the many (many, many) highly controversial aspects about Grubhub.

Over the last year alone, Grubhub has been accused of using misleading websites and phone numbers to charge restaurants extra fees, listing restaurants on its site with which the service doesn’t even have a deal with, and it’s stood behind the arguably unethical commission fees it charges restaurants. When he pandemic struck the U.S. in full force and restaurant dining rooms closed down, Grubhub didn’t waver from those fees. It merely offered a vaguely worded announcement about deferring fees for a temporary period, and the company spoke out against the mandatory caps many city governments have placed on those fees.

Uber, a former Grubhub suitor, reportedly balked at these shady business practices, which were one reason among many that deal went south. Just Eat Takeaway hasn’t made any mention of them in official statements or interviews so far, though in an interview with NRN this week the company said it was attracted to Grubhub’s business model. It’s too soon to know what that means for restaurant clients, but it doesn’t exactly instill confidence that things will change.

Unless consumers themselves opt out of using those services. One of the things Elder mentioned in his talk today was that everyone has a stake in the future of food. For restaurants and delivery, that means customers can help dictate the direction of the industry by the places where they eat and and the services they order from. No, every consumer that reads about the above controversies won’t delete their Grubhub and/or Just Eat Takeaway apps. But it’s worth remembering, as we’re forced to redesign the food system, that everyone’s actions, right down to the $5 sandwich order, will have lasting impact on the future of food.

Tune Into The Spoon’s Startup Pitch Session

Let’s end on a non-rant this week by highlighting the wealth of startups out there working around the clock to help change the food system for the better. Next week, The Spoon will host a Startup Pitch Session you can tune into via CrowdCast to see what some of these companies are up to.

For this first-ever Food Tech Pitch Sesh, Better Food Ventures’ Brita Rosenheim and Sansaire founder Scott Heimendinger will judge three food tech startups pitching their products. It’ll be great fun, with lots of constructive feedback you’ll likely be able to take and apply to your own business.

Join us next week, on June 18 at 10 a.m. PST. Register here to save your spot.

This is the web version of our newsletter. Sign up today to get updates on the rapidly changing nature of the food tech industry.

DoorDash Close to Securing More Funding, $15B Valuation

DoorDash is close to securing a new round of funding that would value the company at over $15 billion, according to the Wall Street Journal, which cited sources close to the matter. 

The delivery service plans to sell hundreds of millions of equity to its exiting backer T. Rowe Price Group Inc. as well as Fidelity Investments. Softbank, which already backs DoorDash via its Vision Fund, is also considering participating. WSJ notes that the exact size of the deal and the full roster of investors is not fully finalized. 

Right now, DoorDash holds the number one spot in the U.S. in terms of market share for third-party delivery. The company filed to go public in February of this year, and according to the WSJ is still planning on a listing for 2020. DoorDash is also expected to break even this quarter, which would mark the first time the company has done so and also further push the service down the path to profitability. 

All that said, DoorDash is going to have to work hard to defend that number one spot. News of this potential funding comes on the heels of Just Eat Takeaway announcing its $7.3 billion acquisition of Grubhub. While Just Eat Takeaway CEO Jitse Groen didn’t name specific names, in an interview this week he called out “irrational” competitors “giving food away for free,” which is a tactic DoorDash has used (via deals and promotions for customers) to push its way into new markets. Groen said the combined forces of Just Eat Takeaway and Grubhub plan to “push back” on the competitors.

The Grubhub-Just Eat Takeaway deal still has to be approved by company shareholders. Meanwhile, the WSJ said DoorDash’s potential funding round “could still fall through.”  

But if both go through, rather than fall through, the third-party delivery market will become even more competitive than it’s been previously. A shift to off-premises orders as restaurants deal with reduced capacity in dining rooms and customers wary of eating out will only intensify that competition.

Updated: Just Eat Takeaway Acquires Grubhub

Update: Amsterdam, Netherlands-based delivery service Just Eat Takeaway announced this afternoon it has entered into an all-stock deal with Grubhub. Just Eat Takeaway will acquire 100 percent of Grubhub’s shares, and the merging of the two companies will create one of the largest food delivery services in the world. The news puts Uber, which had previously been in talks with Grubhub, out of the running.

Previously:

It seems that the bidding war for Grubhub is coming to an end before it ever really got started. Multiple news outlets today have reported that Uber Is ready to pull out of its proposed deal to buy Grubhub while Just Eat Takeaway is in advanced discussions to buy the latter.

CNBC reported today that Uber will likely to pull out the proposed deal with Grubhub because of antitrust concerns that have been raised over it by multiple Democratic lawmakers. Amy Klobuchar, D-Minn., summed up the concerns in the following statement (reported by CNBC):

“I have repeatedly raised concerns and advocated against a potential merger between Uber and GrubHub. During this pandemic, when millions are out of work and many small businesses are struggling to stay afloat, our country does not need another merger that could squelch competition. News that the Uber/Grubhub deal may not materialize would be good for both consumers and restaurants.”

Meanwhile, at the start of this week, Grubhub looked to have two suitors from Europe, Delivery Hero and the newly formed Just Eat Takeaway. According to a press release from today, Just Eat Takeaway is in “advanced discussions with Grubhub regarding an all-share combination of Just Eat Takeaway.com with Grubhub.”

A deal with a European company would raise fewer regulatory flags because it would still mean four major third-party delivery players operated in the U.S. market: DoorDash, Uber Eats, Postmates, and Grubhub-Just Eat Takeaway. Uber buying Grubhub would have knocked that number down to three, eradicating some competition.

Grubhub Could Soon Be the Center of a Third-Party Delivery Bidding War

Third-party food delivery service Grubhub has two potential European acquirers, according to an article from CNBC. Just Eat Takeaway and Delivery Hero have both expressed interest in merging with Grubhub, according to CNBC sources. 

The news comes shortly after Uber made an offer to buy Grubhub in May. At the time, we wrote that the combined forces of Uber Eats and Grubhub would potentially knock DoorDash out of the top spot in terms of marketshare in the U.S.

However, according to the CNBC article, that deal has been overshadowed by antitrust concerns, which would make getting regulatory approval on a deal much more difficult. A deal with a European company would likely get less scrutiny from regulators.

Just Eat was itself the center of a bidding war in 2019 between Takeaway.com and Naspers-backed tech firm Prosus. Takeaway.com won that battle. Prosus has a 22 percent stake in Delivery Hero, so if a bidding war breaks out over Grubhub, in a sense, those two companies will be going toe-to-toe once again.

CNBC’s sources said Grubhub is weighing its options and “mulling the right deal structure with potential buyers given market conditions and regulatory risks.”

For both Just Eat Takeaway and Delivery Hero, a deal with Grubhub would allow them to enter the U.S. market, where Grubhub is one of the main players along with Uber Eats, DoorDash, and Postmates. Grubhub has an especially large presence in markets like NYC and Chicago, which would give either of these European suitors automatic access to those audiences.

Meanwhile, all this is further evidence that consolidation for the third-party delivery market is here. Besides the Just Eat-Takeaway.com deal, 2019 also saw Delivery Hero buying South Korean service Woowa Bros. for $4 billion and Brazil-based iFood announcing a merger with Colombian delivery heavyweight Domicillios.com. 

Third-Party Delivery Suspends Services to Comply With Curfews

Minneapolis, Los Angeles, Nashville, Philly, Atlanta . . . the list of cities under curfew goes on, and if you live in one of those places and were counting on some food delivery for your supper, you’ll have to look elsewhere. DoorDash recently told The Verge it is “pausing” operations to comply with those local curfew orders. 

From The Verge:

DoorDash, which has seen an increase in orders as restaurants have been forced to suspend eat-in dining during the pandemic, told The Verge it is pausing operations to abide by curfews. Its spokesperson did not provide details about which cities were affected as of Monday.

Uber has also suspended service in some cities, which extends to its Eats food delivery business. An Uber spokesperson told Business Insider that customers should use the app to learn more about these suspensions, and that they should use Uber/Uber Eats “for emergency purposes only during this time.”

Postmates, which is the biggest service in Los Angeles, is also abiding by local curfews. Grubhub said it is “pausing operations when needed.”

Delivery companies aren’t being specific about which cities have suspended which services. Even in places where an order goes through, they are then cancelling orders. For ones that actually go through, some drivers are having trouble actually getting the food to customers:

How long these suspensions and changes to service last will, most likely depend on when the unrest subsides. To find out if food delivery is a realistic prospect in your city, best to check for updates directly in these services’ apps.

DoorDash Will Use Location Data to Make Pickup Orders Speedier and More Socially Distanced

DoorDash announced a new feature today that’s meant to speed up the process for pickup orders and make it more appropriate for these socially distanced times. One catch: the new feature needs your location data in order to do that.

Customers can opt in and share their location data with the DoorDash app, so that as they approach the restaurant, that restaurant can receive an alert and have their order ready to go. The idea is to cut down on the amount of people crowding into a restaurant lobby as they wait for their takeout orders to be ready. In theory, at least, a restaurant could have a designated area of the lobby for pickup orders and place the food there when the app notifies them of a customer’s arrival. 

Of course in order for that to work, people have to be okay with DoorDash having access to their location data while the app is running. I doubt this will be an issue for most customers, given the times. Recent survey data sent to The Spoon by Dragontail found that 73 percent of consumers getting takeout/delivery said they would be “more inclined to order for carry out over delivery if given the option for a contactless experience.” 

The new feature is also a way for DoorDash to originate more takeout orders through its own platform. Third-party delivery has taken much heat (understatement) lately over the amount they charge restaurants in commission fees for delivery orders. More than ever, customers are encouraged to order takeout directly from the restaurant itself so that the revenue from each transaction goes directly to businesses, which need all the help they can get right now. The idea of ordering takeout direct from local restaurants has even been translated into a weekly event on social media.

DoorDash is clearly trying to grab back some of the orders from takeout, and it wouldn’t be alone. At the end of last week, Postmates launched a curbside pickup feature. Grubhub has had a feature for pickup orders in place for some time, too.

Nor is sharing one’s location to make food pickup more efficient just the territory of third-party delivery services. My colleague Chris Albrecht highlighted its benefits in the grocery sector this week when he wrote about his experience with Walmart’s geofencing technology that enables contactless curbside pickup. Geofencing, and location data in general, will “take on more importance as restaurants and grocers look to efficiently maximize their revenues while reducing human-to-human contact.” 

Back in the restaurant world, DoorDash still leads in terms of market share for third-party delivery companies, according to the latest numbers from Edison Trends. That number one spot could be upset, though, if the rumored Grubhub-Uber Eats deal goes through. Edison Trends noted that the combined Grubhub-Uber Eats entity would gobble up 45 percent of the market share — the exact same percentage DoorDash currently holds. The latter’s push to win more takeout orders is no doubt also a move to retain some of that market share in the face of the impending deal.

Report: Uber Wants to Buy Grubhub

Uber has made an offer to buy Grubhub, according to a report from Bloomberg. A potential deal could be reached as early as this month and would be an all-stock takeover where Uber would absorb Grubhub into its overall operations.

Details on this story are still forthcoming. 

Food delivery has been a booming business for Uber of late, with its Eats business seeing a 52 percent increase in gross bookings for the first quarter of 2020. However, the company remains committed to its strategy of only operating in markets where it is the number one or number two player. That has led Uber to exit certain global markets — India, South Korea, a bunch of Middle Eastern countries — where local delivery apps are far more popular.

That strategy is much tricker in the U.S., though, where DoorDash leads in terms of market share and Grubhub comes in second in many cities, according to recent numbers from Second Measure. Sticking to its strategy of only operating in markets where it is the number one or two service would mean Uber would have to exit many U.S. cities.

Hence a potential deal with Grubhub. The combined forces of the two would in all likelihood knock DoorDash out of the top spot in many places, and give Uber a larger share of major metropolises like New York City and Chicago. 

This kind of market consolidation was already in the works before the pandemic hit. Last year, Just Eat and Takeaway.com announced a merger that was finally recently approved. Delivery Hero bought South Korean service Woowa Bros. for $4 billion. And Brazil-based iFood announced, also in 2019, that it was merging with Colombian delivery heavyweight Domicillios.com, to corner more of the Latin American market. All of which is to say, it was only a matter of time before third-party food delivery consolidation came for the U.S. markets. 

Update (May 12): Grubhub released the following statement today:

“While our policy remains to not comment on specific market rumors, we want to reiterate our views with respect to M&A-related matters given the current level of recent speculation.

“We remain squarely focused on delivering shareholder value. As we have consistently said, consolidation could make sense in our industry, and, like any responsible company, we are always looking at value-enhancing opportunities. That said, we remain confident in our current strategy and our recent initiatives to support restaurants in this challenging environment.”

Welcome to Burger King. Did You Have a Reservation?

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Things I never thought I’d live to see: a global pandemic shutting down the economy, the McDonald’s snuggie, and fast food restaurants requiring reservations to dine in. But with the restaurant biz on the brink of catastrophic meltdown and businesses slowly reopening under strict social distancing practices, we can expect lots of new versions of the on-premises experience over the next few months — and probably a total redefining of what it means to be a restaurant. 

News landed this week that Burger King is testing an app for dine-in reservations at three stores in Milan, Italy that are expected to fully reopen on June 1. Reuters reports that the app lets customers order food and book a table before ever setting foot in the restaurant, which will operate at less than half its pre-pandemic capacity. During peak hours — 12–2 p.m. and 7–9 p.m. — roughly one-third of those tables will be reserved for customers using the app.

The company says it expects the new booking system to keep its revenue stable in the face of reduced in-house seating. Previously, BK in Italy got about 70 percent of its revenues from dine-in customers. Social distancing won’t allow for that now, and BK said it hopes to make up some of those lost sales with drive-thru.

Reservations are one way to keep crowds at bay in QSRs. Another is to build social distancing features into the actual store layout and operations, as McDonald’s has done in The Netherlands. The mega-chain is trialing a few initiatives at one store in the city of Arnhem, including table service, where burgers are delivered on trolleys, designated waiting spots for the line, and hand sanitizing stations at the store’s entrance. There may also be a host behind a plexiglass-shielded station, directing people where to stand in line.

There’s no word yet on whether this McDonald’s prototype will make its way to the U.S., though I wouldn’t be surprised if some social distancing elements wind up in the chain’s ongoing Experience of the Future store remodels. Burger King, meanwhile, has said if the trial of its app is successful in Italy, it could be used in other countries. 

And while QSRs are busy adopting features we’re most used to seeing at casual dine-in joints, the latter continues to adjust its format to be more to-go friendly. This was already happening B.P. (before pandemic). Now, sit-down restaurants are accelerating the addition of things like drive-thru lanes and self-service kiosks to keep business moving and socially distant at the same time.

All this suggests some seriously blurring lines between the normally siloed types of restaurant experiences. Going to a McDonald’s might suddenly feel like a more formal affair, while family dinner night at The Melting Pot might feel strangely casual without the usual person-to-person formalities. Tech tools that automate the order and pay process, and redistribute the tasks of servers, food runners, and cashiers, will only further change the now-fluid definition of the restaurant. 

We’re only at the start of things when it comes to these new dining out formats. Expect many more iterations of the restaurant to surface in the coming weeks. 

Grubhub Responds to Commission Fee Caps.

Meanwhile, I’d be remiss if I didn’t mention the ongoing smackdown between third-party delivery services and governments mandating caps on the commission fees these tech companies charge restaurants. That was a hot topic this week as more cities joined the list of those either considering caps or already implementing them. 

Grubhub responded this week via its Q1 2020 earnings call. CEO Matt Maloney said these fee caps force the company to increase fees for consumers, lessen marketing spend, and are ultimately resulting in fewer orders for independent restaurants. “Our preliminary data shows that on average, our independent restaurants are seeing over 10% fewer orders since the fee cap and many of these orders have shifted to a large brand or QSR restaurants that were not impacted by the emergency ordinance,” he said.

Note that he said “orders” not “revenues.” There’s no question that being on a platform like Grubhub makes a restaurant more visible to more potential customers. That in turn would hopefully fuel more orders for, say, your local pizzeria instead of Papa John’s.

But with Grubhub et al. taking an up to 30 percent commission of each restaurant transaction, more orders does not translate into significantly more revenues for restaurants. See this gem of a receipt, courtesy of one independent business, as proof of how little restaurants make on third-party platforms. 

On the call, Maloney said one-size-fits-all model “will not work.” And yet one independent restaurant owner who testified at a public hearing last week about NYC fee caps suggested there was virtually no negotiability when it comes to commission fees, suggesting Grubhub runs its own one-size-fits-all model when it comes to food delivery.

The debate around commission fees has been building momentum for some time. The pandemic has effectively stripped any remaining gloss off the facade of third-party food delivery and put its unsavory insides on full display. That the sector will need to make a pivot of its own if it wants to stay relevant seems more and more a question of “when,” not “if.” 

Amazon Returns to Restaurant Delivery. Sort of

But let’s end the week on a less-infuriating note, like Amazon running a makeshift third-party delivery service for restaurants in its corporate buildings. Drivers that used to transport the Seattle tech giant’s corporate employees are now running food from restaurant to customer, according to Eater Seattle.

Deliveries are contactless, meaning the restaurant packages up the order and sets it in the delivery driver’s trunk. Said driver then leaves the food on the customer’s doorstep. 

Once upon a time, Amazon ran a restaurant delivery service, which it shuttered in June of 2019. At the time, Amazon cited competition from the likes of Grubhub, Uber Eats, and other third-party delivery services. The new endeavor doesn’t appear to be a play by the company to get back into that space. Rather, it seems to be a temporary lifeline for local restaurants, not to mention a way to keep drivers who once ran corporate employees around working now that those employees are under stay-at-home orders.

On that note, have a good weekend, and don’t forget to tip your drivers.

Jenn

Boston, D.C., and Baltimore Join the List of Cities That Want Caps on Third-party Delivery Fees

Baltimore, Boston, and Washington, D.C. all recently joined the growing list of cities imposing mandatory caps on the commission fees third-party delivery services charge restaurants. San Francisco, Chicago, NYC, and Los Angeles have already passed similar measures or are considering them.

The D.C. Council passed emergency COVID-19 legislation on Tuesday that, among other things, capped commission fees at 15 percent during the city’s state of emergency. As the Washington Post noted, “The commission cap, similar to ones implemented in Seattle and San Francisco, is meant to help eateries turn profits on those sales.”

Last week, city council members in Boston proposed an order for a hearing to discuss the possibility of caps on commission fees — much like the one NYC just held last week. A date has not yet been set for the Boston hearing. 

Baltimore is legally prohibited from imposing caps on delivery companies, but that didn’t stop Mayor Jack Young from sending a formal letter to DoorDash, Postmates, Grubhub, and Uber Eats, asking them to cap commission fees at 15 percent.

It’s a noble gesture, but Mayor Young might as well be talking to a concrete wall. The major delivery services have made it clear that they strongly oppose any caps on commission fees, arguing that caps would make food delivery orders more expensive for consumers, lessen the number of orders coming through the platforms, and ultimately harm both restaurants and the delivery companies themselves. As a Grubhub representative put it at last week’s NYC hearing, “These caps may force us to exit certain markets or suffer substantial losses that threaten the sustainability of our businesses.” 

To which one council member replied, “You’re saying a lot of stuff would force you to operate at a loss but you don’t seem to care that you’re forcing restaurants to operate at a loss.”

Grubhub, in particular, has taken severe (though deserved) heat for the way it has handled it has restaurant relationships during the COVID-19 crisis. The service sent out a press release back in March that led many to believe it was waiving commission fees for restaurants during the health crisis. In actual fact, Grubhub was only deferring those fees, and the policy included a lot of unsavory fine print that won the company yet-more bad press. And if you haven’t yet seen the viral Facebook photo that shows just how little restaurants collect from third-party delivery orders, check it here to understand why restaurants are nowhere near turning a profit under the current commission fee policies.

Other services are at least appearing to be more helpful. Postmates temporarily waived commission fees for independent restaurants, though the move only applied to new businesses signing with the platform and based in San Francisco. DoorDash has waived commission fees for all its independent restaurants through the end of May.

But what happens at the end of May? And what happens if a second wave of the novel coronavirus imposes another set of shelter-in-place mandates?

The entire restaurant industry is forever changed because of this pandemic and the dining room shutdowns it has caused. Menus are shrinking, restaurants will re-open with less seating, major chains are overhauling their entire store formats, and small businesses are going to have to adapt to technologies and procedures they might never have considered before. Delivery companies could do themselves and everyone else a huge favor by implementing their own fee caps and accepting that they’re part of the restaurant industry and need to share in some of the pain. Otherwise they can expect more government fee caps and regulations, and I wouldn’t be surprised if the whole industry forcefully turns on them at some point down the line.

Fight Club: Mischief. Mayhem. Third-Party Delivery Fee Caps.

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If you like a good fight, the one around restaurant commission fee caps is worth watching. I spent the better part of three-plus hours the other day tuned into the New York City Council’s Committee on Consumer Affairs and Business Licensing public hearing. One hotly debated topic was around capping commission fees third-party delivery services like Grubhub and Uber Eats charge restaurants.

I’d love to say everything got resolved and NYC will be placing caps on third-party service commission fees for all time. The reality is that this fight was here long before the pandemic and will be around long after it leaves.

I’m sure you’ve heard of the brouhaha brewing around the issue. Restaurant industry advocates and businesses alike had flagged those third-party delivery commission fees — which can go as high as 30 percent per transaction — as prohibitively expensive for restaurants. With dining rooms closed now, most restaurants are left with the options of either shutting down completely or relying on a third-party service like Grubhub to help them execute on delivery orders.

One restauranteur who testified at this week’s hearing explained that for independent restaurants, the fees are more or less non-negotiable. (Side note: he also expressed fear of retaliation from delivery companies for his speaking at the hearing.) Jessica Lappin, a former NYC council member and the President of the Alliance for Downtown New York, said that even if restaurants are doing takeout and delivery right now, they are doing it at a loss. Council member Mark Gjonaj suggested that due to the commission fees, each transaction a restaurant makes is “yielding a net loss.”

Perhaps the most telling moment came when a Grubhub representative took to the mic to “express Grubhub’s strong opposition” to fee caps. You can watch the entire (and rather circular) debate that broke out here, but it more or less boiled down to the idea that if NYC and other cities successfully impose fee caps, Grubhub et al. will have to change their business model.

Therein lies the marrow of the matter in terms of why third-party delivery companies oppose commission fee caps and other changes (e.g., reclassifying workers as employees). Government oversight of those fees cost these companies more money, and further erode their chances of ever becoming profitable. An unprofitable model won’t satisfy investors, and third-party delivery as we know it would then be on the rocks.

Sky-high delivery fees and a faltering economy won’t help the model in terms of its attraction to the average end consumer. And they certainly won’t improve the net-negative returns restaurants are making at the moment.

In some cities, Big Government has already stepped in. San Francisco, Seattle, and Chicago have all introduced fee caps that will last at least as long as dining rooms remain closed. Los Angeles is considering a similar measure. NYC’s proposed 10 percent cap was actually introduced months before the novel coronavirus hit the U.S. in full force. 

As emergency measures, these fee caps feel necessary right now if independent restaurants are to have any kind of shot at keeping the lights on. Longer term, everyone (restaurants, advocates, government, tech companies, and consumers) will have a responsibility to address how much damage the delivery model is actually doing. It seems a global pandemic that’s taking lives and shuttering businesses isn’t enough to make some of these services stop siphoning the livelihood from restaurants. Are those really the businesses we want calling the shots in the restaurant industry in the future?

McDonald’s limited menu is good news for the drive-thru lane.

Among other things, like drive-thru lanes generating more sales, McDonald’s spent quite a bit of its earnings call this week talking about its menu. Since shelter-in-place orders forced the chain to close down dining rooms and rely on off-premises orders, McDonald’s has been offering a limited menu. For example, it doesn’t offer breakfast for the time being.

Cuts like that were made to help the mega-chain manage the operational difficulties restaurants face right now. On this week’s call, CEO Chris Kempczinski suggested customers should not expect every McDonald’s in the nation to immediately revert back to its pre-pandemic menu.

Smaller menus for the long term could work in McDonald’s favor, though. When we looked at the QSR Drive-Thru Study last year, one of the standout points was the steady increase in drive-thru wait times over the last couple decades. Growing right alongside those wait times has been the number of items QSRs offer on their menus.

These complex menus take longer to read, present customers with the tyranny of too many choices, and up the risk of an order being inaccurate when it is ready. None of those things make for speedy service, and with more customers likely going to opt for the drive-thru lane over the dining room now, finding ways to fulfill orders faster is crucial for QSRs.

No one is suggesting we revert back to my favorite picture of all time, this McDonald’s menu from the ’80s. But as restaurants pare down menus and plan to work with reduced capacity and limited staff once they reopen, the bloated mess of choices QSR’s previously offered may become a thing of the past.

Sweetgreen just added dinner options.

One company not paring down its menu is Sweetgreen. On LinkedIn this week, cofounder and Chief Brand Officer Nathaniel Ru unveiled the chain’s new dinner menu, called Plates.

For the last four weeks, the tech-forward fast-casual chain — most widely known for its highly Instagrammable salads — has been testing a Sweetgreen dinner menu. Via a post on Medium, the company said the process has been about “operationalizing an entirely novel concept (normally a year-long process) in just 30 socially distant days.”

That 30-day process looks, from the photos, to have turned up a menu full of plant-centric dishes and lots of legumes, grains, and sauces. If you want more details around how the team put this new concept together, the full Medium post is definitely worth a read.

Sweetgreen had been planning the dinner concept for some time in the hopes of launching it next year. But, as the Medium post notes, “given the current state of uncertainty, the need for warm, familial, and home-cooked food has never felt more important.” 

They’re right on the money. Family-style meals and comfort food are two major trends right now for restaurants as people shelter in place. I’ve never considered couscous and warm leafy greens comfort food, but I’m from rural(ish) Tennessee so what do I know? Plenty of folks are health conscious these days, and with many consumers likely to be wary for some time about going out to eat, a dinner concept is a smart play for Sweetgreen. 

Now if we could just get it delivered without those pesky commission fees.