California Gov. Gavin Newsom signed a piece of legislation into law this week that hits at third-party delivery services listing non-partnered restaurants on their websites. At the tail-end of yesterday, the Los Angeles Times reported that the first law will require delivery services to sign formal contracts with restaurants before listing those businesses on their platforms.
The law is likely to raise at least some controversy. Under it, third-party delivery services would have to have formal agreements in place with all the restaurants listed on their platforms. Up to now, restaurant listings on third-party delivery sites have been something of a free for all, with delivery services adding restaurants whether or not they have ever made an agreement or even spoken. Restaurants don’t pay the commission fees on these orders. Instead, those get passed to the customer.
Delivery services argue that this practice helps local businesses attract more customers. Restaurants, meanwhile, have complained about inaccurate prices and menu items on those sites, while others have said they receive orders for pickup or delivery items they can’t actually fulfill because they don’t offer off-premises options.
California’s law comes at a time when most restaurants have been more or less forced to take their business off-premises to even stay alive through the upheaval caused by the pandemic. But at the same time, a bunch of other restaurant tech companies are offering alternatives to third-party delivery services. So a restaurant getting listed on Grubhub’s website could be undercutting the businesses own separate efforts to fulfill delivery orders (and retain direct relationships with customers).
Third-party delivery services rely on these non-partnered listings to increase their share of the market and look attractive to potential investors. Having to sign formal agreements with businesses will slow these companies’ ability to some restaurants, and outright halt them from getting others. That in turn would further undercut the still-unprofitable model on which the market is built.
Rhode Island introduced a similar ban earlier this year that is still pending. California’s is set to take effect on Jan. 1, 2021.