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U.S. representatives ask Federal Trade Commission to probe third-party delivery operators, franchisors

Investigation should look at alleged unfair practices by Grubhub, Uber Eats and DoorDash; U.S. Representatives from three states also ask the FTC to take a closer look at franchisor/franchisee relationships; Grubhub says their mission is to drive orders to restaurants

Congressional leaders from Washington state, Illinois and Pennsylvania took aim at third-party delivery operators this week, calling for the Federal Trade Commission to investigate the companies for alleged unfair practices tied to fee structures amid consolidation in the sector. 

COVID-19 has made restaurants increasingly reliant on food delivery platforms as measures to reduce the spread of the virus continue to limit in-person dining,” according to the Sept. 22 letter signed by U.S. Representatives Jan Schakowsky, D-Ill., Mary Gay Scanlon, D-Pa., and Pramila Jayapal, D-Wash.

The leaders said the FTC needs to scrutinize the “harmful impact” these companies have on small businesses and consumers.

The call for a probe comes as COVID-19 has been a double edge sword for restaurant delivery operators. The crisis has triggered high demand for their marketplace and last-mile delivery services.

But the pandemic has also highlighted how use of their services erodes profits for restaurants, who can ill-afford such losses while operating under restricted conditions in most jurisdictions for the past six months. Third-party delivery fees can run as high as 30-35%. 

“While restaurants struggle to survive, these delivery platforms’ fee structures and questionable practices have made it hard or impossible for restaurants to remain profitable, prompting multiple cities to cap these fees as an emergency measure to support local restaurants,” the letter states. 

The leaders said independent restaurants are especially vulnerable amid recent consolidation in the delivery sector. Grubhub plans to merge with European-based Just Eat Takeaway and Uber Technologies, the parent company of Uber Eats, is buying Postmates. 

“Restaurants can only choose whether to participate with the services and terms set by the dominant firm in their market,” the letter states. “The platforms have used this leverage to set excessive fees and commissions,  and to undertake multiple coercive and potentially deceptive marketing actions such as creating fake phone numbers and websites for restaurants and offering delivery services without restaurants’ consent.”

The latter statement is referring to a tactic common among delivery operators, where they promote “non-partner” restaurants on their apps to gain market share and give consumers more options. In Grubhub’s fiscal 2019 fourth-quarter, the company doubled its restaurant inventory as the result of adding non-partner restaurants to its app last year. 

DoorDash and Uber Eats, both named in the letter, could not be reached for comment. 

Grubhub, also named in the letter, said the company’s mission has always been to drive more demand and orders to local independent restaurants through its network of more than 27 million diners.

“To further help during this difficult time, we have deployed over $100 million on programs to stimulate more sales for restaurants and to protect our community of restaurants, drivers and diners,” the company said in a statement. “While we look forward to working with Representatives Schakowsky, Scanlon and Jaypal on our shared goal of supporting independent restaurants, we take issue with their claims.”

Restaurant delivery companies argue that commission fees pay for a combination of fixed costs, and tailored marketing that helps drive order volume. Caps, they maintain, result in fewer orders for restaurants and higher prices for consumers.

During the pandemic, cities have tried to provide the industry relief by temporarily capping commission fees. Cities and counties with caps include New York City, Los Angeles, Seattle, San Francisco, Washington D.C., Philadelphia and Clark County, which includes Las Vegas. 

In their letter, the U.S. representatives argued that these high fees cast a “doubt on the long-term validity of the platforms’ business models.”

Separately, the representatives also asked the FTC to take a closer look at the franchisor/franchisee relationship, which they said was “underinvestigated” by the agency and “deserves careful scrutiny, including when applied to food services.” 

“By investigating the impacts of food delivery apps and by more thoroughly investigating claims brought by restaurants and other food-related franchisees, the FTC will better comply with the agency’s statutory mandate and better protect the small restaurants and food service businesses that employ thousands, allow for diversity of entrepreneurship, and add vibrance to our communities,” according to the letter. 

Contact Nancy Luna at nancy.luna@informa.com 

Follow her on Twitter: @fastfoodmaven

TAGS: Coronavirus
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