Food delivery apps stung by New York City cap on commissions

Just Eat Takeout Update

Shares of Just Eat Takeaway, owner of Grubhub, one of New York’s largest food delivery apps, fell more than 4% on Friday after the city voted on the maximum commission rate that food delivery services could charge.

Many US cities have limited the likelihood that Grubhub, DoorDash, Uber and others will charge restaurants during a coronavirus pandemic, costing hundreds of millions of dollars in total.

Both companies assumed this was a temporary measure, but now both New York and San Francisco are moving to make the change permanent, significantly reducing the app’s future profitability. And other major cities may follow suit.

On Thursday, the New York City Council resolved to approve a law that would make the 23% fee cap permanent. This is divided into 15% for delivery services, 5% for add-ons such as marketing, and 3% to cover transaction fees. ..

“We’re not here to allow billion-dollar businesses and their investors to become richer at the expense of restaurants,” said Councilor Francisco Moya. rice field.

Previously, it was known that distribution apps would be charged as much as 30%. In pre-market trading on Friday, DoorDash and Uber shares were almost flat.

“This permanent price control is terribly unconstitutional and will hurt local restaurants, delivery staff, and eaters throughout New York,” Grubhub said. “We will vigorously fight this illegal activity.”

Wedbush analyst Dan Ives predicted that New York’s permanent cap would mean a “10% headwind” for the growth of all players in the market.

It’s especially damaging to Grubhub, which counted the city as a crown jewel and was an important part of its appeal for Just Eat Takeout, which it acquired earlier this year in a $ 7.3 billion deal after failed negotiations with Uber. ..

Ives said businesses should be self-reliant. “We expect this to be a major trend towards 2022 and pose challenges for sector growth,” he said.

San Francisco resolved in June to maintain the 15% cap, which was due to expire 60 days after the city declared that the restaurant could be fully reopened.

In a voting session, San Francisco director Aaron Peskin said, “It’s really essential to protect restaurants free from the exploitative and predatory practices of third-party food delivery apps aimed at drawing wealth from the local economy. “.

According to two people familiar with their plans, the two companies are responding to legal complaints in San Francisco and are likely to do the same in New York.

Meanwhile, other cities with temporary caps, such as Los Angeles, Seattle, Chicago, Washington DC, and Las Vegas, are considering whether to make them permanent.

“The outcome of the court battle in New York and San Francisco will probably determine whether other cities will impose price caps,” Gordon Haskett Research Advisors’ Robert Molins notes to investors. Said in. “I believe other cities will wait to see the final legal outcome before making a decision to impose a permanent tariff cap.”

For Grubhub, the commission limit is now between that and ebitda’s profitability, its European parent company Just Eat Takeout said in a recent presentation to investors. Earlier this year, Grubhub said it was affected by a commission cap of € 88 million. Without it, Grubhub would have achieved an ebitda revenue of € 63 million — instead, it posted a loss of € 25 million.

The same is true for DoorDash, which said it had a commission cap of $ 26 million in the second quarter of this year. DoorDash said: “Given the range of options available to merchants, we believe that this and similar laws are unnecessary, harmful to consumers. [couriers], And restaurants intended to be supported by these policies. It’s unconstitutional. “

Uber does not disclose its own comparable numbers. We did not respond to requests for comment on New York City’s actions.

Over the past year, DoorDash and Uber have both offered pricing structures that reduce reliance on per-order fees in favor of restaurants that pay a fixed fee for additional services, such as more prominent rankings within the app. It was started.

These changes indicate a changing view of the shipping sector, including grocery apps such as Instacart and Gopuff. Selling “show window” spaces within a crowded app has the potential to prove a more profitable and sustainable business model in the long run. Leverage large amounts of data about consumer purchasing habits.

Food delivery apps stung by New York City cap on commissions Source link Food delivery apps stung by New York City cap on commissions

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