If you haven’t heard, online food ordering platforms like GrubHub and UberEats are in the political doghouse. Not since the financial crisis have we seen as much legislation aimed at a single industry. Cities including New York, Boston, Washington D.C., Seattle and Los Angeles have enacted emergency legislation limiting the fees these companies can charge their client restaurants. On May 7, citing the declared state of emergency, Mayor Fulop, supported by the city council, followed suit with an executive order drastically limiting such fees.
The order will undoubtedly save local restaurants money, but here’s the rub: Once the state of emergency ends, so, too, will the executive order. The fees will return to their previous predatory levels. The problem of strangulating online delivery fees is a long-term problem. It needs a long-term solution.
The moral and political case for a limit on online ordering platforms is compelling. With many restaurants completely closed under the state of emergency, those that remain open are relying solely on takeout and delivery business. This has provided a bonanza for GrubHub and the like, which, armed with piles of venture capital, have gobbled up an increasing amount of your favorite restaurant’s online business, charging anywhere from 15% for simply taking the order to 35% for handling the actual delivery. For a struggling restaurant already hobbled by Covid-19, that’s real money. Before the pandemic, the high fees paid to these middle men were burdensome, but at least restaurants were operating on all cylinders and could rely on more profitable dine-in service and (for some) alcohol sales to help cover fixed expenses. Now, for many eateries these excessive fees are posing an existential threat.
These conditions set the table (no pun intended) for local politicians to step in to protect small businesses from rapacious Silicon Valley billionaires. And here, Jersey City lawmakers outdid themselves, imposing a draconian 10% across-the-board-cap on the online platforms. Thus, where previously GrubHub would pocket nine dollars on a thirty-dollar order, their cut is now three dollars. Now imagine that the order has to go from Downtown to Danforth Avenue in Greenville. You don’t need an MBA to know that three dollars isn’t enough to cover the cost of a driver, his car and his gas. While some services have knuckled under likely in the hope the storm will pass, UberEats has come out swinging and imposed a three-dollar “executive order” fee on Jersey City delivery customers, proving the adage that “there’s no free lunch” (again, no pun intended).
Those of us who own restaurants certainly appreciate the mayor and council’s efforts. However, the ten percent cap isn’t sustainable. And it’s unlikely that the online ordering platforms will put up with these restrictions for long. Under normal circumstances, Jersey City’s executive order would be patently illegal. The U.S. Constitution explicitly prevents a state or municipality from “impairing the obligation of contracts” such as exists between the online delivery platforms and their restaurant clients. Governors and mayors are given a little more leeway during states of emergency. According to Professor Marc Pfeiffer of Rutgers University Bloustein School of Planning and Public Policy, UberEats or GrubHub could haul the city before a judge. “A judge would decide whether the city had exceeded its authority. The city would have to justify it,” Pfeiffer said.
One need only recall the city’s ill-fated chain-store ordinance that banned the Gap and its brethren from large swaths of Downtown. Four years after the law’s enactment, a building owner dragged the city into federal court claiming the law was unconstitutional and a “publicity stunt.” The city folded, choosing neither to defend nor rewrite the law.
There is a solution, however. And one that could protect local restaurants from predatory fees while still providing delivery service to the entire city long after Covid-19 is a bitter memory: Mayor Fulop could help Jersey City’s restaurants unite and — with the bargaining power of a large group — negotiate lower prices with Grubhub and its peers. For now, let’s call it the “Jersey City Restaurant Co-op.” Sure, it would take buy-in from local restaurants and not a little bit of the mayor’s time and energy. But consider the potential gains. The co-op could decide to give all its business to one provider (say DoorDash) in exchange for better pricing. Or it could do what restaurants in Fort Collins, Colorado did and create their own platform (called NoCo Nosh), thereby circumventing the third party apps altogether. Either way, you have a long-term solution to the problem.
No doubt: Organizing this would take resources and credibility. It would take the city’s involvement and, yes, dedication of the mayor. But during Mayor Fulop’s tenure he has successfully negotiated with any number national businesses to provide services for Jersey City — think Citibike, Via and Airbnb. This kind of innovative public-private partnering is his sweet spot. A deal like this would significantly strengthen Jersey City’s restaurants and create a model for the country. It’s certainly worth a try. How ‘bout it, Mr. Mayor?
Note: The writer, in addition to being founder and publisher of Jersey City Times, owns Two Boots pizzeria in Jersey City.