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Delivery Giants DoorDash and Grubhub Are Suing San Francisco Over the Permanent Fee Cap

As expected, the apps are fighting back, and the delivery wars continue 

Photo: DoorDash

In June, San Francisco had the distinction of being the first city in the country to pass a permanent cap on delivery fees. Many cities have put temporary emergency measures in place during the pandemic, but SF was the first to approve permanent legislation requiring DoorDash, Grubhub, and other food delivery apps to cap the fees they charge restaurants at 15 percent, long after the pandemic is over. Now, as expected, the apps are fighting back: DoorDash and Grubhub filed a lawsuit on Friday, July 16, against the city and county of San Francisco, as first reported by Restaurant Business.

In the lawsuit, DoorDash and Grubhub say that “imposing permanent price controls” is unnecessary, harmful, and unconstitutional. As in the past, the companies argued that the cap would hurt restaurants, and threatened to shift costs to consumers, which they’ve already done with additional fees. DoorDash is headquartered in SF, and also owns Caviar, while Grubhub is based in Chicago. Both DoorDash and Grubhub have published company blog posts, and DoorDash even designed a multimedia infographic, which seems to be aimed at educating customers on “price controls” or “price fixing,” which is the messaging the companies now using.

“The City of San Francisco passed hasty, detrimental, and unconstitutional price controls which leave us no choice but to resolve this matter in court,” a spokesperson for DoorDash said in a statement. “Not only do permanent price controls violate the US and California Constitutions, but they will likely harm the very restaurants the city purports to support. Imposing permanent price controls is an unprecedented and dangerous overreach by the government and will limit the options small businesses rely on to compete in an increasingly competitive market.”

The lawsuit mentions that Mayor London Breed, who originally proposed the temporary emergency order, has declined to sign the permanent ordinance, at least not until some final amendments have been resolved to address concerns. Speaking with the SF Chronicle, however, Supervisor Ahsha Safai and a spokesperson for Supervisor Aaron Peskin, who both co-sponsored the legislation, said that they stand behind the ordinance, and expect the city to be able to successfully defend this new lawsuit.

Local restaurants were relieved when the permanent cap was approved, but now, “We are disappointed to hear of the pending delivery company lawsuit against the city of San Francisco’s delivery cap legislation,” Laurie Thomas of the GGRA said in a statement. The GGRA has been in communication with DoorDash in particular, and was even surprisingly supportive when DoorDash introduced new pricing tiers in April. Those tiers start with a basic plan at 15 percent, but promise more marketing and better promotion in the app at higher tiers of 25 or 30 percent; it leaves open the question of whether the basic plan is actually viable for restaurants, or if owners would be pressured and upsold. DoorDash is now saying that the majority of restaurants have voluntarily opted into those higher tiers.

In a common story for many SF restaurants, Samir Mogannam of Beit Rima says he “boycotted” and refused to partner with any delivery apps before the pandemic, due to the high cuts they were demanding at 25 or 30 percent, and their aggressive outreach through phone calls. He says he only signed with DoorDash and Caviar during the worst of the pandemic, in a last-ditch effort to save his struggling business, when after a month of “bitter conversations,” he was able to negotiate them down to 10 percent. “I never wanted to do delivery in the first place,” Mogannam says. “I didn’t like how they exploited their workers and gouged restaurants.”

He says he felt grateful the city of San Francisco was able to put a permanent cap in place, so his fellow restaurant owners, who might not have as much leverage as the wildly popular Beit Rima, could get a similarly fair deal. “I feel that SF as a city has the right to protect small businesses from big companies bullying them around and gouging them,” Mogannam says. Weighing in on the current lawsuit, “It’s in the best interest of the delivery apps to fall back. If they really want partnerships that will sustain instead of shutter restaurants. It’s just another case of greed.”

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