Despite overwhelming historical evidence that price controls never work, one mayor is trying her hand at it again. San Francisco Mayor London N. Breed on April 10 imposed price controls on the third-party food delivery commissions. Specifically, third-party food delivery services can no longer charge more than 15% commission. Normal commission fees can be anywhere from 10-30%.
This price control will harm delivery providers, restaurants, and consumers and make food delivery more expensive. An increase in the price of delivery will cause fewer people to order which will reduce much-needed revenue for restaurants and workers.
GrubHub, a food delivery service that operates in San Francisco, sent out an email encouraging its users to oppose the measure. Grubhub said the following: “Mayor London Breed wants to impose a limit on a restaurant’s ability to pay for delivery services. This will increase your fees by $5–10 per order and immediately cripple delivery orders, outweighing any potential benefits when takeout is the only option restaurants have to stay open.”
In a letter to Mayor Breed, DoorDash, UberEats, GrubHub, and Postmates said:
“Any cap on commission fees—regardless of the duration—will result in damaging, unintended consequences for San Franciscans from all walks of life. To date, no city has enacted a cap on delivery commissions. If the City attempts to dictate contract terms between delivery services and restaurants, it would force our services to radically alter our businesses just as we desperately try to meet the needs of restaurants, delivery people, customers, and our communities. This would result in making food delivery more expensive—putting it out of reach for all but the city’s most prosperous residents—and significantly reducing restaurant revenues and earning opportunities for thousands of residents.“
Many restaurants would have little or no sales during the COVID-19 pandemic without services like GrubHub, Uber Eats, Postmates, and DoorDash. The delivery services have drivers to pay, employees to support, and a business to maintain. Cutting a large source of revenue in half is radically problematic.
Uber in particular has, voluntarily, taken significant steps in helping fight the effects of the pandemic. For example, they’re providing 10 million rides and food deliveries to healthcare workers, seniors and people in need, free of charge. They’ve committed to providing 300,000 free meals on UberEats to first responders and healthcare workers in the US and Canada, 100,000 in London, and 25,000 in Australia and New Zealand. They’ve also eliminated the delivery fee on consumers for local restaurants.
Delivery services will have to increase the raw cost of the delivery on their customers in order to make up for lost revenues. In this case, as with any other price increase on consumers, consumers will buy less of it.
This means that, in an effort to “save” local restaurants in the San Francisco area, Mayor Breed, instead, is discouraging consumers from ordering local food at all.