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Capping restaurant delivery fees is a bad idea

pusok-kris-col-sigRestaurants across the country are fighting to survive. With dining restrictions imposed, the food service industry, particularly small, local restaurants, has been hard-hit. Many restaurants, because of the pandemic, have been forced to make delivery and carry-out service their sole source of income.

Maryland legislators are threating potential earnings for delivery drivers, revenue for restaurants, and accessibility to food for consumers with their recent proposals to cap commission fees on third-party delivery platforms.

While Americans are struggling to pay bills and restrictions remain on restaurant capacity, many people are relying on these essential services in times of hardship. These platforms cannot operate without commission fees and will have to reduce service or potentially cut services areas entirely — a huge detriment to the restaurant industry and residents of Maryland.

With limited resources, smaller restaurants may have never had the opportunity to invest in the infrastructure necessary to provide food delivery. In recent years, some have opted against investing in their own services and instead contracted with a competitive third-party food delivery platform like Uber Eats, DoorDash, and Postmates.

These platforms connect customers with restaurants, provide marketing services, and some provide access to delivery through the platform.

Meanwhile, with COVID-19 spiking across the U.S., consumers see food delivery as a way to have safe and convenient restaurant meals. Consumers are demanding it, and it has been a lifeline for the restaurant industry.

Unfortunately, some localities have proposed increased regulations on third-party delivery platforms. At a time when these services are the easiest means for restaurants to connect with customers, policymakers are asking them to continue providing the service, but mandating a drastic cut in how their delivery services are compensated, thereby harming the entire supply chain of wholesalers, restaurants, drivers, and consumers.

Some local governments, including in Maryland, appear to believe that price controls would ultimately boost profits for restaurants – however the opposite effect is much more likely. Price controls produce negative impacts on the entire supply chain, including delivery workers and couriers, and have never proven worthwhile.

Disruptions to the marketplace like this could lead to lower volume, which not only hurts restaurants, but would have a negative impact on delivery drivers and customer access. Such action leaves local restaurants with far fewer options to cope with during the pandemic.

Although lawmakers are seemingly looking out for small restaurants, what they’re really doing is cutting the legs out from under their last lifeline. There is no reason for third-party services to support these independent businesses and advertise their products if the costs of operating the service cannot be covered. This makes consumers the big loser here.

Restaurant options

The fact of the matter is restaurants have choice. They could offer delivery themselves. They can decide to offer carryout by phone or on their own website, but many of them choose to partner with a competitive third-party food delivery platform.

Many restaurants have long-standing agreements with their chosen delivery services. These restaurants also have a large degree of flexibility in the agreements that they make.

Some local governments have focused on much more sensible ways to support restaurants, like providing grant money to local restaurants to help support their transition to modified dining experiences in the pandemic, pay workers, or other needs. Some have even provided tax relief and waived some existing permitting requirements to help transition their services. Others have developed public-private partnerships to encourage restaurants to expand delivery and carry-out operations and in some cases subsidized or paid for the costs associated with that.

In times like these, restaurants need more options, not less. By limiting how these third-party services work with restaurants, policymakers are forcing them away from the small independent businesses they serve to the advantage of larger national chains. These name-brand establishments will attract delivery services with the highest volume of transactions they can support under the new price structures. This will severely limit consumer choices.

The constant economic force of competition will keep the industry fair and create solutions for a challenging time. The role of municipal government is not to run people’s lives, but to help them live their lives.

Government price controls in a competitive marketplace will undoubtedly equate to picking winners and losers. While policymakers might think they are propping up restaurants, the unintended consequences could have far larger negative effects. Consumers deserve much better.

Kris Pusok is a director at the American Consumer Institute, a nonprofit research institute.