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Uber Technologies’ UBER Delivery division faces a headwind as the New York City Council approves a legislation to permanently cap commissions that the company charges from restaurants on food delivery orders. Apart from Uber, other food delivery companies affected by the decision, including DoorDash DASH and Just Eat Takeaway.com’s unit Grubhub, are expected to fight against the price controls, a Reuters report stated.
The bill will restrict the amount food delivery companies can charge restaurants to 15% per delivery and 5% for advertising and other services.
Last year, several U.S. cities, including New York, had imposed temporary caps on commissions, which were as high as 30%, to help restaurants cope with dented margins amid the pandemic-led woes.
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Another bill passed by the council requires food delivery companies to be licensed by the Department of Consumer and Worker Protection every two years. Both bills need to be signed by Mayor Bill de Blasio and would take effect 120 days after being sanctioned as law.
San Francisco, CA has already implemented permanent commission caps of 15% on each delivery order.
Per the Reuters report, Uber, carrying a Zacks Rank #3 (Hold), is yet to comment on the situation. Grubhub said in a statement, “This permanent price control is flagrantly unconstitutional and will hurt local restaurants, delivery workers and diners across NYC. We will vigorously fight this illegal action.”
DoorDash, carrying a Zacks Rank #4 (Sell), has reportedly said that the commission caps are "unnecessary and unconstitutional ... New York's restaurants need choice more than ever, and this dangerous government overreach will severely limit the options small businesses rely on everyday to succeed."
Upon enforcement, the commission caps are likely to hurt margins and revenues of food delivery companies. This adds to Uber’s struggles on the bottom-line front as the company’s Mobility business continues to be impacted by softness in ride volumes in certain parts of the world that are experiencing higher number of coronavirus cases.
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