LET’S FURTHER HURT THE RESTAURANTS SO THE POLITICIANS CAN SHOW US HOW MUCH THEY CARE

5/19/20

Chicago Mayor Lori Lightfoot last week imposed new rules for food delivery companies, such as DoorDash, GrubHub, UberEats, and the like, that require full disclosure of the fees such companies charge to the restaurants with which they work.    The requirement, which the Lightfoot administration says is the first of its kind in the nation, is designed to show consumers how much of the money they are spending to support local restaurants in these trying COVID times finds its way not to the restaurants themselves but to the companies and people delivering the food.   The alleged demand for this information arose in response to reports of less, and often far less, than 70% of what consumers pay finding its way to the restaurants.  News of discounts and deals touted by the delivery apps but borne nearly entirely by the restaurants for whom they deliver fed fuel to the fire.

Yours truly, while eschewing the worn and trite term “transparency,” is in favor of greater disclosure when such disclosure can be provided at a reasonable cost and provides a benefit that exceeds that cost.   There again is that pesky insistence on reasonable cost/benefit analysis, a concept that goes far over the heads of typical politicians, either because they know nothing of economics and common sense or because the concept of costs that actually come out of their, rather than the taxpayers’, pockets does not exist in their world.   But I digress.  At any rate, full disclosure is a good thing, except when its costs are prohibitive, because information facilitates good decision making, and God knows we need a lot more good decision making nowadays but, again, I digress.

The point of providing such information to consumers is, one supposes, that once consumers see how much of the money they thought was going to their local restaurant is actually going to a giant corporation, they will stop using the GrubHub, UberEats, DoorDash, etc. apps, putting downward pressure on the pricing structure of that industry and allowing more money to flow to the people who produce, rather than deliver, the food.   This, of course, assumes that people’s motivation behind using such apps is to support local businesses rather than to indulge the apps’ users’ propensity to rarely vacate themselves from their couches, but let’s uncustomarily toss such cynicism aside and assume that people really do want to keep their favorite gustatory outlets alive for whatever reason.   Even under such circumstances, there is one obvious and one not so obvious problem with this motivation.

The obvious problem is that this effort to get people to eschew home delivery apps might work.  Foodies and the like, disgusted by the huge portion of what they pay for their meals that doesn’t find its way to mom and pop who run the joint down the street, might stop ordering via GrubHub and the like.   How does that help the restaurant?   If the restaurant has its own delivery service, or the customers are so motivated as to get off the couch and walk or drive to their favorite eatery (Frugal types like yours truly wonder why customers wouldn’t do so in the first place in order to save the delivery fee, but I’ve given up the quixotic quest for financial common sense among my fellow Americans a long time ago.   Again, I digress, but at least I do so parenthetically.), that would work out nicely for the restaurant.   But what if people won’t get off their couches and/or the restaurant does not have its own delivery service?   The result of people’s sticking it to the man by refusing to use the apps is that the restaurant loses that business.   And the assumption that all that business is unprofitable because of the outrageous fees the delivery apps charge is a tempting one until one stops to consider that the restauranteurs in question are not idiots.  If this business did not at least cover its immediate, or variable, costs, the restaurants would not be pursuing the business.   Undoubtedly, the business is not nearly as profitable as pick-up business, certainly is not as profitable as “in-store” business, and isn’t sufficiently profitable to sustain the restaurant in the long run, but it can’t be money losing business or the restaurants wouldn’t bother.  As much as this might go right over the heads of political types, you can’t make money by losing money no matter how much money losing business you do. 

The same logic applies to delivery services.   A lot of restaurants don’t have delivery services because their owners find it cheaper, at least at lower volumes, to deal with DoorDash, UberEats, and the like.  If setting up delivery were economic for restaurants, and especially for small restaurants, these apps wouldn’t exist.

Examining the less obvious problem with requiring full disclosure of delivery app fees requires us to recall some of the cynicism we hypothetically cast aside when elucidating the more obvious problem outlined above.   Suppose everybody is not as civic-minded and as concerned with “the little guy,” or with much of anybody beyond himself, as we are led to believe.   Suppose the consumer learns that, of the, say, $30 he just spent on a restaurant meal that reached his house via a delivery app, only, say, $20 went to the restaurant.   Suppose further that this consumer’s reaction is not something like

“Damn those money-grubbing food delivery apps!   I’m going to dash off my couch and pick up my eats in person!”,

but, rather

“Hey!  Luigi down the street is making money on my order at $20!   Where does he get off charging me $30 when I go to the restaurant or pick up my meal?   Why, that Luigi is nothing but a gouging, money-grubbing, profiteering miscreant!”

Then, when he goes to pick up his next order or, when he can, eats at the restaurant, the consumer berates Luigi, demanding that he lower his prices so that he doesn’t become “rich” at the expense of this consumer who, after all, has lease payments to make on his Lexus.

No, I’m not being outrageous here.   There are people, and more than you probably think, who are sufficiently self-centered, clueless about the tough economics of the restaurant business, and unfamiliar with such concepts as fixed costs and contribution margins, as to think that their half-hindquartered argument about Luigi’s being a price gouger makes sense.

While yours truly has no problems with full disclosure, at reasonable cost, one can easily see how this full disclosure rule on delivery apps can wind up hurting local restaurants at least as much as it hurts the big, bad delivery apps.   Such an outcome should be no surprise; it is typical of the results derived from sometimes good intentions combined with lack of knowledge or introspection, a combination that nearly perfectly describes the modern political process.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics.