Bill to protect restaurants from unwanted third-party delivery apps nears final approval

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Mike O’Donnell kept asking them to stop, but they kept coming back.

The chief operating officer for Indianapolis-based Cunningham Restaurant Group, which operates 20 restaurants in Indiana, Ohio and Kentucky, first realized he had a problem on his hands about three years ago after a customer posted an online review complaining about their experience ordering food from one of Cunningham’s restaurants. The customer was unhappy with how DoorDash, a popular food delivery service, handled their food.

O’Donnell wanted to address the anonymous customer’s concern, but he had no way of knowing who left the review or how to contact them. What’s more, Cunningham didn’t have a contract with DoorDash and didn’t want them delivering their product.

“We want to control our food, and we can’t control it if we put it in someone else’s hands,” O’Donnell said.

He began reaching out to all the food delivery companies in Indianapolis, asking them not to include his menus on their platform. Most complied with his request, but he said there was one company that wasn’t giving up easily.

O’Donnell said Grubhub would initially honor his request to take Cunningham’s menus off its platform—only for them to pop up again a few weeks later.

O’Donnell has since instructed his marketing team to regularly monitor the mobile app and continually request that Cunningham’s menus be removed. But for smaller mom-and-pop eateries that isn’t an option.

“Locally owned restaurants do not have that capability to continually search and push back against major and multinational businesses when they’re just trying to keep their dish stations clean and their customers fed,” said Patrick Tamm, president of the Indiana Restaurant & Lodging Association, who testified in favor of the legislation.

In response to complaints from O’Donnell, Hoosier restaurateurs and the restaurant association, Indiana is following California’s lead in regulating third-party food delivery providers by advancing legislation that would require them to get written consent from restaurants to deliver their food.

The bill, awaiting action in the Indiana House, would allow restaurants to sue offending delivery providers for actual damages plus additional damages of up to $50,000 per transaction.

The legislation is aimed at preventing “menu scraping,” a term used by industry insiders to refer to delivery companies that upload a restaurant’s menu and logo to their platform—and deliver their food—without their consent.

Bill author Rep. Robb Greene, R-Shelby County, said he plans this week to ask the Indiana House to accept Senate changes to the bill despite ongoing objections from the Indiana Chamber of Commerce. If the House OKs the changes, the measure would be sent to Gov. Eric Holcomb for final consideration.

Greene said that while all of the major players—DoorDash, Grubhub, Postmates and Uber Eats—have engaged in menu scraping at some point, he made a point of singling out Grubhub and Postmates.

“This is a market share play for them,” the first-term lawmaker told IBJ. “They’re trying to compete against the other actors and they’re doing it in a way that’s exploiting local Hoosier restaurants.”

Grubhub did not directly respond to IBJ’s questions about such accusations, but a company spokesperson said Grubhub “seeks to support restaurants by helping them generate more orders and reach new diners” and is “developing tools that make it easy for restaurants to claim their menus.”

As DoorDash’s market share exploded during the pandemic, Grubhub began adding non-partner restaurants to its platform to remain competitive, The Wall Street Journal reported. In California, Postmates acknowledged in 2020 that it had 40,000 unmatched merchants.

DoorDash stopped adding restaurants to its platform without their consent in November 2020, according to a spokesperson.

“Our Partnership Plans offer restaurants choice, flexibility, and transparency to select the right products and services for their business,” the spokesperson told IBJ in a written statement. “We will continue to work with policymakers to help Indiana restaurants grow their business and reach their goals.”

Restaurants push back

Restaurants that want their menus taken off delivery apps currently have little recourse, but a growing number of states have imposed stricter regulations on these companies.

Similar to Greene’s legislation, a California law that took effect at the start of 2021 requires third-party delivery platforms to have stated agreements in place with merchants to deliver food orders. It also made it illegal for a food delivery platform to charge a purchase price that is higher than the price posted by the restaurant.

A Texas law takes a softer approach by prohibiting companies from charging restaurant fees unless agreed upon in a written contract, and Michigan flirted with legislation last year that would have required drivers to get a certificate from the American National Standards Institute to deliver prepared food

Indianapolis joined major cities like Chicago and Los Angeles in 2021 by passing a temporary ordinance that limited delivery fees to 20% of a meal’s price during the COVID-19 pandemic. Other cities went further, instituting transparency measures that required delivery apps to list the restaurant’s actual menu price and the app’s fees, or else face penalties.

These measures came about during the pandemic, when restaurants were forced to close their doors and delivery services became both essential and ubiquitous.

As one of the founders of Indianapolis-based ClusterTruck, a delivery-only restaurant that runs its own kitchen and delivery service, Greene said he proposed the legislation because of his expertise in the industry.

“I’m probably one of a handful of people in the country that’s had the opportunity to work in this space and understand it,” said Greene, who left ClusterTruck three years ago—he and the other founders had “different visions” for the company—and no longer has any financial stake in the business.

After he was forced to close his dining room in March 2020, Blake Fogelsong turned to delivery to keep his business afloat.

In 2018, the owner of Noblesville-based Clancy’s Hospitality, which has seven restaurants in Indiana, decided to sign an exclusive agreement with DoorDash, which takes a 24% cut, to deliver their food.

“It’s a hefty profit, but during the pandemic, having that extra revenue stream was instrumental in surviving,” Fogelsong said. “You don’t make a ton of money off it, but it’s a brand awareness thing.”

The partnership has been successful, but every few months, he finds one of his restaurant’s menus popping up on Postmates.

“I think giving us the right to sue these companies for up to $50,000 is a big thing for not only us, but tons of operators around the state,” he says. “It’s going to be a great thing to hold these companies liable.”

Lingering concerns

While none of the major players in the delivery space have indicated they wouldn’t comply with the law, some groups worry that the bill could leave internet service providers vulnerable to litigation because they host the platforms.

In response to those concerns, Sen. Chip Perfect, R-Lawrenceburg, offered an amendment that attempted to close a loophole that would have exposed search engines like Bing, Google and Yahoo to lawsuits.

But groups like the Indiana Chamber said the bill in its current form still exposes search engines to liability because delivery apps use them to facilitate orders and share customer data with those search engines.

“Unless HB 1279 is amended, search engines will face the choice of either delisting restaurants en masse, deactivating seamless online ordering options or obtaining signed agreements with nearly every restaurant that a customer can search and find on Google that also includes an ‘order online’ option,” writes Adam Berry, vice president of economic development and technology for the Chamber. “No state with similar laws invokes this quandary.

When asked if he shared those concerns, Greene said he was confident the bill wouldn’t be exploited for that purpose.

“This was heavily vetted on the Senate side for that very issue,” Greene said. “The intent of the bill is to go after third party operators, and I don’t really see the internet service providers or search engines getting caught up in this.”

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