The Covid-19 pandemic has had an unprecedented impact on a full range of business sectors. Research on the U.S. travel industry shows spending on travel in 2020 totaled $679 billion, a decline of $500 billion or 42 percent compared to 2019. And with theaters, entertainment venues, college and professional sports shut down for most of 2020, the entertainment and recreation industry sector was hit hard as well.
But perhaps the hardest hit and most visibly damaged was the restaurant industry sector. The numbers are staggering: from March to October 2020 U.S. restaurants and bars saw a $130 billion loss in sales compared to the same period in 2019. As of December 2020, 110,000 U.S. restaurants and bars had closed either permanently or long-term and 2.1 million restaurant industry sector employees had lost their jobs.
Adaptation and Creativity Lead to Survival
The restaurants that managed to survive the virus and the government-mandated shutdown brought on by the pandemic did so by getting creative, offering take-out and curbside service where permitted, and/or incorporating delivery into their business models.
Restaurants not interested in developing and investing in their own delivery services turned to food delivery services such as DoorDash, Grubhub and Uber Eats. These services list on their websites the menus of restaurants they serve, take orders online which are then passed on to the given restaurant, pick up and deliver the food. Drivers are often tipped by customers and the food delivery companies charge participating restaurants a commission.
Commissions Eat Profits
That commission however can be as high as 30%, a losing proposition for an industry that operates on approximately a 10% profit margin. Many cities – including St. Louis – passed laws capping these commissions. The St. Louis law put a 20% limit on commissions, still high enough to evaporate a restaurant’s 10% margin.
In the face of these numbers, some restaurants raised prices while many chose not to use the delivery services, either establishing their own delivery workforce or electing to ride out the pandemic hoping revenue from curbside pickup would be enough to stay afloat until restrictions were lifted.
But making that choice proved to be a problem for many restaurants. Some food deliver services, most notably DoorDash, continued to list those restaurants on their website with a notation indicated the restaurant was “closed” or “unavailable.” Customer using the delivery service website would see the “closed” notation and assume that restaurant had temporarily closed or permanently gone out of business.
For small, independent restaurants with one or few locations, being listed as closed on a food delivery service website was yet another kick when business had already fallen off dramatically.
However help is on the way.
The “Lil Guy” Fights Back
Lona’s Lil Eats in St. Louis was one of many restaurants who were damaged by DoorDash’s falsely advertising on the DoorDash website and app that Lona’s was closed, though it was open and had never contracted with DoorDash. Worse, Google search results for “Lona’s Lil Eats” listed the deceptive DoorDash landing page for the restaurant above Lona’s own website, effectively diverting business away from Lona’s and to restaurants who were working with DoorDash.
Lona’s along with other similarly affected restaurants brought a class action against DoorDash in September and in January a federal judge found in favor of the plaintiff’s in the class action, moving the action to the discovery phase in which the plaintiffs will identify customers who believed DoorDash’s “closed” or “unavailable” listings and chose to order from DoorDash clients. The judge also rejected DoorDash’s request for an injunction requiring DoorDash to remove all false listings from its website and apps.
While a ruling or settlement of this class action may not be near, the beleaguered plaintiffs – and their many customers – have reason for optimism as the case moves forward. This is yet another example of the power of class action litigation, which can level the playing field between large entities and smaller businesses and organizations, or individual consumers.
Help is A Call or an email Away
The lawyers of the Law Office of Richard S. Cornfeld have substantial experience and a track record of success in leveraging class action litigation on behalf of clients. If you believe you or your business has been treated unfairly, contact us today for a complimentary consultation.