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The Iowa City Miracle - How a co-op delivery app outcompeted big tech?

Weekly newsletter of Coop Exchange
Weekly newsletter of Coop Exchange
The Iowa City Miracle - How a co-op delivery app outcompeted big tech?

Big Tech's assault on independent restaurants
Independent restaurants are in perhaps the hardest position they have ever been in. The pandemic has wreaked havoc in the industry, forcing them to increasingly rely on food delivery apps that are increasingly engaging in monopolistic, extractive rent seeking at the restaurants expense.
How Iowa city restaurants fought back
In 2018, the local food delivery app in Iowa city was bought by GrubHub, a tech giant that controls more than half of the market in the US. As a result, the commission was doubled from 15% to more than 30%, devastating local restaurants.
John Sewell owned one of those restaurants. He had previously worked in  organising purchasing cooperatives and similar arrangements for rural hospitals. Using his expertise, Sewell started an initiative that grew into Chomp, a cooperative food delivery app owned by the local restaurants. The app takes a modest commission and distributes any surplus generated back to the member restaurants. By the end of 2018, it had outcompeted GrubHub with twice as many restaurants on its platform. The cooperative had become a sort of mass movement with a large portion of residents using it. Rather than a global monopolistic rent-seeker, it has formed into a local democratic institution for creating community wealth. 
John Sewell in his restaurant
John Sewell in his restaurant
Why co-ops can solve the problem of monopolistic rent-seeking?
Typically, each area has one delivery platform that has a leading market position. This is due to “network effects” - restaurants join the platform with most customers, customers join the platform with most restaurants. This dynamic drives areas of platform economy like food-delivery apps towards “winner takes it all” logic. The result is a development towards monopolies and monopsonies, which are exactly one of the market failures cooperatives have often historically proven to be able to fix.
To understand why, imagine that a shareholder owned restaurant app gains a dominant market position. It has the incentive to extract as much value as possible from the restaurants to maximise profits for shareholders. However, for a restaurant owned cooperative the incentive is almost opposite. If it gains a dominant position, it has no incentive to start extracting monopolistic rents from the restaurants - rather, the restaurants have the incentive to minimise transaction costs. If it would decide to increase commissions, the money would just be distributed back to the restaurants they are extracted from. If the leadership would try to keep the money for itself, the restaurants could democratically elect a new board of directors.
How credit unions can help replicate the Iowa city miracle?
The Chomp initiative is now being replicated in six cities, one of them being Jersey City in New Jersey. New Jersey also happens to be one of only eight states where state chartered credit unions can make direct equity investments into other cooperatives. Unfortunately, only one credit union, Vermont State Employee Credit Union, is using this legislation and investing in other cooperatives. This is an example of a potentially very useful legal tool that goes underutilised. 
There are many examples of new legislation that seeks to help cooperatives, but is never or rarely used. Alongside making new and better legislation, the cooperative movement should also try to find ways to utilise the existing legislation better. A specific and immediate instance where an existing underutilised legislation could be especially useful is for local credit unions to invest in the platform cooperative formed by the restaurants in Jersey City.
However, there is a lot any credit union or other cooperative in any state can do. It’s common for credit unions to provide discounts in other businesses for their members: a typical item could be 30% off from movie tickets. It’s common for restaurant cooperatives to promote themselves with discounts: a typical example could be a coupon code for free first delivery. Local credit unions could simply email their members a discount code for free first delivery from a restaurant owned platform cooperative in the six cities where the Iowa success story is replicated. 
This would provide tangible benefit in the everyday life of ordinary credit union members. It would also embed them to a wider cooperative ecosystem generating widespread community wealth and social capital. It would help the restaurant cooperatives to reach the mass membership of local credit unions when trying to find people to send their coupon codes to. It would save the cooperative organisers effort and reduce uncertainty when doing marketing, all without enriching big tech intermediaries like with Facebook or Google. Instead, they could directly reach out to the around one third of adults in the country who are credit union members via email, or through the credit union’s own app.
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