Cost Reduction

Cities Capping Third-Party Delivery Fees

Even before the coronavirus pandemic crisis made food delivery one of the few avenues for restaurant revenue, those in the industry have been debating the benefits and pitfalls of third-party delivery services. One of the main subjects at the discussion table has been the delivery fees and commissions, which can account for up to 40% of the ticket, wiping out much, if not all, of a restaurant’s thin margin.

Now, in light of the forced need to create a delivery platform, restaurants are turning to legislators, looking for support during this enormous economic downturn. Here are a few cities that heard the cry.

Seattle

On April 24, the Emerald City announced a civil emergency order that capped third-party, app-based food delivery fees and commissions. Per Section 1: “It shall be unlawful for a third-party, app-based food delivery platform to charge a restaurant a commission fee per online, delivery or pick-up order for the use of its services that totals more than 15% of the purchase price of such online order until restaurants are allowed to offer unrestricted dine-in service…”

The order also states that these same delivery platforms cannot reduce a driver’s compensation or tips because of the reduced fees.

Ignoring said order is punishable by up to a $500 fine and/or imprisonment of up to 180 days.

San Francisco

San Francisco was the first city to lay the groundwork for a cap on delivery fees. Their emergency order went into effect on April 13, is in effect until dine-in service returns, or for the duration of the local emergency, and also limits the delivery fee to 15 percent. This, they believe, will ease “the financial burden on struggling restaurants during this emergency, while not unduly burdening third-party platforms, as this fee is recognized as reasonable, and third-party platforms continue to earn significant profits.”

Grubhub sent an email, pre-announcement, telling its users that this action could increase their fees by $5 to $10 per order, and suggested they contact Mayor London Breed to relay their discontent.

While Grubhub announced, back in March, that it would defer collection of up to $100 million in commissions, the commission fees are not actually being decreased, but simply delayed.

In April, DoorDash announced that, as of April 13 and through the end of May, more than 150,000 local restaurant partners (with five or fewer locations) in the U.S., Canada, and Australia would have their commissions reduced by 50 percent.

This order followed an attempt by the Golden Gate Restaurant Association (GGRA) to get delivery services to voluntarily reduce their fees.

New York City

The New York City Council is currently seeking to pass a bill which will cap food-delivery fees at 10 percent of an order and will ban third-party food delivery apps from charging additional fees during the government-ordered state of emergency.

According to the New York Post, if the bill passes, Grubhub, owner of Seamless, will be particularly hard hit as it “gets most of its revenue from its ordering platform, including through marketing charges and credit-card fees.”

Keep in mind that New York and the third-party delivery platforms that include Grubhub, DoorDash, Postmates, and Uber Eats already have a rocky relationship. On April 13, three New York consumers filed a proposed class action suit against said parties in Manhattan federal court. They are being sued for allegedly exploiting their dominance in restaurant meal deliveries, violating U.S. antitrust law, and imposing exorbitant fees of 10 to 40 percent, which consumers ultimately must bear through higher menu prices.

Chicago

A bill is currently in front of the Chicago City Council that will cap third-party delivery fees at 5 percent per order. Thus far, this would be the most aggressive reduction in fees and one that, if passes, may prompt some delivery services to bow out of the Chicago race.

The state as a whole may be on the verge of considering capping delivery service fees, at least if it’s up to the Illinois Restaurant Association (IRA), which called on Governor J.B. Pritzker to consider commission caps. Here is the letter from IRA to Governor Pritzker, stating the dire straits that restaurants in Illinois find themselves in and the requested relief efforts which include delaying sales tax remittance, freezing unemployment insurance rates, deferring taxes, assisting with business interruption insurance, and capping commission fees from third-party delivery services.

While some states and cities are easing restrictions brought on by the current pandemic, those in the restaurant industry understand that the battle has really just begun. Other cities currently looking at legislation that will reduce the cost of restaurants doing business with third-party delivery apps include Boston and Los Angeles, both of which are considering a 15 percent cap.

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