In an Attempt to Help Struggling Restaurants, Cities Regulate Food Delivery Apps

A restaurant in New York advertises delivery options.

A restaurant in New York advertises delivery options. AP Photo/Mark Lennihan

 

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Several cities have set caps on the commission a food delivery app can take from a restaurant in recent weeks, a measure officials say will relieve some of the burden on struggling local businesses.

As part of the response to the coronavirus pandemic, many cities and states have closed dine-in restaurant service, leaving local eateries with takeout and delivery as their only means of revenue. Many restaurants have turned to food delivery apps like DoorDash, Postmates, Grubhub, and UberEats to keep their customers fed—but using these services can come at a hefty price. 

The commission that these apps take from restaurants varies, but can range as high as 20% to 40% of the order total. That type of fee may have been more manageable for restaurants that only made a small percentage of their revenue from app services before the pandemic. But as takeout and delivery have become the only option in most places, restaurants say the hefty commissions are killing their businesses.  

In response, lawmakers in large cities are setting commission caps on app-based takeout and delivery services to ensure that more money spent at local restaurants stays with the business.

New York became the latest city to implement an app commission cap of 15% on Wednesday. The emergency order went into effect immediately and will last for 90 days after restaurants are allowed to start serving dine-in food again. 

Similar measures are being considered in other cities, including Boston and Los Angeles. Officials already passed commission limits in Washington, D.C. and Jersey City, the latter of which implemented an even stricter cap of 10%. Cities have also started to cap the number of additional charges the apps can add, like credit card processing fees, as well as implementing requirements to ensure 100% of tips go to drivers. In Chicago, the city has enacted new rules that will require apps to give customers a breakdown of the costs so they can see how much the companies take in commission from restaurants. 

Officials in Seattle, which implemented a 15% commission cap in late April until the state allows dine-in service again, said that the measure was necessary to save local businesses. Mayor Jenny Durkan called the fees “exorbitant” and said that the commission cap is “critical to ensuring that delivery and takeout remain viable options.” City Council President Lorena González said that the measure will “provide much needed relief and establish a system that is more fair and equitable to our restaurants.”

The news was met with enthusiasm by local restaurant owners. Kamala Saxton, the co-owner of Hawaiian restaurants Marination and Super Six, said in a statement that her business had to start handling all takeout and delivery orders in-house because they could not afford app fees. “This commission cap will allow us to transition to a third-party delivery service without facing further financial stressors,” she said.

Grubhub, DoorDash, UberEats, and Postmates have seen a business boom during the pandemic. As a result, some of these companies have temporarily changed their fee structures during the pandemic to divert more money to restaurants. In early April, DoorDash announced that they were cutting commissions by up to 50% for most restaurants through the end of May. Others, like Grubhub, are allowing restaurants to defer commission payments to the app to a later date. 

But all the companies have chafed against mandated commission caps, arguing that such changes could do damage to their business and the local restaurants that use them. An UberEats spokesperson said in a statement that caps “would force us to radically alter the way we do business in a way that could ultimately hurt those that we’re trying to help the most: customers, small businesses and delivery people.” A spokesperson from DoorDash said that the company was “disappointed” that “elected officials are choosing to impose arbitrary caps without an understanding of the services restaurants receive in exchange for the amount they have agreed to pay.”

New York City Councilmember Justin Brannan has retorted that companies making billions should not be fighting measures to offer local restaurants a few hundred dollars per month. In a Twitter thread about the new measure, Brannan said that the companies’ assertions that caps would destroy their business models “[couldn’t] be further from the truth.”

“Lowering the fee will actually mean more restaurants will use these apps, and there will be more orders to deliver,” he wrote. “[A lower] fee makes it feasible for the restaurant to use the apps while still making a profit. Win-win.”

Emma Coleman is the assistant editor for Route Fifty.

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