Mayor Bill DeBlasio and the City Council of New York signed legislation last month to cap delivery fees. Under the bill passed by the New York City Council, third-party food delivery services in New York, like Grubhub, DoorDash and Postmates, wouldn’t be allowed to charge restaurants more than a 20 percent commission on orders during states of emergency like the coronavirus pandemic. Currently, the apps can charge restaurants fees of more than 30 percent per order, cutting into profits at a time when COVID-19 has shut the doors of eating places except for takeout and delivery orders.
The legislation would restrict fees charged by third-party food delivery services like Grubhub during states of emergency when restaurants are prohibited from serving customers in-house, and for 90 days afterward. During these periods, the services could charge only up to 15% per order for providing delivery services, and no more than a 5% fee per order for other types of charges, like credit card processing and marketing.
Violations of the law could mean fines of up to $1,000 per restaurant per day for the delivery services. “This is one where we want to make sure people are treated fairly,” de Blasio said. “And they saw something that wasn’t fair to everyday people going through so much, and I think it’s smart legislation, so I will support it.”
Grubhub spokesman John Collins said the laws would not withstand the company’s legal challenge. “Any arbitrary cap – regardless of the duration – will lower order volume to locally-owned restaurants, increase costs for small business owners, and raise costs on customers,” he said. “Delivery workers would have fewer work opportunities and lower
earnings.”
The proverbial “elephant in the room” is the possibility that Uber Technologies Inc which runs Uber Eats, could acquire Grubhub Inc. That is reigniting some restaurants’ worries over the commissions charged to eateries by the third-party delivery companies. Uber is in negotiations to buy Grubhub Inc in an all-stock deal.
Some small eateries have been vocal about their distaste for the services, which sometimes charge mom and pop restaurants – already operating on thin margins – as much as 15% to 30% commissions on each order while giving discount breaks to marquee chains like McDonald’s Corp.
In March and April, as the coronavirus pandemic hit the United States, Grubhub added as many new partner restaurants to its platform as it did during the entire second half of 2019, Chief Executive Officer Matt Maloney said. It now has about 300,000 U.S. restaurants on its app, while Uber eats has more than 100,000 in the United States and Canada. Their merger would create the nation’s largest restaurant delivery company.
“In April, daily average orders via Grubhub were 20% higher than the same month last year,” Maloney said.
Andrew Rigie, executive director of the New York City Hospitality Alliance, a trade association, said consolidation among third-party delivery firms “poses significant concerns.”
“You get nervous when you potentially have a provider that’s going to be over 50 percent of the market,” said Robert Guarino, chief executive officer of 5 Napkin Burger, which has four sit-down locations in Manhattan. Most of his delivery orders come through Grubhub. “The big question is, what happens as all these companies are trying to reach profitability, where does it come from,” he said.
“During this unprecedented public health crisis, many restaurants are struggling just to stay afloat,” said Councilman Mark Gjonaj, the bills’ sponsor. “These bills could mean the difference between remaining open or closing their doors and laying off their employees.”
In New York, at least a dozen food delivery services compete for customers who are increasingly ordering from multiple platforms. Outside of New York, other city and state regulators have been scrutinizing delivery companies, with concerns about high delivery fees, tipping policies and the way they classify their workers. Grubhub sales have been hurt by the increased competition and the closing of restaurants in New York City.
Other cities, including Jersey City, Washington, DC, Seattle and San Francisco have also capped third-party delivery service fees as a result of the pandemic.
