UPDATE: April 28, 2020: Seattle city officials capped third-party delivery fees at 15% in an emergency order on Friday. The cap will remain in place until restaurant dining rooms reopen. The order also bars these platforms from reducing driver compensation in response to this requirement.
“Delivery services have been a lifeline for our restaurants during this unprecedented time. Unfortunately, some third-party delivery services are charging exorbitant commission fees, which exacerbates the financial hardship many restaurants are already experiencing,” Seattle Mayor Jenny A. Durkan said in a statement. “This commission cap will be critical to ensuring that delivery and takeout remain viable options and don’t cause increased financial hardship.”
- Chicago Alderman Scott Waguespack has introduced an ordinance to cap third-party delivery services at 5% per order in the city. The bill is now in front of city council for a vote.
- The Illinois Restaurant Association has also called on Governor J.B. Pritzker to consider commission caps at the state level. In a letter to the governor, IRA President and CEO Sam Toia writes that caps will not eliminate the impact of the crisis, but will be important first steps on the road to recovery to keep restaurants open and tens of thousands of people employed.
- This proposal comes on the heels of San Francisco’s move to cap delivery commission fees at 15%.
Seattle is the latest in a string of cities that have passed or are considering caps on third-party delivery fees. The New York City Council will also consider a 15% cap during a Zoom public hearing Wednesday.
If it passes, Chicago's proposed cap will be the most aggressive cap on delivery commission fees by far. Last week, San Francisco was the first major city to implement a cap, but the ball is in motion in other cities as well. New York City is holding hearings on a 10% cap next week, while city council members have called for hearings on a 15% cap in Boston. Toronto is also mulling a 15% cap, while the mayor of Baltimore has asked delivery companies to scale back on their fees voluntarily, according to Restaurant Business.
The debate around high delivery commission fees existed long before the pandemic. With average profit margins in the low-single digits, delivery commission fees averaging between 10% and 30% don’t leave much for restaurants at the end of an order, and plenty of them have been calling for a change. The conversations about New York’s caps, for example, started in February, well before lockdown orders.
But those calls are louder now because restaurants are hurting and, with dining rooms closed across the country, delivery is one of very few viable channels. Restaurants may have a little more leverage because of this, and even their customers have gotten involved — three New Yorkers just filed a class-action lawsuit against Grubhub, DoorDash, Postmates and Uber Eats alleging antitrust law violations.
Still, most of the cities are seeking permanent caps. Unsurprisingly, delivery companies have pushed back. A Grubhub spokesperson told Restaurant Dive the proposed New York City cap is “arbitrary" and claimed it "will slash business to mom and pop restaurants and hurt consumers in the process."
In his proposal, Waguespack suggests that delivery companies be required to refund restaurants within seven days if the proposed cap is exceeded. After that seven-day deadline, the proposal suggests that restaurants take civil action. If these types of caps become more common, not adhering to them could become costlier for delivery companies than fee reductions.
If caps do become more common, there will be challenges and perhaps even some pushback. Some argue that the policy negates the supply-and-demand-driven market, for example, while others worry that it could cause delivery companies to stop doing business with lower-cost restaurants.
As delivery becomes one of the primary methods of getting restaurant meals during the crisis, more customers may very likely continue the habit once the pandemic dies down. That’s good news for both restaurant companies and their delivery partners, but it also mandates a symbiotic relationship that works for both. Finding a compromise on commission fees could be an important first step.