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Some US Cities are Capping Food Delivery Fees

Some US Cities are Capping Food Delivery Fees

Some US cities are capping delivery service commissions during the COVID-19 crisis.

In a bid to help restaurants, some cities have stepped in to try to cap delivery service commissions during the COVID-19 crisis. In the past month, San Francisco, Seattle, Washington, DC and New York City passed emergency orders requiring delivery apps to cap restaurant fees. Similar legislation has been discussed in Los Angeles and Chicago.

Lockdowns and quarantines have led to spikes in food delivery services, including the use of third-party apps like Grubhub, DoorDash, Uber Eats and Postmates, as more people are staying in and trying to support local restaurants. But what many customers don’t realize is that these apps charge hefty fees for restaurants. Delivery apps have different ways of devising fees, but they tend to be in the range of 20 to 40 percent of how much a restaurant makes in app-generated revenue.

Related: Food Delivery Service Foodora to Leave the Canadian Market on May 11

Restaurants choose to work with third-party delivery apps to access their millions of users. If a customer doesn’t see a local restaurant on any of the apps, they might assume it isn’t open, or doesn’t do delivery, and go with another option. The apps can also free up staff, reduce order errors and prevent customers from skipping out on a check. App commissions were more manageable when they represented a smaller segment of overall revenue. But the pandemic changed that.

New York became the latest city to pass commission limits: third-party delivery services will not be able to charge more than 15 percent per order, and the tech companies cannot add more than five percent for other fees, like credit card processing and for better placement on the apps.

Grubhub, which controls two-thirds of New York City’s food delivery market, claims the commission ceiling could have an unintended consequence for restaurants. The city’s fee cap was passed as an emergency measure and applies for as long as restaurants remain closed and for 90 days after eateries can reopen.

“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,” Grubhub spokesman John Collins said in a statement. “Delivery workers would have fewer work opportunities and lower earnings. We also believe that any cap on fees represents an overstep by local officials and will not withstand a legal challenge.”

With or without the food delivery apps, some restaurants that have had revenue wiped out will never come back after the pandemic. A survey from the National Restaurant Association found that the pandemic has caused four in ten eateries to close, and some will never be able to open again. Fee caps will help restaurants that are still operational endure the pandemic and perhaps inspire customers to support local businesses.