January 27, 2022

Permanent Cap on Delivery-App Fees Proposed for New York City

The New York City Council is considering a legislative package aimed at significantly regulating the food-delivery app industry, including permanently limiting fees that operators like Grubhub and Uber Eats can charge restaurants.

In a bid to help the city’s struggling restaurant industry survive the Covid-19 pandemic, the council last year passed legislation temporarily prohibiting third-party food-delivery services from charging eateries more than 15% per delivery order and more than 5% for marketing and other nondelivery fees.

However, the combined 20% cap is set to expire Aug. 17. It only covers the first 90 days after New York Gov. Andrew Cuomo allowed indoor dining to reopen May 19 at full capacity statewide.

Some small restaurant operators say the app fees typically can run them a combined 30% or more of what they take in on every order.

A new bill sponsored by Councilman Francisco Moya, a Queens Democrat, would make the cap permanent. Violators would face up to $1,000 a day in fines per restaurant, the same penalty covered under the temporary law.

Mr. Moya said a permanent cap is needed because “for far too long, these third-party apps knowingly and willingly took advantage of small businesses.”

Grubhub, which also operates the delivery app Seamless, has long threatened litigation over such action. It has said that its services help businesses grow and that no government should meddle in existing contractual agreements between privately owned eateries and food-delivery services.

Demand for food delivery has soared amid the pandemic, but restaurants are struggling to survive. In a fiercely competitive industry, delivery services are fighting to gain market share while facing increased pressure to lower commission fees and provide more protection to their workers. Video/Photo: Jaden Urbi/WSJ

The company, which says it breaks even on the delivery portion of its business and makes its revenue by marketing restaurants to users on its platform, said it is currently reviewing its legal options in regard to the package of bills.

Grant Klinzman, a spokesman for Grubhub, said a permanent cap would result in “unprecedented, damaging and long-term consequences for locally-owned businesses, delivery workers, diners and the local economy.”

“Fee caps limit how restaurants, and especially small and independent establishments, can effectively market themselves to drive demand, [and] therefore severely limit how many customers and orders we can bring to these restaurants,” he said.

An Uber Eats spokesman declined to comment.

Dozens of other cities across the U.S.—including Los Angeles and Seattle—have created similar temporary caps to assist restaurants during the pandemic, but many are also set to expire as eateries fully reopen.

San Francisco’s board of supervisors on Tuesday approved a permanent 15% cap per order on food-delivery fees, making the city the nation’s first to enact a permanent ceiling. It still requires final approval from San Francisco Mayor London Breed.

Council member Mark Gjonaj has introduced several regulatory bills.



Photo:

William Alatriste/New York City Council

However, unlike Mr. Moya’s bill for New York City, San Francisco opted not to address capping other lucrative charges like marketing fees.

The California State Assembly passed a bill last month mandating more transparency from food-delivery apps, but not before removing key language that would have placed a permanent 15% statewide cap on delivery fees.

Assemblywoman

Lorena Gonzalez,

a San Diego Democrat, who was the bill’s sponsor, said in an interview that she plans to introduce another bill next year to create a permanent cap, adding she believes there will be more support once temporary caps in cities throughout California expire.

Until then, Ms. Gonzalez said she plans to closely monitor the permanent-cap plans in New York City and San Francisco for guidance.

Mr. Moya’s bill and three others sponsored by Councilman Mark Gjonaj that also seek to regulate the industry in New York City will be discussed publicly for the first time during a June 30 hearing before the council’s committee on small business.

“My mandate is to ensure a level playing field in the David-versus-Goliath relationship that mom-and-pop eateries have with venture-capital-backed food-delivery platforms,” said Mr. Gjonaj, a Bronx Democrat who chairs the committee.

His bills include legislation prohibiting third-party delivery companies from including eateries on their apps or websites without a written agreement. Another bill would permanently prohibit these services from charging restaurants for phone orders that didn’t result in a transaction during the call.

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Mr. Gjonaj’s third bill would require the companies to reveal whenever they own a unique telephone number associated with the restaurants they are promoting and list a direct number for these eateries on their websites and apps.

Mayor

Bill de Blasio

and Council Speaker

Corey Johnson,

both Democrats, are reviewing the bills, according to their spokespersons. They both previously supported the council legislation that created the temporary cap on fees.

Andrew Rigie, executive director of the New York City Hospitality Alliance, which represents restaurant and nightlife establishments, said the legislative package is long overdue, adding he believes “some third-party delivery companies were exploiting restaurants before the pandemic, and they’ve only consolidated power since.”

“We can’t let these billion-dollar corporations exploit our local restaurants— especially as they try to recover from the pandemic,” he said.

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