Los Angeles and New York City cap third-party delivery fees

New York City and Los Angeles join the mounting list of large cities from coast-to-coast capping third-party delivery fees to help restaurants during the COVID-19 pandemic.

This week, New York City Mayor Bill de Blasio signed a bill that caps third-party delivery commissions at no more than 20%. The fee cap was part of a larger comprehensive relief package aimed at giving New York City restaurants a fighting chance to survive a prolonged order to temporarily close dining rooms to stop the spread of the novel coronavirus.

Other provisions of the bill include prohibiting delivery companies from charging restaurants for telephone orders with customers that did not result in an actual transaction during the call. The bill is valid through the COVID-19 emergency and for a 90-day period after the state lockdown ends.

In states where dine-in restrictions have been lifted, many restaurants have been taking advantage of health guidelines that encourage outdoor dining. Jurisdictions are also easing regulations with regards to permits needed for “patio style” seating. New York City is doing the same, by waiving the sidewalk fees restaurants pay the city to use public walkways for outdoor dining.

These fees, which will save restaurants thousands of dollars, will be forgiven through the end of February 2021.

The city is also protecting restaurant owners from being personally liable for defaulting on rent payments between March 7 and Sept. 30.

“Landlords will be blocked from enforcing personal liability clauses in leases for commercial tenants who default because of a government order to close indoor eating and drinking operations during the emergency,” according to the order. “It will also be unlawful to threaten a commercial tenant based on their status as a business affected by COVID-19 or the tenant's receipt of a rent concession during the COVID-19 emergency.”

Last week, the Los Angeles City Council voted in favor of a 15% fee cap. Los Angeles and New York City join San Francisco, Washington D.C. and Seattle, all of which have capped delivery fees in recent weeks. In New York City, the cap is split into two categories: a 5% cap for transmitting the order through the app, often referred to as the “marketplace” by delivery companies, and a 15% cap on last-mile delivery. 

Restaurant industry advocacy groups have put pressure on third-party delivery companies such as Grubhub, DoorDash and Uber Eats to reduce profit-hurting commission fees during the COVID-19 crisis. Delivery, carryout and drive-thru have been the only revenue channels for restaurants during the pandemic.

Independent restaurants without drive-thru lanes or a robust online ordering platform have been especially hurt by shelter-at-home orders, as delivery has become a necessity to drive revenue.  During the pandemic, delivery orders have more than doubled from 3% of total transactions to 7%, as of March, accoring to market research firm The NPD Group.

With consumers turning to delivery more during the pandemic, restaurants have been signing up with various players. Some delivery companies are offering relief on commissions, especially for new merchants. Still, most fees can be as high as 30%-35%. 

Restaurants have long said that the hefty commission fees cut into the only profit they make from delivery.

But third-party delivery companies argue that fees pay for a combination of fixed costs, and tailored marketing that helps drive order volume.

Caps, they argue, will result in fewer orders for independent restaurants because they won’t be able to market themselves as aggressively as national chains on delivery platforms; also, consumers might have to pay higher prices to offset revenue lost from commissions. 

Grubhub said caps also hurt drivers because these gig workers would have fewer work opportunities and lower earnings.

“This is exactly the wrong proposal,” Grubhub said in a statement sent to Nation’s Restaurant News on Wednesday. “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.”

“We also believe that any cap on fees represents an overstep by local officials and will not withstand a legal challenge,” said the Chicago-based company.

Representatives for DoorDash, Postmates and Uber Eats could not be reached for comment. 

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Contact Nancy Luna at [email protected] 

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