New York state regulators have called for capping the commissions paid by full-service restaurants to third-party deliverers at 10%, a major first step in regulating the fees charged by the services.
The New York State Liquor Authority (NYSLA) issued what’s called an advisory to its leadership, asking them to take up the matter during a meeting on Aug. 20. The advisory asserts that commissions paid by restaurants with a liquor license be capped at 10%, consistent with state law that demands businesses sharing in the profits of a permitted establishment be vetted by the NYSLA and added to the permit, a time-consuming and potentially costly process. The major exception are landlords, who can charge up to 10% of a full-service place’s gross profits as part of its rent. The NYSLA suggested that places serving liquor be forbidden to pay more than the same percentage to the delivery services.
The threshold would hold across all orders delivered from a licensed restaurant, even if beverages are not allowed. Delivery of alcohol from restaurants is currently illegal in New York.
The way the proposal is phrased, the law would prohibit the licensed establishments from paying more than 10%, instead of mandating that the delivery services not charge a higher percentage. But paying anything more than that amount would be illegal per se, suggesting a higher charge could be refused by the establishments.
“The onus will be on industry members to notify companies like Grubhub-Seamless that they will have to lower their percentage rate to come into compliance with the advisory once it is adopted, if they wish to keep doing business with you,” Robert and Max Bookman of Pesetsky and Bookman, the legal counsel of the New York City Hospitality Alliance, wrote in an explanation blasted to the association’s membership this afternoon.
In addition, “if your business does not sell alcohol, you will not benefit from the advisory,” they said. Nor would the fee structure likely change for places that pay a flat per-fee for deliveries made by a third party.
Still, the advisory is seen as an important first step in curbing practices that have drawn fire from restaurateurs and government officials such as Mark Gjonaj, chairman of the Small Business Committee of the New York City Council.
“The committee is closely watching the advancement of the New York State Liquor Authority’s proposed advisory," Council Member Gjonaj said in a statement provided to Restaurant Business. "If adopted, the advisory will only impact restaurants that have liquor licenses. Thus, the committee will continue its work to establish a comprehensive solution that levels the playing field for all of New York’s locally owned restaurants.”
In hearings conducted in late June, Gjonaj's committee focused on such controversial practices as cybersquatting, or setting up websites that masquerade as a restaurant's internet page, and levying fees on restaurants when customers call a third party to seek information instead of placing a delivery order.
The Hospitality Alliance's lawyers wrote, “this would be a major and positive change for our industry, as we currently suffer from unfair demands from companies like Grubhub-Seamless to hand over exorbitant percentages of our sales. The advisory would go a long way to curbing this unfair business practice.”
The NYSLA warned that action on the fees may not happen quickly. Members of the authority are expected to defer a vote on the advisory until comments can be solicited from the public and businesses with a stake in the matter.
New York is the nation’s fourth-largest restaurant market, behind California, Texas and Florida.