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NYC probes third-party deliverers’ business practices

In what’s believed to be a first-of-its-kind hearing, the City Council pressed operators and outside services for information on how third-party delivery works and what issues need to be resolved.
Photograph: Shutterstock

In what’s believed to be a first for government at any level, the City Council of New York opened an investigation yesterday into the business practices of third-party delivery services. 

The council’s Small Business Committee heard testimony from restaurant operators, related trade groups and the third parties themselves. Speakers addressed the common complaints of restaurateurs who rely on the services, from the unsustainability of current rate structures to the refusal to share information about customers. 

Among the issues addressed in-depth was the problem of restaurants being charged a fee for phone calls from customers looking for information about a restaurant listed on a service’s platform. Someone calling the third party might have questions about the menu or whether a special diet can be accommodated, with no intention of placing an order at that stage. Yet participants recounted how they are still often charged a sales fee. Committee Chairman Mark Gjonaj mentioned a restaurateur in his district who had been hit with a bill of $4,500 in charges that were questionable at best. 

The third-party representatives countered that only 3% of delivery orders come to them via telephone, and suggested that erroneous charges are rare. They also noted that restaurant partners who believe they were mistakenly charged can listen to tapes of the calls to dispel or validate their fears. But operators and their representatives countered that the process is time-consuming and unfeasible.

The discussion also touched on such matters as whether surcharges or other financial considerations figure into where a restaurant is listed on a service’s app (they absolutely don’t, service representatives attested) and whether the services intend to eventually cut out restaurants and start selling delivery meals themselves (definitely, said 5 Napkin Burger co-founder Robert Guarino; no way, said the third-party reps).

But the hourslong hearing at City Hall yielded far more questions than answers about the delivery services’ current practices and what adjustments would be reasonable to expect. 

Andrew Rigie, executive director of local industry trade group New York City Hospitality Alliance, listed a number of the questions operators would like to have addressed, including:

  • Should delivery services be allowed to set up bogus websites similar in name and style to a restaurant’s actual site so consumers are fooled into ordering through the fake site and generating a commission for the deliverer? (The representatives of Uber Eats, Seamless and Grubhub all attested they’re not aware of such a ruse being used.)
  • If financial factors don’t determine where a restaurant is listed on a third party’s app, what variables do? How can restaurants be safeguarded against erroneous fees? “Restaurants are spending a lot of time going back into their records to see if the fees they’re paying are legitimate,” Rigie said.
  • Who owns the information on a restaurant’s customers who order through a third party, and what happens to the data if the establishment pulls out of the arrangement?
  • Can a service mandate that a restaurant not use any other delivery party? (We don’t, said the service reps who testified.)
  • Does the prominence and penetration of the big third-party delivery services constitute a restraint of trade?
     

The question of whether the big deliverers constitute a hegemony was repeatedly addressed. “It’s starting to look like one and act like one,” said Robert Bookman, counsel for the Hospitality Alliance. “We’re calling for both the federal government and the state attorney general to look into this matter.”

The upshot, he and others contended, is a need for greater transparency from third parties on how their businesses work. Representatives of the service assured Gjonaj that they strive for that openness, and did not dismiss the calls for more clarity on the services’ practices. 

Gjonaj did not say what his next step might be, but he asked a few participants to submit additional information. For instance, he asked the three delivery services that appeared before the committee to provide him with a copy of their standard contract. 

The chairman asked the third-party reps if they knew of any other hearings or investigation into their field by a government at any level. They readily answered no.

“New York continues to be a trailblazer,” said Gjonaj. “I’m proud to be part of this historic moment.”

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