facebook pixal
Operations

Pressure builds for caps on third-party delivery commissions

Government officials in a number of cities are calling for limits of 5% to 15%.
Photograph: Shutterstock

Pressure is building in cities across the United States and Canada to cap the commissions charged by third-party services for the delivery of restaurant meals.

The limits recommended by U.S. mayors and lawmakers range from 5% in Chicago, where a bill is now before the City Council, to 10% in New York City, where hearings on a cap are scheduled to be held by the City Council next Wednesday, and 15% in Boston, where two members of the City Council have called for hearings on a cap.

Proposals to reduce delivery commissions ranging as high as 40% have also been aired by civic leaders in Cambridge and Newton, Mass., and in Toronto, where Mayor John Tory said last week that he would set a 15% cap by executive order if that would be legal under the emergency powers he has assumed because of the COVID-19 crisis.

Until his options are clarified, Tory told the Toronto Star, he is calling the major third-party services and asking them to lower their commissions while local restaurants are struggling to stay in business during the pandemic. The mayor has yet to reveal the results of those conversations.

Baltimore Mayor Bernard Young has also asked the major services to voluntarily roll back their commissions.

The surge in activity follows San Francisco’s adoption last week by executive order of a 15% cap on commissions. "Restaurants are struggling to survive, and delivery is their main option for staying open,” Mayor London Breed said at the time. “I'm instituting a cap on the fees that delivery services can charge restaurants during this emergency, because it can make the difference between them staying afloat or laying off staff."

Santa Cruz, Calif., had earlier capped commissions at 15% by an executive order from City Manager Martin Bernal.

Meanwhile, consumers have also pushed back on the high commissions. Three New Yorkers filed a federal lawsuit in mid-April against Grubhub, DoorDash, Postmates and Uber Eats, alleging the services had violated anti-trust laws by forcing restaurants to charge the same price for delivery that they had for dine-in service, and for charging commissions of 10% to 40%. The plaintiffs requested that the suit be certified as a class action, meaning all affected parties could join it.

Legislation under consideration in New York City would permit restaurants to alert delivery customers that a portion of their payments were going to a delivery service as a commission. Operators have frequently pointed out that most delivery customers aren’t aware that a chunk of their charge is going to the third party that delivered their meal and not to the restaurant.

Several of the major delivery services have voluntarily cut their commissions, but with limitations. DoorDash, for instance, announced that it would cut the commissions charged to some customers by 50% from April 13 through May 31, a move that it said would affect 150,000 restaurants in the U.S., Canada and Australia. The rollback is limited to operations of five or fewer units.

Grubhub ignited a controversy when CEO Matt Maloney announced early in the pandemic that his service would forgo $100 million in revenues by dropping commission charges for independent restaurants, a measure intended to help mom and pops survive the crisis. Many restaurateurs said they were surprised to learn that the forgiveness on commissions was only temporary. Grubhub later clarified that the fees would be deferred, not dropped.

Postmates said in March that it would waive commissions for new customers in areas that were hard hit by the coronavirus.

Many of the cap proposals state that services violating the commission limit could be sued by restaurants if the excess charge is not refunded. Chicago goes further, with a call for fines of $1,500 to $3,000 for a first offense by a service, and penalties of up to $30,000 for parties that violate the cap at least five times in a 12-month period.

Most ask that the caps be permanent rather than temporary rollbacks lasting only as long as dining rooms remain closed by the pandemic.  

During the pandemic, when state and local social-distancing directives have forced the closing of most restaurant dining rooms, delivery and takeout have become the lifelines of places that have remained in business. As of April 12, the number of customers opting for delivery from a quick-service restaurant via a third party has soared by 60%, while the tally of patrons opting for a meal delivered by a service from a full-service restaurant has doubled, according to research firm Black Box Intelligence.  

Want breaking news at your fingertips?

Get today’s need-to-know restaurant industry intelligence. Sign up to receive texts from Restaurant Business on news and insights that matter to your brand.

Trending

More from our partners