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Pressure builds to regulate third-party deliverers

New York looks at capping commissions, while a federal agency is asked to investigate certain fees.
Photograph courtesy of Uber Eats

New York is looking to cap the commissions charged full-service restaurants by third-party deliverers at 10% as part of a mounting pushback against the services’ controversial business practices.

Simultaneously, the New York City councilman who held hearings on the services in late June, has asked the attorney general of New York to investigate Grubhub for alleged violations of state anti-trust regulations. In a letter to Attorney General Letitia James, Council Member Mark Gjonaj asserted that "GrubHub’s outsized market share and heavy handed tactics could lead to artificially reduced competition which in turn may drive up the commissions paid by struggling locally owned restaurants."  

Grubhub, which owns a sister service called Seamless, said an investigation would be unnecessary and ill-founded. "The notion Grubhub/Seamless may have engaged in conduct that has reduced competition is simply incorrect," a spokesperson told Restaurant Business via email. "We operate in a dynamic, hyper-competitive sector that has changed dramatically in the past few years and will continue to do so. We face intense competition in New York City and throughout the country."

Meanwhile, U.S. Sen. Chuck Schumer, the minority leader from New York, has reportedly asked the U.S. Small Business Administration to investigate allegations the third parties routinely charge restaurants for information calls the services receive from consumers. The potential customers may be asking about such matters as whether their food allergies can accommodated or how late the kitchen is open, often without placing a delivery order.  

Restaurants have complained to Gjonaj that they’re still assessed a fee of several dollars for the calls, even if no sale is made. Schumer said he’s in favor of having those fees waived, according to the Post. 

The commissions charged by third parties can run as high as 30%. A State Liquor Authority (SLA) spokesman has publicly acknowledged that the agency, New York’s regulator of alcohol-serving establishments, is investigating whether those fees could be capped at 10% under rules that are already in place. The state’s licensing regulations require any individual sharing in the sales of a licensed establishment to be listed on the liquor permit. The one exception is a landlord, who can charge up to 10% of a liquor-serving restaurant’s intake as part of the rent.

The SLA spokesman said the agency is weighing whether that cap should also apply to third-party deliverers, since they, too, collect a portion of sales from the restaurants they service. The agency could alternatively require that the services negotiate their inclusion on the liquor licenses of every full-service establishment whose meals they deliver, a logistical and virtually impossible feat. 

Any rule change by the SLA would not affect Grubhub, the service's spokesperson said. "It is important to understand that the New York State Liquor Authority (SLA) does not have jurisdiction over the sale of food," he said. "With respect to the sale of alcohol, which represents an incidental portion of orders on our platform, Grubhub operates in full compliance with the 2017 Declaratory Ruling," an agreement that specifies the service will not charge more than 10% of the profits from alcoholic beverages as a commission. "To our knowledge, we are the only third-party national delivery provider in possession of such a ruling from the SLA."

Delivery by third parties such as Grubhub, DoorDash, Uber Eats and Postmates has been the fastest-growing segment of the restaurant industry, but operators have complained that the services’ aggressive fees eat up all the profits. Chains such as Olive Garden and Del Frisco’s have refused to offer small-order delivery because of concerns about the profitability. 

New York is the nation's fourth-largest restaurant market, behind California, Texas and Florida.

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