No one likes paying fees. But among New York City restaurants, that seemingly agreeable statement has become a matter of hot debate.
Some Big Apple establishments have thrown their support behind legislation that would allow delivery providers like Grubhub and DoorDash to charge them more.
The amendment introduced in November would rework the city’s cap on third-party delivery fees, a pandemic emergency measure that New York made permanent in 2021.
The current law limits delivery commissions to 15% of the order total and all other non-transaction charges to 5%. The proposal would keep the 15% cap on delivery fees in place, but gives restaurants the option to pay up to an additional 15% for marketing, which translates to better visibility on delivery apps.
It has been co-signed by 26 of New York’s 51 City Council members, giving it just enough votes to advance to the mayor’s desk. But it still needs approval from the Committee on Consumer and Worker Protection, which will review the bill on March 29. Four members of the nine-person committee have signed on to the amendment.
In introducing the bill, Councilmember Robert Holden said that the flat 5% cap hurts local restaurants’ ability to compete with the big budgets and name recognition of chains. “Providing small businesses more options is good for business and good for all consumers who use third-party delivery apps,” he said, according to a meeting transcript.
The proposal is being backed by delivery companies, particularly Grubhub, for which New York City is a stronghold. The providers depend on those marketing fees for revenue and have fought attempts in other cities to regulate them. They scored a victory recently in San Francisco, which loosened its fee cap earlier this year.
The delivery companies argue that the ability to charge more for marketing is good for restaurants because it allows them to increase their exposure on the apps and drive more sales.
“I think any time business owners are able to have more control over how they can market themselves, it does help them in the long run,” said Howie Jeon, owner of Yumpling, a family-owned Taiwanese restaurant in Queens. “It helps them compete with the big chains.”
Yumpling works with the three biggest providers—Grubhub, DoorDash and Uber Eats—and close to two-thirds of its sales come from delivery. It’s planning to open a second location, and Jeon said he wants to invest in better placement on the delivery apps to help get the word out.
“Without that, basically you are kept like everyone else on the platform,” he said. “Unless you get a really good write-up or make some kind of viral food or drink thing on Instagram, chances are you’re not really gonna gain that much traction.”
Yumpling is one of hundreds of restaurants and community groups that have signaled their support for the amendment, according to a list compiled by Grubhub.
“More than 500 representatives from restaurants across the five boroughs have voiced their support for this common-sense change to make their own marketing decisions and better compete with big brands,” Grubhub said in a statement. “And it’s encouraging that more than half the City Council has co-sponsored this bill to empower small, locally-owned businesses.”
And yet there is an equally vocal group of restaurants that want the fee cap to remain as-is. They’re being rallied by the New York City Hospitality Alliance (NYCHA), a nonprofit that advocates for restaurants and bars in the city.
Last month, the NYCHA sent a letter to City Council members on behalf of nearly 900 restaurants urging them to vote against the amendment, which it said creates a “pay to play” for delivery.
“Countless restaurants across NYC, especially small, minority and immigrant-owned businesses, are still struggling to recover from the damage caused to the industry by the pandemic,” the letter reads. “We cannot afford to go back to the days of exploitative so-called shady ‘marketing fees’ from delivery companies.”
The owner of Schnipper’s, a four-unit burger concept in Manhattan and Queens, believes raising the fee ceiling will end up hurting both restaurants and customers.
“When you spend money on marketing just to appear higher up on the platform, for me it’s just a race to the bottom,” Andrew Schnipper said.
About 35% to 45% of Schnipper’s business is delivery, and it works with the big three providers and a number of smaller ones. Since the fee cap was enacted, it’s been putting marketing dollars toward one-off promotions to attract app customers. But Schnipper said if the cap is lifted, it will likely have to start paying a higher commission to maintain a presence on the apps.
If not, “you’ll never be found, you’ll be completely lost,” he said. “The reality is, many of our competitors will pay.”
Paying higher fees means Schnipper’s will also have to raise its delivery prices, which are already higher than those on its regular menu. “I believe consumers will ultimately pay the price,” Schnipper said.
As the debate has grown more heated, Grubhub and the NYCHA have accused one another of acting in bad faith. Grubhub said in a statement that the Alliance represents the interests of “big restaurants” and has “consistently misled members of the industry” about the legislation. NYCHA Executive Director Andrew Rigie called Grubhub’s campaign “a ruse.”
“They don’t want to gut the ‘fee cap’ law to give restaurants more ‘marketing options’ as they falsely claim,” he said in an email. He noted that Grubhub and other providers are currently suing the city to block legislation that would force them to give restaurants access to customer data, which they could use for marketing.
“Don’t be fooled, it’s not about marketing for restaurants, it’s about deregulating big third-party delivery companies,” Rigie wrote.
New York has been at the forefront of efforts to rein in those companies over the past three years. In addition to the fee cap and the data-sharing requirements, the city is also pursuing a $19.96 minimum wage for third-party delivery workers by 2025.
All of these measures are threats to delivery’s already precarious business model. Fee caps have proven especially painful for Grubhub, which does a significant amount of its business in New York. Last year, caps cost parent company Just Eat Takeaway more than $137 million.
“We've been very much opposed to any sort of fee caps that just bluntly limits the ability for restaurants to promote themselves,” Just Eat Takeaway CEO Jitse Groen told analysts this month, according to a transcript on financial services site Sentieo. “We're very happy that those fee caps have disappeared in most of the U.S. and Canada.”