Technology

NYC bill would allow third-party delivery commissions of up to 43%

Delivery apps said the expanded charges would allow restaurants to opt in to additional marketing services. A restaurant group called it a “pay to play” scheme.
delivery
New York currently caps delivery commissions at 23%. | Photo: Shutterstock

The New York City Council is considering a bill that would significantly increase what third-party delivery apps are allowed to charge restaurants for marketing services.

Under Int 762, apps such as DoorDash, Uber Eats and Grubhub would be able to collect total commissions of up to 43% of the order total—15% for delivery, 25% for marketing and 3% for credit card processing—if a restaurant opts in.

That would greatly expand what is currently allowed under New York’s one-of-a-kind delivery fee cap, which limits delivery app commissions to 23%—15% for delivery, 5% for marketing, and 3% for credit card processing. 

The cap was put in place during the height of the pandemic as a temporary lifeline for struggling restaurants. It was later made permanent, even as conditions improved. Delivery apps have sued the city to overturn it and last year backed an amendment that would have removed the marketing fee cap entirely. 

For this year’s legislative session, they’ve thrown their support behind Int 762, which they argue will give small operators more flexibility to reach more customers and compete with big chains.

Under the bill, restaurants could continue to pay the current marketing maximum of 5% for the right to be “listed and discoverable” on third-party apps. But they could choose to pay up to 25% for additional help, such as boosted promotions and search engine optimization that would give them more prominence.

The bill also contains several safeguards for restaurants. It would prohibit delivery apps from purchasing the name of a restaurant for advertising purposes; allow restaurants to include their own marketing materials in third-party orders; and allow restaurants to mark up their prices on third-party delivery apps. 

“With this compromise, New York’s small, independent restaurants would once again have the necessary flexibility to market themselves, grow their customer base, and compete with the big chains,” a Grubhub spokesperson said in an email. DoorDash and Uber Eats also expressed support for the bill. 

But the New York City Hospitality Alliance, a restaurant advocacy group, slammed the legislation, accusing the apps of attempting to exploit small restaurants.

“The delivery giants say they just want to offer restaurants more ‘marketing services’ but this political sleight of hand would let them bury restaurants in search results if they don’t pay up, and make it harder for New Yorkers to find local restaurants that can’t afford to, or don’t want to pay to play,” said Executive Director Andrew Rigie in a statement.

Restaurant commissions are an important part of the third-party delivery financial model, which is already difficult given the high costs of delivery. But they can also be hard on restaurants’ razor-thin margins. And the 43% ceiling proposed by the bill is higher than what the apps typically charge. In every market but New York, the big three have shifted to a tiered model that maxes out at 30%.

Int 762 is the latest twist in a long-running battle over delivery regulation in New York City, which is the only city in the country to permanently restrict what delivery apps can charge restaurants.

Operators contacted by Restaurant Business last year seemed to be split on whether the city should ease up on its fee cap. Some said a higher limit would allow them to reach more customers, while others said it would force everyone to pay more or risk being buried on the apps. 

On Friday, the bill had a hearing before the Council’s Committee on Consumer and Workforce Protection. It’s currently being sponsored by 20 of the city’s 51 Council members and will need 26 yea votes to pass. 

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