Lawmakers Put Caps On Food Delivery Fees

As restaurants seek help to survive the economic impact of COVID-19, lawmakers are implementing a temporary limit on how much delivery companies can charge.

On Wednesday (May 13), New York City became the latest city to enact protections for eateries. The City Council approved a 15 percent cap on food delivery fees paid by restaurants to Grubhub, PYMNTS reported.

San Francisco, Seattle, Washington, D.C. and Jersey City were among the first communities to implement caps on delivery fees through emergency orders last month.

Restaurants pay anywhere from 10 percent to as high as 40 percent for orders placed with delivery providers, an issue that has existed long before the coronavirus pandemic gripped the country. Trade groups and restaurant owners have lobbied for regulation of fees, arguing that their industry sees thin profit margins.

“We’ve kind of seen an acceleration from off-premise dining of about 10 years in about 10 weeks,” Andrew Nolan, a principal KPMG International the global accounting firm, told CNBC. “It was trending that way, and off-premise has definitely been a growing segment of the market, but in the last few weeks, we’ve definitely seen an acceleration of that.”

Uber Eats and DoorDash have waived some commission fees for impacted independent restaurants, and Grubhub has deferred payments for qualifying restaurants.

But delivery companies are fighting legislated caps, insisting that limiting fees simply passes along the delivery cost to customers, which results in fewer orders.

“We’ve already seen negative impacts of this in San Francisco,” Grubhub CEO Matt Maloney told analysts on the company’s earnings call, the network reported. “Our preliminary data shows that on average, our independent restaurants are seeing over 10 percent fewer orders since the fee cap.”

DoorDash told the news service that a cap on restaurant commission fees will hurt earnings for its delivery drivers.

An Uber Eats spokesperson told CNBC that regulating commissions, particularly during these unprecedented times, would force them to radically alter the way they do business, set a far-reaching precedent in a highly competitive market and possibly hurt customers, small businesses and delivery people.

The potential merger between Uber and Grubhub has raised fears over delivery fees. If the two giant delivery services merge, it would create the biggest restaurant food delivery operation nationwide.

Uber Eats has more than 100,000 restaurants on its platform, or 20 percent of the market, while Grubhub counts about 300,000 eateries, about 30 percent of the market.