Courtesy Freepik

Jack Delaney & Mohamed Farghaly
News@Queensledger.com

New York City lawmakers are considering lifting a cap on the cut that delivery apps charge restaurants for each order, which was first implemented during the pandemic. Supporters claim the cap was a stopgap measure that no longer makes sense, while detractors say the change would squeeze the margins of small businesses that are already struggling.

Currently, third-party delivery services like Doordash and Grubhub are limited to charging any given restaurant a maximum of 23% per sale — 15% for delivery, 3% for credit card processing, and 5% for other fees. But a new bill, Int 762, would increase this cap to a total of 43% per order, by giving vendors the ability to ‘opt in’ to an additional 20% fee in return for enhanced services such as marketing.

New York has long been a unique market for delivery apps because of its transportation profile. Unlike other major cities such as Los Angeles, NYC is extremely dense and micromobility — encompassing scooters, mopeds, and e-bikes — is far more common than cars, which dominate elsewhere. As a result, the city’s regulatory framework for deliveries has evolved in ways that have diverged from the rest of the country.

While it was the first city to implement a delivery fee cap in March of 2020, it is also now one of the last municipalities — down from a peak total of more than 100 — that has kept the policy in the wake of the pandemic. The bill’s proponents say there is little to justify what they view as a burdensome legal holdover.

App companies have been proactive in expressing their discontent over local regulations, of which the fee cap is only one component. Last year, Uber, DoorDash and Grubhub sued the city over a law establishing minimum wage for food delivery workers, arguing that it used faulty data to determine how much the contractors should earn. The companies had been beset by claims of wage theft, triggering scrutiny from the City Council. And this September, the apps were handed a favorable ruling when a judge found that a consumer data-sharing requirement, implemented by the city in 2021, was unconstitutional.

Now, the tug-of-war between restaurants, delivery workers, and third-party services is shifting to the fee cap. “The Fair Competition for Restaurants Act is a compromise solution that gives New York’s small, independent restaurants more options on our platform while keeping important safeguards in place,” a representative for GrubHub said. “It allows them flexibility to market themselves, grow their customer base, and compete with the big chains.”

But Andrew Rigie, executive director of the New York City Hospitality Alliance, opposed the bill during a hearing in June, decrying what he called “monopolistic behavior.” He was echoed by Chris Lauber, Director of Operations at LT Hospitality Management, who held that “for an industry with thin profit margins of 5 to 10 percent, increasing these fees could mean the difference between staying open and closing.”

However, at the June hearing, Council Member Rafael Salamanca Jr. pushed Rigie and Lauber on why these price controls are necessary, given that the extra charge would be voluntary on the part of restaurants.

In response, Lauber said that the cap helps to prevent an exponential ‘race to the bottom,’ driven by what he described as the app companies’ high degree of leverage over their clients. Specifically, both he and Rigie highlighted the role of search engines.

At the current 23% rate, Lauber claimed, the ease with which a restaurant is found depends mostly on proximity to the customer or the type of food they’re searching for. By comparison, he worried that the language around search priority in the new bill was vague, allowing apps to bury businesses who don’t opt into higher premiums.

“If our restaurants had been next to each other and they had two different marketing strategies inside,” he said, “we would then have one exponentially higher than the other, which is ultimately what they’re arguing is the point. However, the margins are so thin going into restaurants to begin with that it creates kind of an effective rat race that would be exponentially playing one off of the other to get higher and higher in the fee cap, until eventually it’s exhausted.”

Tom Avallone, managing partner of Nicks Bistro in Forest Hills, shared his perspective on how rising delivery app fees are affecting his business.

“You’re always looking for an opportunity to get your food delivered to a larger radius of individuals. Your footprint has to expand, and the only way to expand it is you do have the ability to sign up with UberEats, GrubHub, DoorDash and things of that nature,” Avallone said. His restaurant, located at 104-20 Metropolitan Ave, offers its own private delivery service within a one-and-a-half to two-mile radius. However, Avallone faces limitations on extending the service further due to insurance concerns and the logistics of delivering hot meals beyond that range.

He emphasized that while delivery apps help reach more customers, the fees associated with these services have increased significantly.

“At some point, like we stopped using all of the others. The only thing I use right now is Uber Eats, because the fees have gotten astronomical. So DoorDash and Grubhub we don’t use here anymore,” he said.

Despite these challenges, Avallone acknowledged the benefits of delivery platforms.
“You know, you’ve got to give a little bit to get a little bit, but no, but the fees are increasing. Everybody increases their fees. They keep increasing,” he said. He noted that marketing through these platforms helps expose the restaurant to new customers, but he remains cautious about their long-term value.

Avallone also pointed out that the ongoing cold weather and the flu season make many customers more hesitant to dine out, thus increasing the demand for delivery services. Some people are more comfortable and shut in, especially during the winter time when the flu and COVID is around and they don’t want to come out, he said, adding that this dynamic typically works to a restaurant’s advantage by expanding its footprint.

Delivery apps have pointed to the fact that many restaurants appear to support the bill as evidence that it will maintain an even playing field.

“Despite claims made by industry lobbyists for large restaurant chains, support for this amendment is led by New York’s small and independent restaurants, including the NY Latino Restaurant & Bar Association and multiple community organizations,” Grubhub’s spokesman said. They noted that the bill enshrines additional protections for restaurants, which include “the rights to be listed and discoverable, to include their own marketing materials in deliveries, to set their own in-app menu prices, and to prohibit delivery platforms purchasing their restaurant’s name for advertising.” Regular compliance assessments would also be required.

Yet Lauber was skeptical that these protections would be enough to shield smaller vendors. “Recently, I even had to argue with multiple platforms just to abide by the current regulations in place and not overcharge us when onboarding our restaurants,” he said. “So removing the fee cap would disproportionately affect smaller independent restaurants and bring bargaining power to larger restaurants, further creating an uneven playing field that favors larger chains.”

There is no set date for when the bill will be brought before the council again, but advocates on both sides predict it will be a matter of weeks, and are kicking into high gear to persuade council members before a vote.