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What to Know About NYC’s Plan to Crack Down on Food Delivery Apps

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The proposed legislation will give customers more transparency, and enable restaurants to pay smaller commissions to delivery companies

GrubHub logo seen displayed on smart phone. Grubhub Inc. is
Grubhub is one of the biggest third-party delivery companies in NYC
Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images

Food delivery apps like Grubhub, Doordash, and UberEats have seen explosive growth over the past decade, with experts saying the industry is now valued at more than $10 billion. While restaurants are largely in favor of third party delivery services, business owners have now begun voicing their concerns about an industry that is largely unregulated, often charges restaurants astronomical fees, and in some cases, beloved NYC restaurants have blamed delivery for their demises.

The city has taken notice. Last fall, the New York City Council held hearings following a New York Post investigation which revealed that Grubhub was charging restaurants for bogus phone calls that never resulted in any orders. Last week, two City Council members — Mark Gjonaj and Francisco Moya — unveiled the first-of-its-kind legislation that will specifically curtail the power of these corporations.

The NYC Hospitality Alliance, a membership group that represents hundreds of restaurants citywide, immediately celebrated the proposed legislation, which totals six bills. “Grubhub has been exploiting our favorite local restaurants, and this will help level the playing field,” Andrew Rigie, the executive director of the group tells Eater.

A spokesperson for Grubhub, however, says the bills will end up hurting restaurants and consumers. Pressed for details on how the bills would impact businesses, the spokesperson declined to comment.

The six new pieces of legislation deal with various facets of the delivery industry, but as they stand right now, they’re relatively thin on details and will likely evolve before — and if — they become law. For customers, this could mean more transparency: diners can choose to avoid delivery services if they believe they’re engaging in predatory behavior toward the restaurant and pick eating at the restaurant instead.

Here now are each of those six pieces of legislation, details on what each of them mean, and how they will impact the restaurant industry:

A bill to create tamper-free food packaging so delivery people won’t eat the food

This bill concerns the creation of tamper-free packaging by restaurants to ensure that the meal being delivered hasn’t been opened prior to delivery. Reginald Johnson, chief of staff to Council member Gjonaj tells Eater that it stems from complaints about delivery workers sampling customers’ food.

There are no specifications for how this packaging should look, but the packaging should have some type of seal that indicates it hasn’t been opened, Johnson says. Restaurants will be fined up to $100 for each violation by the city’s health department.

A bill that will let customers see how much delivery companies charge restaurants

If this legislation is passed, third-party delivery services like Grubhub and Doordash will be required to disclose the commission fees they charge restaurants. The fee will show up for customers as they’re about to pay for their orders online, but restaurants will have the option of opting out of this if they don’t wish to disclose the amount they’re paying third-party apps. The idea is that customers might be encouraged to eat at restaurants instead of doing delivery if they see delivery companies trying to gouge restaurants, Johnson tells Eater. Delivery companies will be charged anywhere from $250 to $1,000 for each violation.

A bill that requires delivery companies to get licenses

This bill requires all third-party delivery services that work with 20 or more restaurants to get a license to operate from the city’s department of consumer affairs. The legislation calls for a minimum biennial fee of $500, which seems like a pittance for the massive corporations that make up most of the city’s third-party delivery services. But the consumer affairs department will have the opportunity to determine fines or revoke licenses if it feels the delivery companies are engaged in shady practices.

A bill that will ensure delivery companies can’t charge restaurants for calls that don’t result in orders

This law seeks to put an end to the practice where delivery services charge restaurants for phone calls that don’t result in orders, stemming from a Post investigation. Delivery companies will be fined anywhere from $250 to $1,000 for each violation if this bill becomes law.

A bill that lets restaurants charge more for delivery items

In some instances, restaurants like to charge a few more dollars for delivery menu items — compared to the prices available for a sit-down meal at the restaurant — as a way to cover the commission charged by delivery companies, but most delivery companies don’t allow this, Johnson tells Eater. This piece of legislation will prohibit delivery companies from setting restrictions on menu prices, and companies will be fined a minimum of $1,000 per order that violates the law.

A bill that limits delivery companies from taking more than 10 percent in commission

Perhaps the most controversial of the new bills, this law will limit delivery companies from charging restaurants more than 10 percent in commission fees for each order. This would also include the fees restaurants pay delivery companies to feature their establishments higher up in searches, Johnson tells Eater. Currently, restaurants pay anywhere between 10 to 30 percent in commission fees, which do not include additional fees to be featured higher up in the search results.

Grubhub declined to comment on how it would proceed if this bill becomes law, and Doordash and UberEats — two of the other biggest delivery services in the city — did not return requests for comment. Delivery companies will be charged a minimum of $1,000 for each order that violates the law.

“Small restaurants can’t afford to pay sky-high fees,” Johnson tells Eater. “There’s no reason why this cap can’t work for both restaurant owners and delivery companies.”

This law will function separately from one being considered at the state level by the State Liquor Authority, which would also cap commissions at 10 percent. While that only covers restaurants that have liquor licenses, the new Council bill covers those that don’t have one as well.

UPDATE 3/3/2020: Max Retting, the head of public policy at Doordash issued the following statement to Eater:

“We look forward to continuing to work with local elected officials as we strive to foster a culture of transparency and collaboration that we believe will best serve all of our users and the entire DoorDash community.”

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