Aldermen Advance Plan To Cap Food Delivery App Fees At 15%
CHICAGO (CBS) -- The City Council could set a 15% cap on the fees delivery services such as Grubhub and DoorDash charge to restaurants before Thanksgiving, offering a "lifeline" to the city's struggling hospitality industry during the second wave of the pandemic.
Little more than 24 hours after the proposal was introduced to the City Council on Monday, the Finance and License committees unanimously endorsed the measure at a joint hearing on Tuesday. If at least two-thirds of the full City Council approves the ordinance next Monday, the new cap would go into effect immediately. If approved by a simple majority, implementation would have to wait until after the holiday, sponsors said.
Ald. Scott Waguespack (32nd), the chief sponsor of the ordinance, said the measure was the result of several weeks of negotiations with Mayor Lori Lightfoot's office. Waguespack originally proposed a more stringent 5% cap on delivery service fees in April.
Tuesday's vote came after a last-minute change to the ordinance's language after it was introduced on Monday.
The measure would prohibit third-party food delivery companies from charging a delivery fee of more than 10% of the purchase price of an online order from a restaurant. The overall cap on delivery fees, marketing fees, commissions, and other costs for use of such services would be capped 15% of a restaurant's monthly net sales through a given delivery service. Originally, the overall cap would have been 15% of total orders.
Waguespack said the change would make it easier for the city's Department of Business Affairs and Consumer Protection to enforce it.
Ald. Matt O'Shea (19th) who helped Waguespack craft the ordinance, said it would provide a necessary "lifeline" to small restaurants struggling to make ends meet while indoor dining is banned in Chicago during the pandemic.
"This is a commonsense approach to what we're up against, certainly what our restaurants are up against," O'Shea said.
Illinois Restaurant Association president Sam Toia applauded aldermen for backing the caps on delivery service fees, which he said currently often amount to 30% or more of the total cost of an online purchase.
"Right now, if you make a $10 order through a third-party delivery service, it's likely a restaurant may get $7 of that order. The delivery service takes the rest," he said. "There's just not enough money coming in right now to be able to afford paying such a high percentage of every meal you serve right to the delivery service. Neighborhood restaurants can't afford to be paying upwards of 30% per order to third-party delivery companies."
Toia said other major cities including New York, Los Angeles, Philadelphia, Denver, and Seattle have approved similar caps on third-party delivery service fees.
He said the caps will give restaurants much-needed cash flow and allow them to make ends meet during the indoor dining shutdown.
"Delivery services need to realize that if Chicago restaurants can't survive through this crisis, there will be no restaurants to deliver food from," he said.
In addition to the cap on fees, the ordinance would ban third-party delivery companies from charging higher prices for menu items than set by restaurants, require them to provide customers with a way of sending tips directly to restaurants, and prohibit them from cutting their drivers' pay or garnishing their tips in response to the ordinance.
Violators would face fines of $1,000 to $2,000 per offense. The original version of the ordinance would have called for fines of up to $3,000.
The requirements would remain in place until indoor dining is allowed at 40% capacity or better for at least 60 days, down from 90 days under the original proposal.
Chain restaurants with 10 or more locations operating under a common name would be exempted from the ordinance.
Grubhub has called the proposed fee caps "well-intentioned but counter productive at a time when restaurants need more support, visibility, and order volume than ever."
"Our internal data shows that fee caps drive up diner fees, and that results in fewer orders for restaurants, and fewer work opportunities for drivers," Amy Healy, head of public affairs at Grubhub, told aldermen.
DoorDash spokeswoman Campbell Matthews also has said capping its commissions could lead to increased costs for customers, leading to fewer orders for restaurants, and fewer opportunities for its drivers.
"This proposal would also remove options available to restaurants by limiting their ability to opt-in to additional services to help their business. City Council should oppose this ordinance and seek alternative solutions that preserve choice for restaurants and ensure Chicagoans can continue to access safe and affordable food delivery," Matthews said in an email on Monday.
However, Ald. Tom Tunney (44th), owner of Ann Sather restaurants, said he doubts the caps will lead to any reduction in delivery options for restaurants.
"This industry has been growing with providers," he said. "I don't see this legislation today, temporary as it is, reducing the supply."
Ald. Brian Hopkins (2nd) called the ordinance "necessary" given the struggles restaurants currently face, but he also urged restaurant owners to make it easier for customers to order curbside pickup or delivery directly through them, rather than relying on third-party delivery services.
"Most people would rather know who they're dealing with than someone hiding behind the cloak of an internet app," he said.
Tunney estimated almost a third of Chicago restaurants did not reopen after indoor dining was allowed again earlier this year, and will not reopen.
"The longer this second wave comes out, we could be losing 50% of our independent restaurant communities," he said. "I've heard often that pretty soon we're going to have chain restaurants and the Amazons of the world that will be dominating retail, and that is not what our communities want."
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