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City Moves To Cap Grubhub, Other Delivery App Fees To Help Struggling Restaurants

Restaurant owners have said the service fees and commissions take huge chunks out of their profits, which they can't afford amid coronavirus restrictions on indoor dining.

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CHICAGO — Struggling restaurants were thrown a temporary lifeline Tuesday as aldermen advanced a measure that would limit the delivery fees third-party companies such as Uber Eats and GrubHub can charge restaurants for takeout and delivery orders.

The ordinance was introduced Monday by Mayor Lori Lightfoot, Alds. Scott Waguespack (32nd) and Matt O’Shea (19th). Lightfoot, Waguespack and Ald. Tom Tunney (44th), who owns the popular Ann Sather restaurant in Lakeview, praised it later at a news conference.

The ordinance would cap delivery fees for restaurants at 10 percent per order. Additionally, delivery companies would be limited to charging restaurants for “any combination of fees, commissions, or costs,” including marketing fees, at no more than 15 percent of the restaurant’s monthly net sales processed through the individual third-party app.

The ordinance also prohibits the companies from charging customers a delivery fee for takeout orders or charging more for an item than the restaurant’s price.

On Tuesday, the ordinance was amended to exclude chain restaurants that have more than 10 locations in the city and to reduce the range of fines for violating the ordinance from $1,000-$3,000 to $1,000-$2,000. 

If passed by the full City Council, the measure would automatically expire after indoor dining capacity has been restored to at least 40 percent for 60 consecutive days.

For months, restaurant owners have urged customers to order directly from their eateries instead of using GruhHub, DoorDash, UberEats and similar services, citing the sometimes exorbitant fees. Other restaurants have launched in-house delivery to avoid the fees.

One local restaurant consultant said in May most of the services keep 15-45 percent of the total cost of an order, but in one extreme case, he’s seen the service charge be as high as 70 percent.

A city rule implemented in May requires the third-party apps to disclose their commissions and service fees.

Sam Toia, head of the Illinois Restaurant Association, told the committee the fee cap would help restaurants that are “running out of options” since indoor dining has been banned for the second time to slow the coronavirus’s spread.

“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 percent per order to third-party delivery companies,” Toia said.

Beverly Kim, owner of the Parachute and Wherewithall restaurants in Avondale, said “takeout and delivery will be all we have to survive” with indoor dining again closed and winter weather making outdoor eating near impossible.

Pre-pandemic, Kim had 50 full-time employees and averaged $70,000 in weekly sales between the two restaurants. Now, Kim has temporarily closed Werewithall and averages just $15,000 in sales with seven full-time employees.

Kim agreed to allow Caviar to handle deliveries early in the pandemic, when the company was offering a zero percent promotional fee, but when it ended the company charged 25 percent for each sale, she said. That was akin to a “payday loan for a restaurant like ours,” she said.

Kim dropped Caviar

“Some of us are choosing to avoid using delivery apps altogether, but at the risk of losing the ability to stay competitive as the delivery app search engines are much more powerful than our own marketing,” she said.

Amy Healy, director of public affairs at delivery giant Grubhub, said the ordinance could result in fewer orders for restaurants and would give other companies a competitive advantage over Grubhub, which focuses on marketing as well as delivery.

“Our internal data shows fee caps drive up diner fees and that results in fewer orders for restaurants and fewer work opportunities for drivers,” Healy said. 

Tunney said he wasn’t concerned if the ordinance gave a competitive advantage to any one company.

“Grubhub was talking about how their model was different than the rest of them, but as a user, I don’t sense a difference one way or another,” he said. “These companies are big enough and savvy enough that they can live within the 15 percent.”

Tunney said the measure would ease the minds of restaurant owners like him, who don’t have the “bandwidth” to track fees across five or six providers.

“But if we know the total of fees can be no more than 15 percent, I think that focuses them more on their operations and their ability to deliver,” he said.

A similar proposal was introduced by Waguespack in April, but it never received a committee hearing.

But in the last month, as the city faced a second surge in coronavirus cases, Lightfoot signaled she would support the temporary fee cap.

During the meeting, at least a dozen aldermen asked to be added to the ordinance as cosponsors. 

Two-thirds of the council would need to approve the measure for it to take effect immediately after passage, just in time for Thanksgiving.

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