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City Council caps restaurant delivery fees

With a two-thirds vote to make it effective immediately, the City Council reined in what critics call “predatory” delivery fees that third-party services charge restaurants. They’d be capped 10% or 15%, including all fees and commissions.

A restaurant advertises Uber Eats in the Coconut Grove neighborhood in Miami in November 2019. | Lynne Sladky/AP
Uber Eats, Grubhub, DoorDash and other third-party online order and delivery services charge restaurants for their services, but those fees would be capped under a new Chicago ordinance.
AP

Chicago restaurants forced to close their dining rooms for the second time during the coronavirus pandemic are at least hoping to cash in on carry-out orders during Thanksgiving.

On Monday, they got a bit of a break, and it had nothing to do with selling turkey with all the trimmings.

By the two-thirds vote needed for it to take effect immediately, the City Council reined in what critics call “predatory” delivery fees that third-party services charge restaurants.

The fees are now capped at 10%.

“COVID unfortunately exposed what I would consider to be price-gouging of restaurants by some third-party app companies,” downtown Ald. Brendan Reilly (42nd) said before the final vote.

“[When] we were informed of restaurants being handed invoices for marketing fees they were unaware of — in some cases being listed on these platforms without their knowledge — it was time to act.”

Reilly noted predatory fees by restaurant delivery services are “an issue in every major city in America.”

“It’s my hope that this will provide some much-needed relief to a restaurant industry that was being, in some ways, taken advantage of. Especially given their heavy reliance now on carry-out and delivery to make a very, very modest bottom line work,” he said.

Apparently referring to the recent increase in Chicago’s minimum wage, Lincoln Park Ald. Michele Smith (43rd) noted the City Council has “passed an awful lot of measures that are considered progressive to try to help” hospitality industry employees.

“It imposed some costs, but was designed to try and make jobs better. Well, those jobs won’t be any good if there’s some third-party who is really taking advantage of this situation in ways that could be fatal to the restaurant industry,” Smith said.

Smith called the delivery fee cap “really critical and another warning about when we fall in love” with online businesses.

“They are businesses like everyone else and need to run their businesses fairly, transparently and not in a monopolistic or overbearing way,” she said.

Grubhub spokesman Grant Klinzman said Chicago restaurants “need more support, visibility and order volume than ever” as the pandemic drags on.

“Today, the City Council instead chose to limit how local restaurants across Chicago can effectively market themselves to drive demand, which severely impacts how many customers and orders we can bring to these restaurants. The lower order volume also impacts drivers’ pay because there is less work available,” Klinzman was quoted as saying in a statement.

“We’ve heard directly from many restaurant partners across the nation about the detrimental effects of fee caps. Namely, we hear about their frustration with the inability to increase marketing services beyond what is allowed under the cap.”

The ordinance, championed by Mayor Lori Lightfoot, automatically expires 60 days after city and state restrictions on indoor capacity allow at least 40% capacity.

UberEats, Grubhub, Postmates, DoorDash and similar services are now prohibited from charging restaurants “any combination of fees, commissions, or costs” greater than 15% percent of the orders placed through the third-party delivery service.

It also is illegal to charge customers a price for food or beverages “higher than the price set” by the restaurant or the menu price.

Third-party delivery services also must “provide on their platform a mechanism for customers to provide gratuities” to restaurant employees.

Violators face daily fines from $1,000 to $3,000, per offense.

At a joint committee meeting last week, chef Beverly Kim, a James Beard Award winner, talked about restaurants’ dire straits.

Kim, owner of the Michelin-starred Avondale restaurant Parachute, likened restaurant delivery fees to “payday loans.”

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

Many “are also frustrated at the predatory false websites without restaurant owners’ consent that the delivery apps create. In the end, it has created angry customers when deliveries are not fulfilled or the menus are outdated and it damages our hard-earned brand identity and reputation. … It is an unconstitutional practice.”

DoorDash also issued a statement Monday.

“DoorDash has always supported restaurants. Pricing regulations like this one could cause us to increase costs for customers, which could lead to fewer orders for local restaurants and fewer earning opportunities for Dashers,” said spokeswoman Campbell Matthews.

“This legislation also removes options available to restaurants by limiting their ability to opt-in to additional services to help their business. We remain focused on solutions that preserve choice and ensure Chicagoans can continue to access safe and affordable food delivery.”

In a “normal economy,” restaurants operate on razor-thin profit margins — 6% to 8%, Kim said. During the pandemic, they’re struggling to “even attain zero percent profitability” — despite laying off the majority of staff, Kim said.

“On the other hand, these delivery apps are hitting record profitability during this pandemic. We need to be able to come to the table and set reasonable fees so the fabric of Chicago’s small, independent restaurants that make it America’s best city for four years in a row can survive,” she said.

Illinois Restaurant Association President Sam Toia said Chicago restaurant are “running out of options” after being forced to stop serving indoor diners again during another coronavirus surge.

“If you make a $10 order through a third-party deliver service, a restaurant may get $7 of that order. The delivery service takes the rest. … There is just not enough money coming in right now to be able to afford paying such a high percentage of every meal you serve,” Toia said.