Aldermen support reining in online restaurant delivery fees

Chicago aldermen agreed Tuesday to rein in restaurant delivery fees to throw a lifeline to neighborhood restaurants fighting for survival while being forced to close to indoor patrons for the second time since the pandemic.

One day after mayoral allies introduced the 10% cap, a joint City Council committee approved it. That sets the stage for the two-thirds vote by the full Council needed to offer some immediate help to restaurant owners like Beverly Kim.

Kim is the James Beard Award-winning chef-owner of the Michelin-starred restaurant Parachute in Avondale. She was a 2011 contestant on the popular Bravo TV cooking show
Top Chef who opened a second restaurant, Wherewithall, with her husband, Johnny Clark.

On Tuesday, Kim likened restaurant delivery fees to “payday loans.” She pleaded with the Committees on License and Finance to rein them in.

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

“Many of us restaurateurs 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 In the end, it has created angry customers when deliveries are not fulfilled or the menus are outdated, and it damages our hard-earned brand-identity and reputation.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.”

Even in a “normal economy,” restaurants operate on razor-thin profit margins of 6% to 8%, Kim said.

“But this pandemic has forced us to struggle to even attain zero percent profitability — even despite laying off the majority of our staff,” Kim said.

“On the other hand, these delivery apps are hitting record profitability during this pandemic. And 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.”

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

“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.

“The time is now to put guardrails in place to cap the amount that delivery services can charge to small, independent restaurants that are hanging on. … Delivery services need to realize that if Chicago restaurants can’t survive through this crisis, there will be no restaurant to deliver food from.”

Amy Healy, head of public affairs for Grubhub, reiterated the Chicago-based company’s contention that fee caps “drive up diner fees and that results in fewer orders for restaurants and fewer work opportunities for drivers.”

Healy drew a distinction between companies focused only the “logistics” of “driving food from restaurant to the diner” and Grubhub, which was “founded around the principal of helping restaurants grow and thrive in the age of the internet.”

“We support a proposal that supports restaurants in Chicago by allowing for a fair playing field that doesn’t provide a competitive advantage for one business model over another,” she said.

The ordinance championed by Mayor Lori Lightfoot and jointly introduced by Finance Committee Chairman Scott Waguespack and Ald. Matt O’Shea (19^th) includes a 10% cap on “online” restaurant orders.

Under the ordinance, UberEats, Grubhub, Postmates and DoorDash would also be prohibited from charging restaurants “any combination of fees, commissions, or costs that is greater than 15 percent of the orders placed through” the third-party delivery service.

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

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

Violators would be punished by daily fines ranging from $1,000 to $3,000 for each offense.

The ordinance would automatically end 60 days after city and state restrictions on indoor dining are lifted to allow “at least 40% capacity.”

Downtown Ald. Brian Hopkins (2^nd) acknowledged the ordinance approved Tuesday is “not perfect.” Enforcement is “going to be a challenge.” But Hopkins called it “the best we can do right now.”

“What we’ve seen from some of these third-party services — I don’t want to lump them all together — is absolutely rapacious and predatory behavior that has to stop,” Hopkins said.