Chicago May Reconsider Capping Third-Party Food Delivery Fees

After taking a summer vacation from discussions, Chicago’s City Council is once again grumbling about third-party delivery companies with one alderman urging his colleagues to pursue capping what DoorDash, Grubhub, Uber Eats, and Postmates charge restaurants. This comes as the city on Wednesday announced a $500,000 grant program for ailing restaurants funded by DoorDash.

While praising the DoorDash sponsorship, Ald. (42nd Ward) Brendan Reilly says — as reported by the Tribune — that if the council “really wants to help the industry, they should put their money where their mouth is and support this ordinance.” He’s referring to an ordinance introduced in April that would have capped delivery-service fees at 5 percent of the cost of a food order. That would give Chicago the lowest cap in the country. In comparison, D.C. capped fees at 15 percent and New York agreed to a 20-percent limit.

Third-party fees average at about 20 percent but and surge to as high as 40 percent, restaurant owners say, and there’s confusion over what the amount buys clients. Delivery reps say it’s an ambiguous combo of marketing, technology, and customer services. While Chicago did not adopt a cap, they did mandate third parties to provide itemized receipts to customers with a breakdown of what they charged restaurants. Restaurant owners have said companies have largely ignored the mandate.

Supporters of the cap ordinance say it’s needed as restaurants are desperate for money during the pandemic as they rely on takeout and delivery. But, many in the industry see third parties as predatory. Several restaurant owners shared their experiences of third parties of deceiving customers by creating fake websites that imply a restaurant is part of their network. Customers are fooled thinking that they’re helping a restaurant when the truth is there’s no agreement with the courier.

Those stories failed to move the council as the ordinance did not advance. Perhaps there’s sympathy for the third parties that have struggled. Postmates announced earlier in October that it was $929.3 million in the hole. The city has concentrated on outdoor dining to make the best use of warmer summer weather. But as winter returns, food deliveries will increase along with frustrations from restaurant owners angry about service fees. At a September press briefing, Mayor Lori Lightfoot warned third parties that the ordinance was not dead.

There’s been an evolution in the city’s understanding of third parties since March when Grubhub officials appeared with Lightfoot at City Hall to clumsily announce they would defer the collection of service fees (after first saying the fees would be waived). Grubhub, a Chicago-based company, has since been sold. The city took heat for cozying up with Grubhub, as restaurants cited the service fees and shady business practices. At the aforementioned September briefing, Lightfoot appeared with Brian Fitzpatrick, the co-founder of Tock, another Chicago-based company that pivoted from reservations to offering online ordering. The company charges restaurants 3 percent for its services.

The lifeline for the industry would be federal intervention, whether that’s via a stimulus or grander bailout. In the absence of that, local authorities are scrambling for solutions. A cap would be a logical next step. Check back for updates.

• Chicago’s Winter Dining Challenge Winners Announced, Restaurateurs Remain Skeptical [ECHI]
• Outdoor dining winterization money comes as some push for tougher Chicago requirements on third-party delivery apps [Tribune]
• Chicago Considers Capping Delivery App Fees for Restaurants at 5 Percent [ECHI]
• Chicago Restaurants Roast Third-Party Delivery Apps at City Meeting [ECHI]
• Postmates Is Over $929.3 Million in the Hole [ESF]
• Chicagoans Seated at Restaurants Will Have to Wear Masks Unless They’re Eating [ECHI]
• Grubhub Announces It Will Delay Collecting Fees as Restaurants Deal With COVID-19 [ECHI]
• Dutch Delivery Company Just Eat Takeaway Acquires Grubhub [ECHI]