City Councilors Propose Cap on Fees for Third-Party Restaurant Delivery Services

Several City Councilors are proposing that Boston follow the example set by Cambridge and other cities by capping fees for third-party delivery services for restaurants.         

City Councilors Ed Flynn, Matt O’Malley and Michael Flaherty participated in a virtual public hearing Friday focusing on how to rein in the fees currently charged by the four biggest services – Uber Eats, Grubhub, DoorDash and Postmates.

City Councilor Flynn said restaurants have informed him that delivery fees range from 25 to 35 percent.

“We currently pay hundreds of thousands of dollars every year on these third-party delivery fees,” he said. “Restaurants pay a significantly larger portion of their revenue to delivery services…and they are dependent on these services.”    

Third-party delivery fees have been capped at 10 percent in Cambridge and 15 percent in San Francisco and New York while Baltimore is considering taking similar action.

“Here we are in Week Eight of the pandemic with no sit-down service, and we have restaurants that are getting absolutely killed by these fees,” Councilor Flynn said. “If you’re a small restaurant and you use third-party delivery services, you might have to close because the costs associated with these can outweigh it when you don’t have enough pickup and delivery business.”

Amy Healy, Grubhub’s senior director of public affairs and the only representative of a third-party delivery service on hand for the virtual meeting, said this initiative was an example of “overstepping by government officials, and will face a legal challenge [from Grubhub].”

Healy described Grubhub as a “fee-based service” that offers restaurants a range of options, such as marketing assistance.

“There’s a menu of services restaurants can choose from when they decide to work with us,” she said. “The fees are totally transparent and the contract with restaurants is completely transparent.”

Healy said Grubhub charges all restaurants a 10-precent processing fee, and that drivers keep 100 percent of their tips per the current fee structure.

Grubhub pays for Personal Protective Equipment, as well as background checks and insurance, for drivers, she said, and the company incurs additional costs, such as providing customer service 24/7 and protecting the security of its platform.

“We also lose $10 million a year in credit card fraud, and that’s $10 million that the restaurants don’t have to eat,” Healy said.

John Schall, owner of El Jefe’s Taqueria, which has locations in Cambridge and Bethlehem, Pa., said until March 16, deliveries accounted for only 25 percent of sales at both restaurants, with between 7 and 8 percent of revenue going towards delivery fees.

Now, delivery accounts for about 75 percent of sales at both restaurants, and he has paid $86,000 in delivery fees in the past eight weeks, he said.

Schall said 8 percent of his revenue went towards paying third-party delivery fees before the pandemic hit, but that number has since spiked to between 18 and 19 percent of his total revenue.

He said opening restaurants at reduced capacity would be the only way for them to offset what they are now paying in third-party delivery fees.

“If it’s not addressed permanently, there will be a second wave of restaurant closures and thousands more jobs lost,” Schall added.

Steve Clark, director of government affairs for the Massachusetts Restaurants Association, said according to a recent study, 46 percent of restaurants statewide are now closed, and that 30 to 40 percent of the state’s restaurants might not reopen.

As one alternative to third-party restaurant delivery services, City Councilor Kenzie Bok suggested creating a coop for delivery drivers that would “take care of the drivers’ wages and needs, separate from the giant platform.”

Councilor Bok also requested a “more-detailed breakdown” of how the fee structure works for third-party services, as well as “more transparency in pricing to help [people] make fully informed decisions on how to support restaurants.”

City Councilor O’Malley proposed transitioning [to a working session to more thoroughly explore the matter.

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