City Council Holds Hearing on Impact of Third-Party Delivery Fees on Restaurants

The City Council Committee on Small Business and Workforce Development held a hearing on May 15 regarding the impact of delivery commission fees on restaurants during the COVID-19 pandemic. The Council heard from City administration as well as restaurant owners and deliv-ery companies about the struggles they are facing in the midst of the coronavirus outbreak.

“Lots of folks are struggling,” City Councilor Michael Flaherty said. “The restaurant and food industry is probably one of the hardest hit.” Flaherty said that delivery services and venues are having a hard time because volume is down.

“Complaints have been that while everyone is supposed to be sharing sacrifice…delivery fees are high,” he said. 

Councilor Ed Flynn said that delivery companies charge 25 to 25 percent commission fees on delivery fees, adding that this is a “huge burden” when sales are already down. “Huge com-mission fees can wipe out revenue and the ability to retain or rehire. We’re in a pandemic; we’re in an economic recession. We’re asking delivery companies to be reasonable. They ha-ven’t been reasonable. We don’t want to put restaurants out of business.”

Councilor Matt O’Malley said that while he understands the importance of these companies as he has used them himself, and they also provide web search optimization for restaurants, that talking specifically about the delivery component, changes need to be made.

O’Malley reminded everyone that this was week eight of no sit down service at restaurants in the Commonwealth. “The four big vendors are doing well, and good for them,” he said of the delivery companies. “They have got a windfall perhaps unlike anything they have seen before.”

Kaitlin Pasafero of the City’s Office of Economic Development said that “small businesses are the heart of Boston’s economy,” providing 170,000 jobs in the City. “The impact on the quality of life of residents cannot be overstated,” she said.

She said that these third party delivery fees “threaten to wipe out a restaurant’s entire profit margin.” She said that her office continues to work with small businesses to provide grants and additional support through virtual workshops and other resources.

John Schall, owner of El Jefe’s Taqueria in Cambridge and soon to be on Boylston Street in Emerson College’s Little Building, said that the fees for third party delivery companies are a “huge part” of his cost structure.

“When paying 18 percent of total revenue to delivery companies, you’re just not viable,” he said, especially for restaurants that did not offer delivery prior to COVID-19.

“This problem isn’t going to go away when restaurants open for sit-down dining,” Schall said. “If this isn’t addressed permanently, there will be another wave of restaurant shutdowns.”

Amy Healy, head of public affairs for GrubHub—and the only representative from a third party delivery company who attended the hearing— said that she opposes a cap on these delivery fees. She said that a cap “will result in damaging unintended consequences for local busi-nesses,” and that it will “result in the exact opposite of what the legislation is designed to ac-complish.”

She said that GrubHub has supported millions of dollars in meals and cash donations to help hospitals and others during this crisis.

“A cap will lower order volume,” Healy said, and “raise costs to costumers. Delivery workers would have fewer work opportunities and lower earnings. GrubHub is ensuring that workers in Boston can continue to provide for themselves and their families.”

She said that delivery is one component of GrubHub’s business. The company charges 10 percent to a restaurant to deliver, which she said is “certainly not enough to pay a driver.” She said they also have to pay for personal protective equipment to provide to drivers.

The other part of GrubHub’s business is marketing for restaurants, and offers a menu of dif-ferent services to restaurants and they can choose what they would like.

“The fees are fully transparent,” Healy said. “We have restaurants tell us all the time that it’s too expensive to hire their own drivers. That’s a choice the restaurant makes—to use us, or they pay their own.”

Councilor Andrea Campbell asked Healy what seemed “reasonable or fair” from her perspec-tive.

“We announced that all profits for the second quarter would be reinvested in programs for driving business to restaurants,” Healy said. “That’s what we believe is going to be most help-ful. They need business, they need volume.”

Stephen Clark, Vice President of Government Affairs for the Massachusetts Restaurant Asso-ciation, said that in a recent survey, 46 percent of restaurants report not being open at all, and for many, takeout and delivery is “easier said than done,” as it is hard to build up a deliv-ery platform when many restaurants have never offered delivery before.

Clark also read an email from a restaurant who said that one of the third party delivery com-panies set up a website without their permission, even before the pandemic hit. Reading from the email, Clark said, “The concept is someone finds our restaurant on their site and orders from an abbreviated menu which they have selected. A driver comes to the restaurant and shows our hostess the order on his or her phone, pays with a credit card, and has the logo of the third party delivery company.”

The owner proceeded to call a representative from the delivery company who said the person who set up the account in the restaurant’s name was someone who had never worked for the restaurant. The owner also said in the email that the “dummy website” listed an abbreviated menu with outdated items and prices “were inflated by at least $1.50.”

Clark said that third party delivery companies “will need to have increased regulation” moving forward.

Councilor Matt O’Malley asked GrubHub if they were participating in listing restaurants that do not agree to be listed on their website.

“We are looking at it,” Healy said. “Our competitors do it and in order to stay competitive it was something that we started doing at the tail end of last year.”

She said that “we don’t like that practice either,” and that she would be willing to work on “al-ternatives” with the Massachusetts Restaurant Association.

“I think the alternative is not doing it because it’s a duplicitous practice and the fact that you’re charging more for a meal and setting up an online portal for restaurants that may not even know about it,” O’Malley said. “That’s just very troubling.”

He suggested capping the delivery fees now will support diving business to restaurants.

The councilors generally agreed that more transparency is needed and further discussion on this topic will be necessary. Several councilors said they were upset by the fact that only one representative from the four major delivery companies (GrubHub, DoorDash, Postmates, and Uber Eats) to show up to the hearing.

“Thank you to Amy for testifying,” said Councilor Ed Flynn. “Think of this; she’s the only person that came here from one of the four delivery businesses to face the fire, face the tough ques-tions. The other ones hid behind the computer and didn’t want to engage in this topic and didn’t want to engage in this subject. It probably shows the disrespect those other compa-nies have for the residents of Boston in my opinion.”

He said that he does expect the others to attend a working session on this topic “talking about solutions to the problem.” He said that “Boston definitely needs a cap,” citing serval other cities that have already implemented caps on fees. “Our restaurants play an integral part in our community and our neighborhood.”

Councilor Michael Flaherty said that the Council is “trying to strike a balance at what’s fair and reasonable,” and trying to make sure that the process and fees are transparent.

“This is one piece of the puzzle that has to be addressed now and in the future,” said Counci-lor Andrea Campbell. “I hope that this is an opportunity for us to do something to protect [res-taurants].” Councilor Julia Mejia finished out the hearing by saying she was “grateful to have had the op-portunity to learn and listen to all sides,” but she remains “concerned” about the fees and some of the restaurants not even knowing they were on these third party sites. “I think we have a lot of work to do,” she said, “and so I appreciate the dialogue and look forward to the next steps.”

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