Future of food delivery fees up to Gov. Baker
Pending bill would cap commissions at 15%
GOV. CHARLIE BAKER will be the final arbiter of a dispute between restaurants and food delivery apps over how much the apps can charge for providing delivery services.
The economic development bill currently on Baker’s desk would impose a statewide cap on the size of fees that delivery services like GrubHub and Uber Eats can charge to restaurants during the COVID-19 emergency. Restaurants have been pushing for the cap, arguing that high delivery commissions will drive them out of business. But delivery services say if they can’t charge high commissions, they will instead have to charge consumers more or do fewer deliveries, which will then hurt the restaurants.
Sen. Eric Lesser, Senate chair of the Committee on Economic Development and Emerging Technologies last session and a lead negotiator on the bill, said restaurants are suffering, and the cap is a way to help them stay afloat. “We’re facing a potential extinction event for restaurants,” Lesser said. “This feels like a reasonable way to give them a lifeline during a period of dining restrictions.”
Lesser said there is a “fine line” between delivery apps providing an important service and taking advantage of an emergency situation.
Since the pandemic, much of the dining-out business has shifted to take-out and delivery. Restaurants forced into that model quickly have complained that the 25 to 30 percent commissions that delivery apps charge make delivery financially unsustainable. Some cities like Cambridge, Boston, and Newton have considered implementing their own caps. Similar caps have been put in place in other cities and states, including San Francisco and Washington state.
The economic development bill would institute a statewide 15 percent cap on the commissions that delivery apps can charge restaurants. The cap would only apply to restaurants with fewer than 25 retail locations in Massachusetts. The apps would be prohibited from reducing driver salaries or garnishing their tips to comply with the cap. The state cap would supersede any local ordinance and would remain in effect for as long as the COVID-19 state of emergency lasts.
Bob Luz, president and CEO of the Massachusetts Restaurant Association, said the cap is particularly important for sit-down restaurants, which prior to COVID-19 did less than 10 percent of their business through takeout with virtually no delivery. Now, those businesses are doing 25 to 30 percent of their business through takeout and delivery – but are not getting any breaks in the fees charged by delivery apps.
“Everyone’s focused on trying to get restaurants to the other side of this, and this bill does just that,” Luz said. “It keeps these fees at the level the Legislature passed until the pandemic is over, then they go back to having a regular business relationship.”
But delivery services say the move could hurt restaurants.
Unlike in other cities, the Massachusetts proposal does not distinguish between the fee charged for marketing services and for delivery services, which could incentivize apps to charge a lot for marketing, then adopt policies that encourage restaurants to hire their own delivery drivers.
Officials from the delivery companies say they may have to charge customers more, hire fewer drivers, or limit the number of deliveries they do – for example, by limiting the geographic area where they operate.
Klinzman warned that fee caps “would do the opposite of what this bill is intended to, costing Massachusetts valuable jobs, tax revenues, and important economic activity.”A DoorDash spokesperson said pricing regulations “could cause us to increase costs for customers, which could lead to fewer orders for local restaurants and fewer earning opportunities for Dashers.”
“We hope that Governor Baker will take a closer look at the bill to fully understand the harmful impact of pricing regulations on the services we provide for our community, and are eager to continue working together towards a solution that better supports local businesses,” the DoorDash spokesperson said in a statement.