The cap on third-party food-delivery fees instituted in 2020 to help Philadelphia restaurants survive would become permanent under legislation to be introduced to City Council on Friday.
An aide to Councilmember Cherelle L. Parker, who pushed for the 15% cap last summer on such apps as Grubhub, DoorDash, and Uber Eats, said her plan had eight cosponsors — enough for passage. A representative of Mayor Jim Kenney said he could not comment on legislation that has yet to be introduced.
If approved, Philadelphia would join other cities, including New York and San Francisco, in permanently limiting the fees, which can cost 20% to as much as 40% of a delivery check — “almost the entirety of restaurants’ margins,” Parker said. Making the cap permanent would help “protect and nurture our small restaurant operators as they continue to build back.”
The legislation applies only to deliveries within the city, not the suburbs.
The delivery companies have fought back against such edicts, as well as other restrictions. New York City, which made its pandemic cap permanent in August, was sued in federal court on Sept. 9 by Grubhub, DoorDash, and Uber Eats. A Grubhub representative said permanent price controls would be unconstitutional and would drive up costs for consumers.
Delivery services’ revenues exploded during the pandemic, but in general the major companies are not profitable. Grubhub, for example, saw a 39% year-over-year rise in revenue in 2020, to $1.8 billion, but reported a loss of $155.9 million.
Grubhub wants to see the cap lifted in Philadelphia but jumped the gun this week. On Tuesday, it notified its partner restaurants in Philadelphia that the fee cap had been lifted, effective the day before, and that contracted delivery rates had resumed.
Grubhub’s move set off outrage and confusion among restaurateurs and the Pennsylvania Restaurant and Lodging Association, which lobbied for the legislation.
Philadelphia’s fee cap had been instituted in July 2020 for the duration of “a declared public health emergency” and 90 days thereafter. Although an emergency declaration expired in June 2021, a “declaration of extraordinary circumstances” is still in effect. A representative of the mayor’s office said it was contacting companies to communicate this.
On Wednesday, Grubhub relented and restored the cap rates. Grubhub representatives attributed the move to “a mistake” and noted that it had refunded additional charges to the restaurants.
The PRLA applauded Parker’s impending bill. “Our industry faces a long road to recovery, and this proactive move provides certainty and transparency to current and future operations,” said Melissa Bova, the PRLA’s vice president of government affairs.
Philadelphia’s cap limits third-party delivery services to charging restaurants a delivery fee of 10% per order, and a maximum fee of 5% for other services, such as marketing. This limits a third-party delivery service’s cut of a customer’s order to 15% total. That was a significant change, given that most services take a 20% commission on orders, with some charging 30% or even 40% when associated fees are included.
The law also prohibited delivery services from reducing drivers’ compensation in order to offset the change to their fees, and required services to display the fees they charge a restaurant — in dollars or as a percentage — before the customer pays for an order.
The law also forbids third-party delivery platforms from advertising menus of restaurants they don’t have a deal with; this led to confusion when customers complained about orders that restaurants had no knowledge of.
Restaurant customers also pay delivery fees, service fees, and tips. DoorDash, for example, added a $1.50 “regulatory response fee” to Philadelphia orders during the pandemic.
Fees, which vary by restaurant, time of day, and other factors, add up. Take one recent $30 DoorDash order for an Italian hoagie ($14), cheesesteak ($14), and can of Coke ($2) from a pizzeria. DoorDash collected a regulatory response fee ($1.50), delivery fee ($1.99), and service fee ($4.50). Sales tax added $3.04. The customer added a $6 tip, for a $47.03 total. The restaurant also paid $4.50 to DoorDash (the capped 15% of the total), plus credit-card processing fees.