On Monday, Philadelphia Mayor Kenney signed a City Council bill aimed at regulating some unsavory practices employed by third-party food delivery services like Grubhub, DoorDash, and Postmates. It also provides some pandemic-era relief to city restaurants — many of which have started using delivery services out of necessity, as a way to stanch the financial impact of coronavirus shutdowns.
The new law, effective immediately, enacts three important changes and stipulates a $300 fine for violations.
The bill was introduced in early June by Councilmember Cherelle L. Parker, but has been in the works since January. We discussed the changes with Ben Fileccia, the Pennsylvania Restaurant and Lodgings Association’s director of operations and strategy for the Philly region.
1. Capping fees during the pandemic
For the duration of “a declared public health emergency” (like a pandemic) and 90 days thereafter, third-party delivery services are limited to charging restaurants a maximum 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’s a significant change, given that most services take a 20% commission on orders, with some charging 30% or more.
Restaurant’s profit margins are notoriously slim — typically between 3-5% — with food, labor, and overhead costs traditionally accounting for the lion’s share of expenses. That doesn’t leave much cushion for delivery-service fees. And if delivery business constitutes much of a restaurant’s sales, high fees can jeopardize profits all the more.
During the pandemic, restaurants and customers have been increasingly reliant on delivery. Uber Eats compared orders between the middle of February and the end of April (when the local case count was at its peak) and found sharp increases — sometimes as high as 90% — in the number of delivery orders made in North Philly, the Lower Northeast, and West Philly.
“Ultimately, I hope restaurants get to keep more money from deliveries, and in turn, that money goes to the restaurants’ employees,” said Councilmember Parker. “We need to ensure that they not only have the best chance of surviving this challenge, but also thriving as we move forward.”
Capping the percentage that delivery services can take means “restaurants can really know and structure their pricing around that 15% model,” Fileccia said.
Another important stipulation of the new law: The delivery services may not reduce a delivery driver’s compensation in order to offset the change to their fees.
2. Making the delivery service’s cut transparent to customers
“One thing that this pandemic did and that quarantining did was put restaurant delivery and restaurant takeout on everybody’s kitchen table,” Fileccia said, adding that some customers ordered in to show support for restaurants that have been pillars of their communities.
However, if orders were placed through delivery apps, a significant chunk of that would-be support may have been misdirected, going toward the third-party service’s pocket rather than the restaurant’s.
The law addresses that, mandating delivery services display the fees they charge a restaurant — in dollars or as a percentage — before the customer pays for an order. This means that customers will know roughly how much of their money goes to the restaurant vs. the delivery service.
The disclosure must be featured “in plain and simple language and in a conspicuous manner.” And if the exact fees are incalculable in real time, the delivery service must show a good-faith estimate based on the most recent payout data available. If restaurants desire, they can choose to keep the fees undefined.
3. Preventing unauthorized restaurant listings
The third component of the new law addresses a problem that started cropping up pre-pandemic: Restaurant menus would show up on third-party delivery platforms unbeknownst to their owners, often with incorrect or outdated offerings and prices. Parker cites this problem as the original basis of the bill.
It happened to Vernick earlier this year, Fileccia said (and the restaurant confirmed). A customer had placed a delivery order for Vernick through a third-party service and waited two hours for food to arrive. Meanwhile, Vernick didn’t even offer takeout, let alone delivery, at the time. Only later did the customer receive notice that the order had been canceled and that their money would be refunded.
While the restaurant isn’t even aware of the delivery order in such a situation, it’s more likely to bear the brunt of a customer’s disappointment or anger, Fileccia said. It can lead to bad Yelp reviews and bad impressions.
Love & Honey Fried Chicken in Northern Liberties had a similar experience earlier this year, when a Grubhub courier tried to place an order for an online customer — despite the fact that Love & Honey had an exclusive agreement with Caviar and that the order was made based off an old menu.
The restaurant had been listed on Grubhub as part of its “Place and Pay” program, which encouraged drivers to act as middlemen, placing orders for online customers by phone or in-person, then paying for them with a company card.
Grubhub later took Love & Honey’s listing down, but only after owner Laura and Todd Lyons complained privately and publicly. “We look bad to our customers,” Laura Lyons told The Inquirer at the time.
The new law prohibits third-party delivery services from using the name, likeness, trademark, or intellectual property of a restaurant without written permission to do so. There are two workarounds: if state or federal law otherwise permits it, or if the delivery service accompanies the unauthorized posting with a disclaimer of equal size and prominence.
The disclaimer should read, in all-caps: “This third-party food delivery service is not an authorized delivery service for this restaurant. This third-party food delivery service does not have an agreement to deliver for this restaurant. Please contact the restaurant directly to obtain up-to-date information on menu items.”
As with the disclosure of fees, this part of the law will stay in effect even after the current public health emergency subsides.
Asked for comment on the newly signed law, the Lyonses of Love & Honey responded: “We’re grateful to the City of Philadelphia for recognizing the issue that many restaurants were facing with large food delivery companies adding us to their platforms without approval. Thank you for listening and taking action!”