CHICAGO (CBS) — Starting later this month, food delivery apps like Grubhub and DoorDash will have to provide customers with an itemized list of all fees they charge to restaurants, a requirement the mayor’s office calls the first such mandate in the nation.
Mayor Lori Lightfoot’s office said new rules for third-party delivery companies will require them to disclose to their customers a full breakdown of the cost of their order before it is finalized; including the menu price of the food, as well as any taxes, delivery charges, tips, and commissions or service fees paid by the restaurant. According to the mayor’s office, restaurants are sometimes charged as much as 30% in commission fees to use third-party delivery services.
“It’s very important that there’s transparency. I think the average customer who’s ordering wants to know what the actual payment is, what the fee is going to be for the restaurant,” Lightfoot said at an unrelated event Tuesday.
As CBS 2’s Mike Puccinelli reported, the man who runs Tavern on Rush and 11 other popular eateries say the inconvenient truth is that restaurants pay for the price of convenience.
“We’re getting hit with 30 percent,” said Steve Hartenstein of Phil Stefani Signature Restaurants. “It’s big numbers.”
Hartenstein said he expects that 20 to 30% of the area’s restaurants will fail due to the pandemic. And the delivery fees just make it more difficult.
“It’s brutal,” he said. “It’s not sustainable and right now. We’re just all trying to survive.”
Restaurant consultant Giuseppe Badalamenti brought the issue to national attention recently when he posted a receipt showing that one restaurant was able to keep only $376 after ringing up more than $1,000 in sales.
“Independent operators have been silently suffering and grumbling about this for the past two years,” Badalamenti said.
Now he hopes what starts in Chicago will sweep the nation as other cities force the delivery companies to disclose their costs to consumers.
“What Chicago has done is something the National Restaurant Association should have done a long time ago,” Badalamenti said.
He said customers who really want to help out their local restaurants should order directly from the restaurant and pick up the food or use the in-house delivery service.
Lightfoot said she consulted with both restaurants and delivery service companies before announcing the new rules for delivery apps.
David London, senior government relations lead for DoorDash, said the company already has provided a 50% reduction in commissions for more than 2,000 restaurants, along with waiving commissions for pickup orders, and charging no commissions for 30 days to restaurants that are new to the app.
“Unfortunately, this unnecessary and overreaching regulation, issued under the guise of the current emergency, will only lead to confusion and hurt restaurants and delivery workers. We will remain focused on serving the restaurants, customers, and Dashers who use our platform as we explore our options and hope to find future opportunities to partner with Chicago and its restaurant community,” London said in a statement.
DoorDash said its commission fees cover the cost of insurance; credit card processing fees; advertising; maintaining the app and website; background checks for its drivers; customer support for its users, drivers, and client restaurants; and pay for its drivers, who earn an average of $22 an hour.
Grubhub also criticized the new rules in Chicago.
“We support policy and legislation that help restaurants serve their communities, and a path to reopening these businesses must be the focus. These arbitrary disclosure rules, however, will do exactly the opposite of their intent by causing confusion to consumers. These efforts by policymakers risk discouraging people from enjoying restaurant meals safely at home and hurt our efforts to support restaurants,” a Grubhub spokesperson wrote in an email.
Commission fees charged by food delivery apps like Grubhub and Uber Eats have come under increased scrutiny during the COVID-19 pandemic, as restaurants have had to rely more than ever on curbside pickup and delivery to stay in business.
Some restaurants have complained that delivery service fees can sometimes make their business unprofitable, but they have no choice but to use the services in order to keep customers. Some also have criticized promotional sales delivery services have offered to diners, supposedly to support businesses during the pandemic, while charging restaurants for the cost of the discounts.
“If a delivery service is taking what I think some have alleged – which is an inordinate amount of the fee, making it difficult for restaurants to be able to earn what are already very tight margins – I think the average consumer know that, and is going to act accordingly on the basis of that information,” Lightfoot said.
Postmates said it already discloses its delivery fees, taxes, and purchase price, but opposes disclosing the commissions charged to restaurants.
“Disclosing privately negotiated contract terms doesn’t help consumers or businesses and is akin to forcing restaurants to disclose, on the menu, the wholesale cost they pay for a bottle of wine or the tomatoes in their deepdish,” the company said in a statement.
Asked how the city can expect delivery services that operate nationwide to disclose their full range of fees to customers in Chicago, the mayor said “I don’t think this is special for Chicago,” noting that other cities also are considering similar requirements.
“We think that this strikes the right balance around transparency, and it’s certainly our hope that we’re not going to have to force the food delivery businesses into compliance; but if we do, we will,” she said.
Violators could face fines of $500 to $10,000 per day.
The new rules in Chicago will go into effect on May 22.