NYC's Delivery Fee Cap: Should It Stay or Should It Go?
Restaurants have suffered for years thanks to what we (unaffectionately) call "unprecedented circumstances.” In an attempt to relieve industry strain, cities across the U.S. have crafted a range of pro-restaurant measures, most notably government-mandated delivery fee caps.
New York City (NYC) remains one of the most talked about in the delivery fee conversation, making headlines once again as local governments consider amending their cap structure.
Here’s everything you need to know about NYC’s delivery fee caps — starting at the very beginning.
Where It Started
In response to pandemic-related restaurant struggles, the New York City Council passed a bill on May 13th, 2020 limiting third-party fees during states of emergency. The bill stated that, for 90 days, third-party delivery apps could not charge more than 20% in fees — 15% per order for delivery, and 5% for non-transaction fees — with violators facing penalties of $1,000+ a day.
As restaurateurs expressed gratitude for this kind of financial (and emotional) relief, cities across the country followed suit, with places from Chicago and Baltimore to San Francisco and Denver adding their own delivery fee caps, too.
What’s Happening Now
Fast forward to now, and the New York City Council is talking about delivery fee caps again. This time, though, not everyone is as happy about it.
The council has been reviewing its fee cap since July 2023. The proposed changes would raise the fee from the current 20% cap – 15% delivery + 5% non-transaction fees – to a 30% cap – 15% delivery + up to 15% non-transaction fees. The 15% non-transaction fees would be optional for restaurants but offer opportunities for them to increase visibility on the app with paid marketing and promotions.
The proposed raise has divided City Council straight down the middle. 25 of the 51 council members want to raise the cap, and the other 26 members either want to keep the cap… or they’re sitting somewhere on the fence.
The Apps’ Perspective
In this year’s conversations, delivery apps are a lot louder now than they were in 2020.
Despite actively trying to sell the company, Grubhub CEO Jitse Groen has spearheaded the conversation about cap changes for both third-party apps and restaurants alike.
If you ask Groen, increasing NYC’s fee cap to 30% is a smart idea for everyone.
Groen says an increased fee “will especially benefit small businesses owned by immigrants and families [who] do not have access to the same marketing resources as major brands.” Essentially, Groen’s perspective is that paying third-party apps for marketing is a time-and-stress saver, taking the pressure off restaurant owners who are already stretched thin.
The Restaurateurs Perspective
Much like the New York City Council, however, restaurant owners are divided on the fee impact.
Some restaurant owners agree with Groen.
Dawn Kelly, the CEO of The Nourish Spot in Queens, NY, considers delivery app platforms like Grubhub a “strong business partner” because of how difficult marketing endeavors can be.
“It's not as simple as taking out an ad in the community paper anymore,” Kelly says, “and we don't have the big budgets and expert staff to run sophisticated campaigns to put our brand in front of new audiences.”
Other restaurateurs (or restaurant allies) are less convinced.
Andrew Rigie, Executive Director of the NYC Hospitality Alliance, says he “[doesn’t] buy Grubhub’s lobbying pitch.”
Rigie’s summary of Grubhub’s pro-fee stance is not as uplifting as they might have wanted: “Let us charge small, immigrant-owned restaurants a lot more money so we can help them compete against the big chain restaurants that can afford to pay us the higher fees.”
As of August 2023, there’s still no movement from the New York City Council.
While the entire city sits in suspense, mixed emotions are rippling throughout the industry. Most restaurant owners are banking on no change, hoping the lower fee helps keep them in the green. Other stakeholders like Groen are vying for the opposite vote (and are “pretty confident that [the fee caps] will roll off”).
So, whether you’re a hopeful restaurateur or an overly confident CEO…what happens now?