January 30, 2024 Third-Party Platform Regulations

Fee Transparency Protects Restaurants

Check out the latest legislative efforts from across the country that address delivery fee caps versus fee transparency, limiting service fees and regulating big third party delivery.

New York:

This month a third party delivery fee cap bill, originally introduced January 2023, was referred to consumer protection in the New York Assembly and Senate. This bill would cap delivery fees imposed on restaurants at 15% of the total purchase price of each online order, service fees at 5%, and transaction fees at 3%.

~Why it Matters~ 

It is crucial that high and hidden fees imposed on restaurants are eliminated because restaurants are already operating on thin margins trying to remain profitable. While capping fees that third party delivery companies can charge protects restaurants and their customers, these caps fail to address the real problem at hand – the bounty of hidden fees big third party delivery companies impose on restaurants and consumers that sidestep fee caps. 

While consumers see “delivery” fees and “transaction” fees on their order receipts, in reality, fees imposed on restaurants and consumers are hidden. These fees imposed on restaurants include listing, advertising, promotion, and delivery fees and are covertly woven into the subtotals of orders and general fees. This deception leads to restaurants only receiving about 45% of revenue from an online order while big third party delivery companies take home the rest. 

Fee transparency is the most optimal policy for an equitable and sustainable restaurant ecosystem as it requires third party delivery companies to be transparent in their fees, listing out what each one is for. This helps customers understand the true costs of delivery and also protects restaurants from the detrimental hidden fees that eat at their profits. 

New Jersey:

At the beginning of this month, New Jersey reintroduced a 2023 bill limiting service fees charged to restaurants by third-party food takeout and delivery applications. This bill would cap service fees charged to restaurants at 20% of the individual cost of the order but allow for restaurants to choose to pay up to 25% of the individual cost to access additional advertising or other products and services offered by third-party delivery companies.

~Why it Matters~ 

While fee cap legislation such as this bill and the New York bill are a step towards protecting restaurants from exorbitant fees from third party delivery services, these policies are not nearly as equitable and effective as fee transparency. 

Additionally the ‘option’ granted to restaurants to pay for extra advertising or marketing services is not truly an option, it is actually a deceitful requirement for restaurants. Restaurants that do not pay the extra 5% see their order volumes and revenues plummet because the big third party delivery companies manipulate their algorithms to deprioritize these restaurants on their apps, making it even more difficult for restaurants to see a profit. 

This deception is not unique to restaurants: Big third party delivery apps knowingly mislead their customers by presenting their delivery fees as “free” or “99 cents” or even “$3.99.” In reality, the cost breakdown on receipts fails to show that the total percentage of the order paid to third-party delivery companies comes out of the restaurant’s pocket– often exceeding 30%.

Consumers deserve clarity on the reasons behind the continuous rise in online food delivery costs, and fee transparency policies compel delivery companies to justify these expenses or acknowledge potential price gouging for consumers and restaurants.

GrubHub Fined $3.5M in Massachusetts:

The state of Massachusetts and Grubhub have reached a settlement in the state’s attorney general’s 2021 lawsuit against the third party delivery company for violating Massachusetts’ 15% delivery fee cap laws during the pandemic. The courts found that Grubhub was unfairly charging restaurants 18% or more in delivery fees and price gouging restaurants that were already struggling to keep their doors open during the pandemic. Grubhub has agreed to pay $3.5 million to affected restaurants and $125,000 to the state of Massachusetts. 

~Why it Matters~ 

Holding third party delivery companies accountable for price gouging and hidden fees is key in ensuring restaurants are able to stay in business and thrive.