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New York City Council Passes Bill to Cap Food Delivery Fees

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·3 min read
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(Bloomberg) -- New York City lawmakers passed a measure that will make temporary caps on third-party delivery fees permanent in a blow to companies like DoorDash Inc., Grubhub and Uber Technologies Inc.

The bill, proposed by Councilman Francisco Moya, a Queens Democrat, will prohibit food delivery companies from charging more than 15% per delivery order and more than 5% for marketing and other fees. “By limiting, without expiration, the fees charged to restaurants by third-party food delivery services, we are ensuring that mom-and-pop shops have a real opportunity to recover and thrive,” Moya said in a statement Thursday.

The measure is part of a package of bills aimed at regulating the food-delivery industry. Another piece of legislation the council passed will require delivery companies to be licensed by the Department of Consumer and Worker Protection every two years. It will also give city lawmakers more power to enforce previously passed regulations including requiring food-delivery companies to share customer order data with restaurants, barring them from listing eateries on their platform without the businesses’ permission and prohibiting charging restaurants for telephone orders when a transaction did not take place. The new bill will allow lawmakers to impose fines, revoke, suspend or decline renewal of licenses for food-delivery companies that violate regulations.

Shares of DoorDash slid about 2% in early trading Friday. Amsterdam-based Just Eat Takeaway.com N.V., which owns Grubhub, fell 5.6%. Chief Executive Officer Jitse Groen fired back against the proposal, saying fee caps “increase delivery fees for consumers, and therefore lead to a reduction of orders for both restaurants and couriers.” In a tweet Friday, Groen called the fee caps “unconstitutional” and said he’d join the industry in opposing them.

Both bills still have to be signed by Mayor Bill de Blasio and would take effect 120 days after becoming law.

“DoorDash has always supported New York restaurants, and we remain committed to helping them grow sales, adapt to changes, and meet customers where they are,” the company said in a statement. “The fact is, permanent price controls are unnecessary and unconstitutional, and will hurt small businesses, delivery workers, customers and the local economy.” Uber didn’t immediately respond to requests for comment.

Food delivery companies faced scrutiny during the pandemic for charging commissions that could reach to as much as 30% of an order, squeezing small businesses’ already razor-thin margins -- though they also enabled restaurants to cater to customers who didn’t want to leave their homes. Cities across the U.S. imposed temporary caps on the fees last year in an effort to help struggling eateries keep a larger slice of profits.

New York City follows a resolution passed by San Francisco’s Board of Supervisors in June limiting all fees charged to restaurants from exceeding 15% of an order total. DoorDash and Grubhub, which is owned by Just Eat Takeaway.com NV, filed a lawsuit against the city challenging the price controls.

For DoorDash, commission caps had a net negative impact of $26 million on revenue in the most recent quarter.

(Updates with shares and comment from Just Eat Takeaway in fourth paragraph.)

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