Mayor Lori Lightfoot wants third-party services, like Chicago’s very own Grubhub, to be more transparent with their pricing structures. On Monday, the city announced it would require third parties to provide itemized receipts to customers showing all their charges, breaking down food costs, taxes, delivery fees, and what restaurants pay in commissions and service fees.
The policy will go into effect on May 22, according to a news release. Violators will be subject to daily fines of $500 to $10,000. The action has the support of the Illinois Restaurant Association. The city claims Chicago is the first in the country to implement such rules. The disclosures are to appear on receipts. Customers want these changes, the city claims.
“The consumer may wish to choose the method that maximizes the amount of the consumer’s money that is retained by the local restaurant,” the city’s rule reads.
Lightfoot’s announcement comes two months after a news conference at City Hall where the mayor appeared with Grubhub CEO Matt Maloney. Lightfoot told reporters that Grubhub would be waiving “commissions” to help spark delivery business during the novel coronavirus crisis. Maloney eventually clarified Grubhub would waive its marketing fees, but didn’t describe how much that represented. Lettuce Entertain You Enterprises President R.J. Melman would chime in and say marketing fees represent about 15 percent of the cost of a meal.
There’s much confusion over what Grubhub — and its competitors like DoorDash and Uber Eats — charge restaurants. For example, a restaurant could elect to pay Grubhub extra in marketing fees if it wanted to come up more prominently when customers search for a specific cuisine. A post earlier this month from a suburban Chicago restaurant owner went viral and stunned customers showing that a restaurant made $376.54 on $1,042.63 in orders after Grubhub took its fees.
Grubhub held its quarterly earnings call on Thursday, and officials called the post “politically coordinated.” Maloney balked at delivery fee caps in San Francisco, Seattle, and Washington, D.C. He said Grubhub sales have fallen by about 10 percent since San Francisco enacted its 15-percent cap. A proposal for a 5-percent cap in Chicago has stalled in City Council.
“We’d be open to reasonable measures that would help and not hurt,” Maloney said on the call.
On the same call, when asked about transparency on the fee structure, Maloney replied, “I think you have disparity in pricing models now that is not properly understood by restaurants or, frankly, by elected authorities.”
Grubhub provided this statement:
“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.”
DoorDash, which also owns upscale restaurant delivery specialists Caviar, issued its own statement:
“During this unprecedented crisis, food delivery has become an essential service for many Chicago residents and their families, and a life-line to thousands of Chicago restaurants. We feel a responsibility to help our communities during this crisis, which is why, over a month ago, we cut commissions for more than 2,000 Chicago restaurants in half through May as part of $100 million in commission relief and marketing support we’re providing. For weeks, we have engaged with political leaders in Chicago hoping to find cooperative and sustainable ways to help local restaurants on the long road to recovery. 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.”
The Tribune first reported the story.
UPDATE: Now includes statements from Grubhub and DoorDash.