Chicago will have to wait longer for the city to impose a cap on fees on delivery services. As planned, council members didn’t take a vote, but hinted legislation could be on its way. Representatives from DoorDash, Grubhub, and Postmates gave Chicago City Council members plenty to chew on Monday afternoon during a special committees meeting to discuss third-party delivery services.
Council members on Monday listened to arguments from three Chicago restaurant owners and Illinois Restaurant Association CEO and President Sam Toia who want the city to regulate delivery companies. The meeting has been brewing since last month when the chairman of the finance committee, 32nd Ward Ald. Scott Waguespack, introduced an ordinance to cap delivery-service fees at 5 percent, to figure out ways to help restaurant owners during the COVID-19 pandemic. With dining rooms closed since mid-March, restaurants are depending on carryout and third parties apps. Some restaurant owners, including those who testified on Monday, believe these apps are predatory by charging high commission fees.
Chicago’s proposal gives the city the lowest cut in the country as San Francisco, Seattle, and Washington, D.C. have capped fees at 15 percent, with New York agreeing to 20 percent. On average, companies charge restaurants about 30 percent.
Discussion on Monday didn’t center around April’s proposed ordinance. Reps from all three delivery companies did say they opposed any cap. Uber Eats was absent, as Waguespack says it was due to restructuring; the company laid off 3,000 workers on Monday. This comes days after a rumor spread that Uber was interested in buying Grubhub.
The meeting ended without a clear direction on how the city would pursue a fee cap: For example, if an ordinance would be permanent or last only as restaurants deal with the pandemic. But for nearly two hours, DoorDash, Grubhub, and Postmates reps sat through a roast. Restaurant owners Sam Sanchez (Third Coast Hospitality Group), Beverly Kim (Parachute), and Scott Weiner (Fifty/50 Restaurant Group) drove home a central point that the companies engage in damaging unethical practices. Sanchez says he was forced to close two restaurants, including Chen’s Chinese, because of Grubhub’s strategies: Sanchez bemoaned how much Grubhub spends on search-engine optimization designed to crush restaurants that aren’t listed on Grubhub’s portal, Sanchez says, adding that he feels restaurant owners have no choice but to use Grubhub. If they try delivery or carryout on their own, they’ll be crushed.
“It’s the way of life, the way they market their restaurants and push everyone and use analytics. They outspend,” Sanchez says.
Amy Healy, head of public affairs for Grubhub, did say restaurants aren’t beholden to them. They have a choice on whether to use their services as much as they want. She says delivery services shouldn’t be targeted, that they aren’t a public utility company. Healy suggests Grubhub isn’t being treated fairly and that the city should go after Google, Facebook, or Yelp. Healy defended Chicago-based Grubhub, saying CEO Matt Maloney had pledged to invest all of the company’s second-quarter profits to drive order to restaurants, to support “the takeout ecosystem.”
Last week, the city mandated third parties to start supplying itemized receipts to customers that showed a breakdown of their charges including the cost of the meal, tip, to what restaurants get charged. There’s much confusion by customers and elected officials. At a March news conference, Mayor Lori Lightfoot said Grubhub would be waiving all commission fees for restaurants. Grubhub clarified, saying instead that they would be deferring its marketing fees. The city sees a benefit for the consumer with transparency so that could order and use the method that charges restaurants the least.Riding that spirit, 40th Ward Ald. Andre Vasquez asked the trio of third-party reps to share what they spend in marketing. All three agreed to do so.
Restaurant owners also educated aldermen about the dirty practice of setting up an unauthorized website. While companies could elect to stop the practice, restaurant owners want government to intervene. Kim and husband Johnny Clark own Michelin-starred Parachute and opened a restaurant a few doors down, Wherewithall, last year. Kim had her own problems with Grubhub posting Parachute’s menu on a site that made it look like she and Clark had agreed to take orders with the company.
As she recounted in the meeting, in February, Kim decided to play detective and made a Parachute order using Grubhub. A Grubhub worker showed up to the restaurant with a credit card wanting to make an order and was disappointed to discover Parachute didn’t offer carryouts. On the other side, when Kim called to ask where her food was, she says Grubhub blamed Parachute. They told her that Parachute’s system was down, Kim says.
Toia called the practice “hijacking” a restaurant’s brand. Healy says Grubhub makes those landing pages to help restaurants, and they will quickly remove them upon request. Busy restaurant owners say it’s not that easy, as Grubhub forces them through red tape, dealing with new contacts to get removal. DryHop Brewers and Corridor Brewery and Provisions’ culinary director Ryan Henderson says he asked Grubhub to remove his restaurants from its portal. Removal takes about a week, Henderson says.
Weiner, an outspoken critic of Grubhub, calls the fees outrageous, He spends 7 percent of his total costs on real estate and 25 to 35 percent on food. Spending 30 percent on delivery isn’t sustainable for restaurants: “These are IPO-driven companies,” Weiner says. “And money leaves the community, they are not saving the restaurants we love.”
Toia believes that third parties can be a boon for restaurants. He singled out Tock, which charges restaurants 3 percent per order, and ChowNow, which charges about $100 per month.
Weiner hopes the city will moved toward a fee cap, saying third parties are “proven bad actors” that are “bad for our neighborhoods.”