In New York City, the epicenter of the U.S.’s COVID-19 crisis, tensions are high between restaurants and third-party delivery providers.
Andrew Rigie, executive director of the NYC Hospitality Alliance, points his criticism mainly toward Grubhub, which owns most of the space in New York City’s delivery marketplace. According to Second Measure, Grubhub controls about 66 percent of the Big Apple market.
Rigie says the relationship between restaurants and third-party platforms was difficult pre-pandemic. And in the midst of the crisis, he says companies like Grubhub and Seamless are exploiting businesses.
“They’re spending money on commercials that watch like propaganda,” Rigie says. “They’ve provided a lack of clarity and transparency in the so-called support they are providing toward restaurateurs, which has created more uncertainty.”
His organization is calling on New York to cap delivery fees at 10 percent to assist restaurants that are struggling financially. Fees from third-party companies reach as high as 30 percent in some areas, placing a burden on restaurants’ thin margins. Before COVID-19, the New York City Council discussed legislation that would cap fees at 10 percent.
In March, Grubhub announced that it was suspending collection of up to $100 million in commission payments from independent restaurants. The company later clarified that these are deferred payments and will have to be repaid.
Rigie refers to the move as an unconscionable bait-and-switch tactic.
“During a time of crisis, we need to come together for the support of our small businesses, our jobs, and New Yorkers who need food delivered,” Rigie says. “And if Grubhub and Seamless weren’t going to step up and do the right thing, they should’ve stepped out of the way and done nothing. Instead, they’ve misled and confused the marketplace and now they’re spending money on commercials to fool the public into believing that if you use Grubhub, you’re somehow supporting local restaurants, which is the furthest thing from the truth.”
“This is exhausting,” he continues. “Every day, I’m getting contacted by countless restaurateurs who have had enough. To make it worse, when restaurateurs call their account representative, they’re not even able to give them accurate information. And I feel bad—it’s putting Grubhub employees in a difficult position.”
On April 10, San Francisco announced a 15 percent cap on fees that will run through the duration of the pandemic or when restaurants can re-open dining rooms.
Eater reported that Grubhub sent an email to users speaking against the cap. In the message, the company made the argument that a cap will increase consumer fees by $5 to $10.
Rigie says he doesn’t appreciate how Grubhub portrays the situation.
“Grubhub is fear mongering liars,” Rigie says. “It goes back even before this when they were charging restaurants bogus fees for orders that never occurred and they tried to lie their way and misdirect their way out of that and they’re trying to do the same here. The company cannot be trusted. Restaurateurs tell me when they think about Grubhub and Seamless, they think about evil. That’s how they describe it.”
Earlier in April, Grubhub also said it was spending about $30 million to support more than 100,000 independent restaurants and regional chain franchises through a “Supper for Support” promotion.
As part of the deal, each restaurant will receive $250 from Grubhub to discount $10 off any order of $30 or more. The third-party company believes this will generate $100 million in sales. The promotion runs through April.
Grubhub said business in New York has been more affected than other metro areas due to the severity of COVID-19’s impact. It’s seen a stabilization in consumer orders, but they remain below pre-pandemic volumes.
The third-party platform said it was planning to reinvest most of its expected Q2 profits into programs that drive business to restaurants.
“In this difficult and uncertain environment, we believe Grubhub has a clear responsibility to help restaurants and all working individuals in our ecosystem,” said CEO Matt Maloney and CFO Adam DeWitt in a joint statement on the company’s website. “We further believe the absolute best way we can support our industry is by driving as much demand as possible to local restaurants, which in turn has significant downstream benefits for restaurant workers, restaurant suppliers, our drivers, and countless others in the value chain.”
DoorDash said it will reduce commission fees by 50 percent for more than 150,000 restaurants in the U.S., Canada, and Australia. The deal, which runs through the end of May, is for restaurants with five or fewer locations.
“We continue to hear from our restaurant partners that driving growth in sales is the most effective way to help,” said DoorDash CEO Tony Xu on the company’s website. “We are doing our part by offering $0 delivery fees every Saturday. Through these programs, we have already invested more than $15 million in combined commission reductions and marketing efforts, and we’ve seen restaurants across the country generate millions of dollars in incremental sales—revenue that has been vital to helping them keep their doors open during the first weeks of the coronavirus crisis.”
In the announcement, Xu also said “government imposed, one-size-fits-all solutions do not reflect the needs of the businesses they are intended to help. Arbitrary caps can cut off a lifeline for many consumers and depriver Dashers and Couriers of the earnings they need.”
Rigie welcomes the assistance, although he believes relief should have come sooner.
“Better late than never,” Rigie says. “… They had to add a political message into why governments shouldn’t cap the fees, which made me think their real intention is more political than doing the right thing. Nonetheless, they’re reducing fees on some restaurants and that’s a good thing. We hope they’ll continue to reduce fees on additional restaurants and do the right thing. But the fact is, we can’t rely on the goodwill of these third-party delivery companies to do the right thing.”
He says that restaurants in New York aren’t making any money, and that some are staying open for delivery only as a public service and to help workers who want to keep their job.
There have been thousands of small business owners in New York City urging either New York Gov. Andrew Cuomo or NYC Mayor Bill de Blasio to take action, Rigie says. He thinks it will come down to elected officials listening to the needs of small businesses to implement a cap.
“It’s just going to take the political will to get it done,” Rigie says. “And it needs to get done immediately. I’m hearing from restaurateurs, it doesn’t make sense for me to continue to try to offer delivery. … We play a vital role in the food supply chain in the City of New York. New Yorkers are stuck inside and where are they getting much of their food? Delivery from local restaurants. So if the governor or mayor have the authority to close in-house dining at restaurants, they have the power to cap the fees.”