The New York State Liquor Authority (NYSLA) has proposed adding a 10 percent cap on the commissions full-service restaurants pay to third-party delivery companies, according to Restaurant Business Online. While such a move would provide some relief for restaurants, whose struggles with these fees are well documented, it could also put up more road blocks for third-party delivery services as they struggle to reach actual profitability. And the fight probably wouldn’t stay put in NYC for very long.
The NYSLA’s advisory, as it’s called, urges that commissions paid by restaurants with liquor licenses be capped at 10 percent. The reason the NYSLA can make such a call is because third-party delivery services share in these restaurants’ profits, and are therefore by law subject to vetting by the authority.
Rather than prohibit delivery services from charging the current 12- to 30-percent commission fees, the law, if put into effect, would make it illegal for the restaurants themselves to pay more than 10 percent on those fees. Restaurants would then have to reject anything higher than 10 percent, making it virtually impossible for delivery services to charge more.
Grubhub, in particular, has criticized a draft of the proposal, saying it contains “internal inconsistencies, vague language and an apparent attempt by the SLA to go beyond their jurisdiction.” And while Grubhub didn’t explicitly say as much, the “vague language” could potentially open the door to third-party delivery companies sidestepping the 10 percent cap with other charges, like a convenience fee.
The NYSLA urged that the advisory be discussed during a meeting on August 20.
To be clear, the advisory would only impact restaurants with liquor licenses; the scores of food businesses in New York without licenses wouldn’t be able to reap any benefit, at least not now. Mark Gjonah, chairman of the Small Business Committee of the New York City Council, told RB that in regards to these restaurants that are left out, the committee “will continue its work to establish a comprehensive solution that levels the playing field for all of New York’s locally owned restaurants.”
Should these fee changes become law, it will create a scramble for third-party delivery companies to find ways manage profitability — rather a feat, considering these services aren’t actually profitable at the moment. And with DoorDash and Postmates both pursuing the IPO track, that struggle to gain profitability — and long-term investment and viability — is becoming more of a hot-button issue for delivery companies.
In NYC, meanwhile, commission fees are just one of the many griefs lobbed against these companies. Grubhub currently takes the lion’s share of the wrath here, since it still leads the NYC market. The company was not only the center of a June oversight hearing that called into question delivery services’ power, it’s also received accusations of cybersquatting and calls for an antitrust investigation.
The other major delivery players — Uber Eats, DoorDash, Postmates — may not be getting a constant barrage of bad press in the NYC market, but they’ll be subject to the same scrutiny as Grubhub if a law over fee changes were to be enacted.
And if that were to happen, there’s a high chance for a ripple effect to other cities, which could very likely play out the way the fight over the cashless business model has across the country. When NYC introduced legislation that would ban cashless businesses from the city, including restaurants, it was a matter of mere months before New Jersey, Philadelphia, and San Francisco did the same, essentially stifling Big Tech’s hold over local business.
If this week’s advisory advances further, it looks like third-party delivery services are well on their way to facing the same backlash — on an even grander scale.