fb-pixel

Meal-delivery services lobby lawmakers to block proposed 15% cap on commissions

Some app-based delivery companies announced hiring sprees to cope with a surge in orders from millions of people stuck at home. But their fees are taking a a bigger cut of restaurants' meager profits.
Some app-based delivery companies announced hiring sprees to cope with a surge in orders from millions of people stuck at home. But their fees are taking a a bigger cut of restaurants' meager profits.Associated Press

The restaurateurs asking the Legislature to cap third-party delivery fees face some powerful opposition on Beacon Hill: the three big companies whose revenue in Massachusetts could be jeopardized.

DoorDash, Uber Eats, and Grubhub have all lobbied in recent weeks against legislation to cap their fees, according to the Senate office of the Legislature’s economic development committee. (The other major delivery company, Postmates, has a small market share in Massachusetts and is being acquired by Uber.) Joining them in opposition is TechNet, a trade group that represents tech executives and their companies.

The delivery companies often charge as much as 30 percent for commissions, fees that can eat away the restaurants’ meager profits. After many restaurateurs suddenly had to rely on deliveries because of the pandemic, the House of Representatives passed a bill in June that would cap these commissions at 15 percent — a cap that would stay in place until 45 days after the governor’s COVID-19 state of emergency ends.

“We feel it’s an important component to confronting the new challenges that restaurants have been facing since COVID hit us back in March,” said Representative Aaron Michlewitz, chairman of the House Ways and Means committee.

Advertisement



Later in the summer, the House included the measure in a broader economic stimulus bill, although the Senate did not do so with its version. Both chambers approved a grant fund for distressed restaurants in their respective bills, but would pay for it in different ways: The House would rely on sports-gambling taxes, assuming lawmakers approve a proposal to legalize sports betting, while the Senate would borrow $20 million to pay for the fund.

Now, the backroom talks begin: Negotiators for the House, led by Michlewitz, and for the Senate, led by Senator Eric Lesser, will work to resolve the differences between the two economic stimulus bills and release a compromise this fall.

Advertisement



One big remaining point of contention: whether to cap the third-party fees that restaurants pay.

DoorDash and Grubhub warned of negative unintended consequences, should the caps be put in place, such as lower earnings for drivers and higher prices for consumers. They said those consequences could end up hurting restaurants at a time when they need as much help as they can get. (Uber declined to comment.)

TechNet, meanwhile, argues that delivery companies are providing an invaluable service during the pandemic and shouldn’t be penalized. The group considers commission caps to be unnecessary government intrusion, a regulatory overreach in business-to-business contractual agreements.

However, Bob Luz, chief executive of the Massachusetts Restaurant Association, said the measure is one of several steps the Legislature could take to help ensure as many restaurants survive to the “other side” of the pandemic as possible. He estimates 3,400 out of 16,000 restaurants in the state haven’t reopened since closing in March, and most of those probably won’t ever be back.

DoorDash said it halved its fees for 150,000 restaurants in North America and Australia in the spring, but Luz said the other two major delivery companies haven’t backed down. The fees are generally negotiated with restaurant owners, so they vary somewhat.

One state, New Jersey, has capped commissions. Several cities have, as well, including Los Angeles, New York, and Philadelphia, though the delivery companies reportedly continued to charge higher fees in some places after caps were put in place.

Advertisement



Luz said local leaders in at least eight Massachusetts municipalities considered imposing caps, but none have done so yet.

Boston City Councilor Matt O’Malley tried to do so, along with a few colleagues on the council. But he said they put their plans on hold after the House approved a statewide cap, thinking the Legislature would soon ensure that a statewide approach became law. That, of course, hasn’t happened yet.

Some restaurateurs are growing frustrated with the Legislature.

“They’re literally watching people close their doors [during] whatever the political game is that they have to play,” said Tony Maws, chef-owner at Craigie on Main in Cambridge. “There are going to be more restaurants who can’t make it through this fall.”

John Schall, owner of El Jefe’s Taqueria, said his fast-casual eateries in Cambridge and in Bethlehem, Pa., would have turned a profit during the first two months of the pandemic if not for delivery fees, which averaged 26 percent. Those calculations, he said, even factored in a 10 percent decline in sales, assuming that the cost to consumers would go up in the event of a cap.

Massachusetts Restaurants United, an organization of independent establishments that sprang up in March due to the pandemic, plans to hold a press conference on Tuesday at the State House to pressure lawmakers to adopt the relief measures.

Advertisement



The start of outdoor dining in June provided a relief valve of sorts for many restaurants. But with colder weather approaching and many consumers still nervous about dining indoors, a number of restaurateurs anticipate they’ll rely heavily on deliveries again.

“As we keep saying, winter is coming,” said chef Jody Adams, who plans to emcee the news conference. “It’s getting colder. Patio season is ending. There is no clear path forward for people who are on the edge.”


Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.