L.A. Caps Grubhub, Postmates, Other Delivery Apps Service Charges At 15%

The Los Angeles City Council capped service charges third-party delivery services like Postmates, Grubhub, Uber Eats can pass on to restaurants at 15% of the purchase price during the pandemic following similar moves in San Francisco, Seattle and other major cities.

Restaurants have long complained about charges from the popular apps as high as 30% are eating away at their business, and those worries have grown during the pandemic, as owners find themselves relying more heavily on the services.

Even as dine-in restaurants slowly reopen, many are still devastated by the months-long closure. During that time, those that managed to stay afloat could only offer customers carry out and pick up services in order to keep business alive.

"Any arbitrary cap – regardless of the duration – will lower order volume to locally-owned restaurants, increase costs for small business owners, and raise costs on customers. Delivery workers would have fewer work opportunities and lower earnings," said Jenna DeMarco, a spokesperson for GrubHub in an email. "We also believe that any cap on fees represents an overstep by local officials and would not withstand a legal challenge."

Chris Webb, the CEO of ChowNow, an online order platform that offers restaurants a flat fee, said restauranteurs have long been frustrated with the fees.

"What we are hearing from a lot of restaurants," he said. "' We cannot afford to stay in business and take around 30% commissions consistently. It's driving us out of business and now this (pandemic) is the motivator for us to move.'"

He said he saw business skyrocket as many restaurant owners shifted away from delivery services that relied on percentage-based fees and to his flat-fee model. Webb said he was signing up as many as 2,000 restaurants a month.

The effort to cap the services was driven in part by pressure from the United Food and Commercial Worker Union Local 770, which is organizing the drivers. The order, which must still be signed by Mayor Eric Garcetti, also prevents the apps from taking tips from drivers.

"This smart policy will prohibit these companies from taking tips from drivers and gouging restaurants with fees," said John Grant, president of UFCW 770 in a statement."Food delivery drivers are essential workers who provide meals for the residents of our City, especially to seniors and others who are sheltering at home or under quarantine."