SPY304.32+1.35 0.45%
DIA254.29-0.06 -0.02%
IXIC9,489.87+120.88 1.29%

As NYC Council Caps Third-Party Delivery Charges, Survey Predicts Looming 'Death Knell' For Restaurants

The New York City Council approved a bill this week to limit third-party restaurant delivery fees at 20%. 

Benzinga · 05/15/2020 19:42

The New York City Council approved a bill this week to limit third-party restaurant delivery fees at 20%. 

The NYC Council Bill

The New York City Council's Small Business Committee on Wednesday approved a new bill making it illegal for third-party delivery platforms to charge more than a 5% commission on transactions without drivers and no more than 20% with driver delivery.

In addition, platforms are now banned from charging restaurants any fee for facilitating phone calls to restaurants that don't result in an actual transaction.

The bill remains law 90 days after the New York state lockdown is lifted.

Third-party companies could be subject to civil penalties of up to $1,000 per restaurant per day and $500 per restaurant per day for phone violations.

Elsewhere in the bill, the city will make it easier for restaurants to cope with current challenges, including eliminating sidewalk cafe franchise fees and protecting owners from personal liability clauses in commercial leases, according to Nation's Restaurant News.

The Third-Party Delivery Reaction

A GrubHub Inc (NYSE: GRUB) spokesperson old Nation's Restaurant News the City's new "arbitrary cap" will result in lower order volumes to local restaurants, increase costs for small business owners, higher costs to customers and lower earnings for delivery workers.

The move also represents an "overstep" by local officials and "will not withstand a legal challenge," the statement said. 

Similar concerns of an "arbitrary permanent cap" were raised by DoorDash.

Hospitality Survey: 'Death Knell For The Industry'

According to a survey of 483 New York City restaurants conducted by the NYC Hospitality Alliance, two-thirds of NYC restaurants need at least 70% capacity to reopen. Just one out of four restaurants surveyed believe they can reopen with 50% occupancy.

Eighty-seven percent of restaurants surveyed cannot pay part or all of their rent in May, the hospitality group said in a press release.

Among the restaurants that received cash as part of the Paycheck Protection Program, 42% are unlikely to use the cash. The program dictates that funds need to be used to bring staff levels back to pre-pandemic levels by the end of June. Most restaurants believe this condition is unrealistic since their dine-in portion of the business remains shut.

"Most restaurants and bars were barely surviving before the shutdown, and if they are forced to operate solely at 50 percent capacity once they reopen, it will be a death knell for the industry," said Andrew Rigie, executive director of the NYC Hospitality Alliance.

Related Links:

April's Restaurant Data Far From Encouraging, But There Is Hope

Cramer Says Up To 1 Out Of 3 Restaurants, Bars Will Close

Photo courtesy of Uber.