SCHENECTADY — The push to limit fees associated with third-party food delivery apps like Grubhub and DoorDash is gaining momentum across the Capital Region.
Schenectady County is following Albany County’s lead on capping fees for third-party food delivery apps.
Legislation introduced on Monday goes further than the executive order signed by Albany County Executive Dan McCoy last week by capping all fees charged to restaurants to 15 percent — not just delivery charges.
Fees on apps like Grubhub, DoorDash and Uber Eats can reach as high as 30 percent, prompting growing backlash amid the industry at a time when restaurants, already facing slim profit margins, are more reliant on the online services than ever amid the coronavirus pandemic.
“Having worked in the restaurant industry, I know how challenging it can be to make ends meet, even during the best of times,” said county Legislator Sara Mae Pratt, a co-sponsor of the bill and owner of Puzzle’s Bakery & Cafe, which has been temporarily closed since March.
Under the county’s proposed law, fees for delivery companies would be capped at 15 percent only when New York is under a state of emergency, resulting in shutdown orders and capacity restrictions for bars and restaurants.
County Attorney Chris Gardner believes the county is within its legal authority to enact the legislation, and has studied similar measures to limit fees, including Albany County’s effort and legislation that took effect this spring in Westchester County and New York City.
“We learned from their experiences,” Gardner said.
Schenectady County would go beyond the order signed by McCoy last week by also capping marketing and other fees, as well as prohibiting the app from reducing compensation to drivers.
The bill would allow “those harmed to recoup their losses and attorney fees if they are victimized by a violation of this law.”
Other cities, including Chicago and San Francisco, have adopted similar legislation.
The New York State Restaurant Association said clawing back as much revenue as possible is crucial for restaurants to survive.
Yet the high levels of existing “arbitrary and unfettered” fees, sometimes in excess of 30 percent of the total order, are the root of the problem and go unaddressed because the county’s legislation would freeze the fees once adopted — not retroactively lower them, according to the New York State Restaurant Association.
“Existing proposals in New York City and Westchester address both fees and in those regions,” said Melissa Fleischut, president and CEO. “Our restaurants have said that these temporary caps have provided them with a much needed increase in revenue.”
Amid criticism of price-gouging, third-party companies have begun to adapt to the criticism.
DoorDash and Grubhub each suspended collecting $100 million in fees as the pandemic took root this spring, while the former also rolled out a cold weather grant program in select cities to help restaurants winterize.
Yet as more localities across the U.S. begin to tighten oversight, DoorDash acknowledged they may increase costs for customers, which could lead to fewer orders for local restaurants and fewer earning opportunities for Dashers,” a company spokesperson said last week.
“Pricing regulations can also remove options available to restaurants by limiting their ability to opt-in to additional services to help their business,” said the spokeswoman.
Industry-watchers say legislation will inevitably result in someone absorbing the costs, whether its restaurants, drivers or customers.
“Every time we see this back and forth with fees and caps, there’s no winner in the fight,” said Professor Elizabeth Wimer, assistant teaching professor of entrepreneurship at the Whitman School of Management at Syracuse University. “There’s always someone to pay the price – it just may be shifted to different aspects of the business.”
Wimer said start-up companies may actually be able to pivot more quickly to navigating changes in the third-party landscape than more established brands because they remain freshly rooted in an entrepreneurial mindset.
“In the past few months, some are getting more entrepreneurial and pivoting out on their own,” Wimer said, citing several Syracuse-area businesses who have developed new business models, including building out their own delivery networks that bypass the apps completely.
Customers in cities where legislation has been enacted are becoming increasingly empowered and attentive to supporting local businesses, Wimer said, particularly once they see how the breakdown in fees adds up.
“When they see an itemized breakdown, they’re increasingly circumventing apps whenever possible,” Wimer said.
Restaurateurs and law enforcement are also sounding the alarm on elaborate scams making the rounds on the third-party apps, including schemes in which customers place orders and demand refunds after receiving them.
Among the most extreme local cases was when a customer was caught after placing orders with multiple businesses in the city of Albany over multiple nights using different accounts and names, according to Jason Pierce, president of Savoy Taproom.
The schemes seize upon the disconnect between restaurants, who don’t have access to addresses for those who placed orders, and the drivers, who do have the addresses.
Once the driver picked up the order, the suspect texted them and requested that they change the delivery address at the last minute, Pierce said.
“Sometime after the restaurant closed, the customer would then contact Grubhub and request a refund claiming to have never received their order,” he said.
Customers can text drivers through the app, but it comes in as a masked number.
One local restaurant got wise and called Albany City Police, who showed up as the order was being fulfilled.
Albany County Sheriff Craig Apple said his department will prosecute the scams.
“It’s a crime and the more you do it, the more severe the crime gets,” Apple said in a statement. “If you received the food, pay for it. It’s that simple.”
Pierce is also the founder of Feed Albany, a non-profit which has provided over 200,000 free meals during the pandemic.
“If people are in need of food, there are places to go and ways to get it without stealing from area restaurants,” Pierce said.