New law places restrictions on third-party food delivery services, including caps on fees

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UPDATED: 2:56 p.m.

PHILADELPHIA (KYW Newsradio) — A new food delivery law is imposing some regulations on third-party delivery services, including putting caps on how much they can charge restaurants for their services.  

The new law caps the percentage third-party food delivery services can charge at about 15%. According to Ben Fileccia, with the Pennsylvania Restaurant and Lodging Association, that's significant relief to struggling businesses, particularly during a pandemic.

"It seemed like these delivery apps were taking advantage of all these restaurants that had already sacrificed so much," he said.

Erin Wallace, owner of The Devil's Den, said when her restaurant was first locked down, she turned to Caviar to help keep her mostly dine-in business running.

"I mean, some of the fees can be close to 30%," she shared.

"And with restaurants operating at margins of 2-7%," explained Fileccia, "getting charged 30% on your food delivery just doesn't cut it."

He said tacking on that amount of fees does not really help the restaurants with whom they are collaborating.

"We want these technology companies that are providing a convenience for customers, for restaurants, to be true partners," he appealed.

"It's a shame that it took the government to make that happen," lamented Wallace, who was forced to quickly adapt her business model when the city was shut down in the spring because of the coronavirus.

"We were never a huge takeout place so we didn't really have a third-party delivery setup," she said.

But why not just set up a delivery service through the restaurant?

Wallace said adding delivery is a lot for a restaurant to consider. It comes with extra cost, management and time, which she feels doesn't make long-term financial sense for her business model.

"You know, you have to hire people who can actually do the deliveries, how far can you go out, insurance rates and things like that," she said.

Fileccia explained the fees will stay at this capped rate until 90 days after the end of the pandemic, but he said some of the issues laid out in the new guidelines had been in the works prior to the coronavirus pandemic.

"We had been working with Councilwoman (Cherelle) Parker's office because there were third-party delivery apps that were delivering for restaurants when they were not authorized to do so," he said.

Delivery services will have to have a written agreement with the restaurants they serve and they will have to make all their fees transparent to customers, according to Fileccia. He said when a delivery company provides poor service, that reflects badly on the business, not the delivery contractor. Also, by making the third-party delivery fees transparent, customers can rethink how they want to spend their money. 

Wallace and Fileccia both said it's always most beneficial to the small business when you are able to order food directly through the restaurant. Seeing how much these delivery companies charge in fees might encourage customers to do just that, and he adds those two rules will remain in effect even after pandemic-related restrictions on restaurants are lifted.

Meanwhile, Wallace said measures like these are what help her keep her door open one more day, despite losing revenue from diminished seating and being prohibited from opening indoor dining and bar service.

"I don't know if it's going to save everybody," she mused, "but it's going to help restaurants stay fighting."

Fileccia added that these small measures are a way to collectively help the 100,000 service workers in the area and keep small restaurants from permanently shuttering their doors.

"I know that it's a small band-aid to fix this wound," he said, "but all these little Band-Aids are adding up."

In a statement to KYW Newsradio, DoorDash said they are "committed to supporting delivery workers and restaurants during this critical time, which is why we’ve provided over $120 million in commission relief and marketing investments and cut commissions in half for more than 150,000 restaurants, giving them the additional revenue they need to survive."

The company added that service could suffer under a fee cap. 

"As merchant fees help pay for a variety of costs to support all three sides of our marketplace, a cap to our commissions means we may not be able to provide the level of quality customers expect, pay Dashers meaningful earnings, and drive sales that are so important to restaurants right now," they said.

However, they said they looked forward to working with the city to continue offering accessible service to customers, flexible work opportunities for delivery drivers, and more revenue for restaurants.

Meanwhile, Grubhub said in a press release they have spent $100 million to assist restaurants and drivers, and installed measures to give restaurants more flexibility.

KYW Newsradio's Charlotte Reese contributed to this report.