Dive Brief:

• The New York City Council on Thursday passed a permanent commission fee cap on third-party deliveries. Delivery fees will be capped at 15% per order and all other fees will be capped at 5% per order except for transaction fees. The New York City Council will review the cap every two years.
• Pending Mayor Bill de Blasio's signature, New York will join San Francisco as the only two cities to make temporary fee caps permanent.
• Temporary commission fee caps went into place in many major cities to reduce delivery costs for restaurants during the pandemic, when many operators turned to off-premise to survive. Without caps in place, third-party delivery platforms take a 30% commission from restaurants on average.

Dive Insight:

When San Francisco's permanent delivery fee cap went into place in June, it took less than a month for DoorDash and Grubhub to sue the city over the decision. New York City's decision shows that the battle between city governments and third-party delivery platforms is far from over, as the Big Apple's legislation could influence other major cities to adopt permanent caps to help struggling restaurants.

These caps come at an interesting time for the foodservice delivery market. In 2020, when the pandemic first shut down dining rooms, delivery sales increased by triple digits as consumers became more dependent on the service. Even as dine-in business returns to pre-pandemic levels, delivery is proving to be somewhat sticky.

But the COVID-19 delta variant is threatening to upend some dine-in business again, which could compromise fragile restaurant sales. This is where the caps — extended or permanent — come into play again. And this is where New York's two-year review is relevant, as we could see very different restaurant and delivery markets by then, particularly as more consumers start to order directly from restaurants.

In the meantime, the permanent caps will pose an additional challenge for third-party companies striving for an elusive profit. New York's permanent fee cap, for example, affects Grubhub's largest market.

DoorDash offers a tiered commission structure and Grubhub offers a commission-fee platform for independent restaurants, which is part of these companies arguments against what they consider to be arbitrary caps. During DoorDash's Q2 earnings call earlier this month, CEO Tony Xu said such caps are "unnecessary because … platforms like DoorDash already offer plans well below the commission cap that is proposed."

In their case against San Francisco, the delivery companies also argue these caps will lead to more expensive deliveries and fewer jobs for restaurant workers and drivers. As such, during that Q2 call, Xu called the caps "harmful" for restaurants.

"Commission caps ... ultimately result in increased prices for consumers, lowered sales for these restaurants and reduced work opportunities for Dashers," he said.

That said, in a statement about the new legislation, Andrew Rigie, executive director of the NYC Hospitality Alliance, called third-party delivery fees "outrageous" and "predatory," and said the decision to adopt permanent caps is a "critically important step toward protecting New York City eateries."