Ann Arbor puts a cap on third-party delivery charges to help local restaurants

ANN ARBOR, MI – When the COVID-19 pandemic hit last year, Phil Clark said that suddenly 80% of food orders at his restaurant were being routed through third-party delivery companies.

They charged commission rates of around 30%, and those fees were a big blow to local restaurants, while big chains like McDonald’s got the same services for about half the price – 15%, said Clark, general manager of Ray’s Red Hots on East University Avenue in Ann Arbor.

Attempting to negotiate with third-party companies proved unsuccessful, and he was told the only way to cut fees would be for the city to put a cap, he said.

In large part due to Clark’s lobbying efforts, Ann Arbor now has a cap on the delivery charges for third-party groceries.

The city council unanimously voted for a temporary emergency ordinance on Monday evening, May 17, banning companies like Uber Eats, DoorDash, and GrubHub from charging restaurant fees greater than 15% of a customer’s food order unless the restaurant votes in exchange for additional services such as advertising or access to customer subscription programs.

Clark spoke out at the council meeting on Monday evening and thanked them on behalf of the local restaurants.

He said his restaurant would need 12 to 24 drivers at a time to fulfill any delivery orders it receives during the pandemic and that he has no choice but to use third-party services or shut down business. In addition to the commission fees restaurants have to pay, customer tips paid through third-party services are not shared with restaurant employees, he said.

The third-party vendors are making big money on the backs of local restaurants and were “the winners of this COVID-19 lockdown,” said Clark.

“Only we ship $ 10,000 to $ 15,000 or more a month,” he said, adding that the money is leaving the local economy and going to non-state corporations. “Our local community benefits when local restaurants like us can keep a fair percentage of our own hard-earned money.”

While the fee cap regulation is meant to be temporary only to help local restaurants cope with the pandemic, Councilor Julie Grand, D-3rd Ward, one of the regulation’s sponsors, suggested that it could become permanent.

“I’m confident this will give us an opportunity to try out some of these potentially permanent changes,” she said. “It’s a nice, natural experiment.”

Violations of the regulation are punishable by fines of up to $ 500 per violation.

The regulation also makes it illegal for a third party delivery service to post inaccurate or misleading information about Ann Arbor restaurants or their menus.

DoorDash emailed council members earlier this month saying it had already unveiled a new pricing model to offer local restaurants a 15% commission option. Those who see the benefit of additional marketing opportunities and other services still have the option to choose plans with higher fees, said Chad Horrell, who works in government relations at DoorDash.

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