City-County Council to consider proposal to limit food-delivery fees

Two members of Indianapolis City-County Council on Monday will introduce a proposal to temporarily limit fees charged by food-delivery services, in hopes of helping local restaurants pocket more revenue during the pandemic.

The proposed ordinance, co-authored by councilors Keith Potts, D-District 2, and John Barth, D-District 7, would impose several restrictions on third-party delivery services such as UberEats, GrubHub and DoorDash.

The measure would forbid such companies from charging customers more than 15% of an order purchase price, charging eateries more than 5% to be listed on their service or up-charging for menu items. It would also prevent the companies from reducing pay to delivery drivers because of fee limits instituted by the proposal.

“We’re trying to do something proactive to further support our restaurants during the public health emergency, when they’re struggling with not being able to have [full] capacity, and not being able to function at their full level,” Barth told IBJ. “We want to make sure that they’re getting a fair deal from these third-party entities.”

In a statement responding to the proposal, DoorDash said it “has always supported restaurants. Pricing regulations could cause us to increase costs for customers, which could lead to fewer orders for local restaurants and fewer earning opportunities for Dashers,” what the company calls its delivery drivers.

“Pricing regulations can also remove options available to restaurants by limiting their ability to opt-in to additional services to help their business,” the statement said. “We remain focused on working with policymakers to reach solutions that better support restaurants, customers, and Dashers.”

Representatives of Uber Eats and GrubHub did not immediately respond to IBJ questions.

The council proposal comes after hundreds of local restaurants saw their delivery orders skyrocket starting last March, when Indianapolis Mayor Joe Hogsett announced a stay-at-home order for Marion County at the beginning of the COVID-19 pandemic. In the 11 months since, restaurants have operated at a reduced seating capacity and relied on delivery or carryout to serve a large portion of their customers.

Most locally owned restaurants generally don’t have the means to provide their own delivery services, Barth said. So they turn to using third-party providers, but the fees “make it incredibly hard to do business,” he said.

The proposal would be enforced by the city’s Department of Business and Neighborhood Services, with a $500 fee for each violation. Multiple violations on a single day would count as one violation. The proposal would sunset 90 days after either the public health emergency is rescinded or restaurants can operate at 100% capacity. 

Barth said he’s hopeful for bipartisan council support for the ordinance.

“In times of crisis like we’re going through, government is who we look to, to start making the changes and taking the actions that are needed,” he said.

Other major cities such as New York, Los Angeles, Baltimore and Seattle have instituted similar measures. Those ordinances were considered as Barth and Potts were drafting the language for their proposal. They also consulted with multiple restaurant owners and the Indiana Restaurant & Lodging Association, which supports the effort.

The delivery fees “eat into the profitability of each meal, to the point where [restaurants] aren’t making any dollars on those deliveries in many cases,” said Patrick Tamm, president of the Indiana Restaurant & Lodging Association. “We have to make sure those [fees] are in the best interest of the customer and the restaurant as well.”

He said the group will continue working with City-County Council as needed to fine-tune the proposal’s language.

In a statement, Potts said his focus in backing the proposal is to help local restaurants that “have been incredibly resourceful and creative in finding ways to stay open and keep feeding their customers since the pandemic began.” He added the city’s economic recovery is dependent upon small businesses like restaurants surviving.

Martha Hoover, owner of restaurant group Patachou Inc., said she supports “any effort the City-County Council gives restaurants to help them survive right now,” but added the proposal is not quite “as aggressive” as she might prefer.

Hoover said third-party delivery companies often “double-dip,” charging fees to both restaurants and the customer for the same order. Some localities have either banned this practice or implemented harsher penalties than the Indianapolis proposal.

Barth said councilors worked with representatives of the Mayor’s Office to create a proposal that “strikes a balance” between the needs of restaurants and delivery services.

“We were trying to find the common ground between what restaurants need to have some reasonable margin to survive and what these third-party entities need to operate,” he said.

Hoover said she has continued to use delivery services despite their costs because they are necessary to reach customers who are not dining out because of the pandemic. She said her company has lost earnings because of food-delivery fees, although she declined to provide specifics.

“It’s very easy for these services to claim that they are coming to the rescue of the industry, and that they are here to offer a means to replace sales, but it’s actually not true,” she said. “These services may add to cash flow, but they do not add to profit.”

The longtime local restaurateur said she’d like the industry to be more heavily regulated, and she said the council’s proposal should remain in effect permanently, rather than end with the public health order.

Barth said keeping the regulations in place after the pandemic is “a conversation we will continue to have with our local businesses,” but said he isn’t sure what will be needed by restaurants once they’re able to operate at full capacity again.

“I think anytime you get an industry that is allowed to exert usurious fees … without any governmental control, you have a problem,” Hoover said. “So, eventually this is going to be handled at a legislative level. I don’t expect the third-party delivery industry to regulate itself.”

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28 thoughts on “City-County Council to consider proposal to limit food-delivery fees

  1. what?? if they don’t make any money using the service then don’t use the service! the market will correct itself. this is not a problem for gov’t to fix. just going to make it worse (like most things they do)

    1. It’s really odd, when Martha Hoover pushes for a law for just Indianapolis it’s awful but when IMPD or the apartment industry push for the legislature to strip away the ability for Indianapolis to make laws … that’s different.

  2. I don’t like the fees and think they are crazy, but… A. I chose to order the food and pay the fees. B. The restaurant chose to work with that company and pay the fees.

    Once again, no one wants the drivers to make any money. We won’t have a service if they can’t make money. Next thing up is drivers not making minimum wage and we need to subsidize their incomes.

    Side note: What happened to high school kids being delivery driver for restaurants? That was a thing when I was growing up. Hire some high school kids at $10/hour plus tips and create a feasible delivery area. Boom, no more added fees.

    1. Many of the jobs previously taken by h.s. students have been taken by those pushed out of manufacturing/factory jobs. While some jobs, yes, were sent abroad by companies looking for less expensive wages, much of the displacement is due to automation. I’m not sure what the solution is.

    2. @Joe B – thats the first I have heard of a restaurant automatically being added. That is not right and 100% disagree with that scenario.

    3. Yep. All these services should be opt-in. I’m not sure that’s the case… which leads to all kinds of business frustration to restaurants.

      That’s the law change we need, now. If a business wants to not engage with a third party service, the penalty for a company willfully ignoring that should be … steep.

  3. I tend to agree with letting the free market sort this stuff out. That said, how will a max fine of $500/day (rather than per offense) discourage delivery companies who probably make at least 500 deliveries a day on average? They will be better off charging what they do now and accept a $1/ order haircut.

  4. I agree with the general tone of the reactions. This is a market. There are some insurance and HR issues with hiring your own folks for driving (this should be addressed sometime in tort reform at some point). But putting an artificial cap on fees will punish drivers and force delivery vendors to restrict delivery (punishing customers and drivers) in unexpected ways. Do business with the vendors that treat you right or put together your own delivery consortium.

  5. Of course Martha Hoover supports this. I wonder if she would support the City Council reviewing and legislating her outrageous menu prices? Let the free market work. If you don’t like the delivery prices, figure out an alternative.

    1. I do not think you understand the core issue, the edge issues, nor how much Martha does for Indianapolis….

      Perhaps keep uneducated comments to yourself in the future?

  6. I could support legislation to require full disclosure of “all” fees both diner and restaurant facing. I would also support a requirement to show how much (really how little) of the fee goes to the driver. Analogous to challenges with pricing for health care services, markets work best when the customer has all the information.

  7. I don’t know why they are proposing this during the legislative session. A Republican lawmaker has undoubtedly read this story and is already drafting a bill to ban Indianapolis from doing this.

    1. If you’re offering to pay me to bother you with my comments, I’m more than happy to send you my venmo information.

  8. This is absurd government over reach. There are at least half dozen companies offering third party delivery services which naturally keeps the fees competitive. Restaurants not making money on delivery services don’t understand how it works. Law makers don’t get it either.. Prices listed on the apps can be increased by the restaurant owners to make up any fees, they do not have to be the same price as the dine in or carryout menu. Business also forget the advertising that comes naturally by being listed on an app of a delivery service. This exposes the restaurant to customers that may not otherwise be familiar with the place, or otherwise not read the menu at all. There are other benefits too, such as adding a link on your website to the delivery service provider allowing customers to choose the carryout option which has no fees or mark-up with some delivery service companies as they see it as you advertising them on your website by providing a link to their company. So basically they provide a complete online ordering service on the restaurant’s website which otherwise is costly to set up yourself. Some third-party delivery companies waived or reduced fees charged during the lockdown on their own. I speak only from my experience with doordash. They know without restaurants being in business, they would have no business either. If the industry becomes monopolized or otherwise starts price gouging then okay regulate it, otherwise let it be! Both the customer and the restaurant CHOOSE to pay those fees, there is a cost for a service. It’s way cheaper than doing deliveries in house. You will find that many pizza restaurants that offer their own delivery are also listed on the third-party apps.

    1. That’s all fine if it’s opt-in for all parties. But delivery services that don’t have permission to work … need to have the book thrown at them.

      Which I freely admit isn’t what the proposal is, but it should be. I hope that feedback is given … would be a lovely idea for the Marion County GOP to steal and propose…

  9. If Indy imposes regulations the delivery companies can simply make a nominal political contribution to an Indiana Legislator, who will gladly draft a bill outlawing all Indiana cities from having such regulations. They will claim this regulation is confusing the market (where are those city limits?) and stifling tech businesses (blah, blah, blah). The gerrymandered, super-majority Republican Legislature will then rubber stamp and even the Governor will be powerless to stop.

    1. Mike M Kind of like how Chicago and Democrats force their wishes upon the rest of the citizens of Illinois whether they want it or not? Have you ever looked at the Gerry meandered districts of Illinois? It’s okay when Democrats do it but bad when Republicans do it I guess.

    2. Rhea, I oppose gerrymandering in all States. You’re correct this is a national issue that likely needs the US Supreme Court to help solve. However, my comment to Indianapolis Business Journal readers regarding an article about Indianapolis and the Indiana legislature remains valid. HA.

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