Posted: Sep 10, 2019
Proposed regulations would require food delivery apps to cut fees or be added to restaurants' liquor licenses.
Food delivery app services like Grubhub and Uber Eats might have to get liquor licenses if they want to keep doing business in New York state.
A proposal from the New York State Liquor Authority (SLA) would require third-party vendors who charge commissions on a liquor-license-holding restaurant's sales to be added as a principal on that liquor license, if those commissions work out be greater than 10 percent of the restaurant's profits.
The proposed rule would reverse a ruling issued by the SLA in 2017. That decision declared that delivery apps could remain off businesses' liquor licenses so long as their fees were less than 10 percent of the profits restaurants were making on beer sales.
The change puts food delivery app businesses, who typically charge restaurants a percentage of each order delivered, in a bit of a bind.
Businesses that are included on liquor licenses "would essentially be subject to any violations of the [alcohol beverage control] law in New York whether or not they are the guilty party so to speak," says John Olsen of the Internet Association, a trade group that represents several food delivery app businesses.
And trying to avoid those added liabilities—either by keeping their commissions below 10 percent of a business's profits or by switching to a flat fee—would require restaurants to share a lot more information with delivery apps, something that would probably prove logistically challenging. These same models might prove uneconomical for restaurants in regions of the state where order volumes are lower, says Olsen.
On the other side of the issue are New York City restaurants that rely on delivery apps to reach more customers but resent the high commissions they have to pay to participate on these platforms.
"This would be a major and positive change for our industry, as we currently suffer from unfair demands from companies like Grubhub-Seamless to hand over to exorbitant percentages of our sales," said the New York City Hospitality Alliance, which represents bars and restaurants in the city, in a press release about the SLA's proposal.
Andrew Rigie, the group's executive director, tells Reason the rule change could curb "excessive fees some companies are extracting from restaurants as a percentage of their sales."
The New York City government has also been looking hard at the fees charged by food delivery apps. At a June oversight hearing, the city council's Small Business Committee grilled representatives of Grubhub and Uber Eats over their billing practices.
City Councilmember Mark Gjonaj, who chairs the small business committee, floated the idea of a restaurant association negotiating collectively with app companies as a way of lowering the fees they could charge.
Restaurants that don't like Grubhub or Uber Eats' business practices or who find the fees they charge excessive could, of course, simply decide to not partner with these companies. That they still continue to do so shows that they derive some benefit from being able to reach customers through these apps. But they're happy to enlist the government in a dispute with vendors whose services they value.
The SLA's proposal was first posted in August. It will still have to be approved by the full SLA board, which will solicit feedback on the rules at its October meeting.
By Christian Britschgi
September 9, 2019
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