Chicago’s Effort to Support Local Restaurants under the Pandemic

Author: Tingjuan Yang

Program of Study: Master of Public Policy (MPP), Harris School of Public Policy (HAR)

Description: On May 12, 2020, Chicago Mayor Lori Lightfoot announced new rules that require all food delivery apps to disclose a full breakdown of the cost of each order. How do these first-in-the-nation rules ensure proper supports for local businesses during this time of crisis?

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Transcript (provided by author): 

“Welcome to the ELI’s Finding Chicago Global Perspectives Podcast Series for AEPP 2020. I’m your host, Grace Yang, and I’m enrolled in Harris School of Public Policy.    Today we’ll be exploring the topic of Chicago’s new rules on food delivery service.”

As we all know, coronavirus is changing consumer behavior towards online delivery and ordering. And even my parents had tried a restaurant delivery service for the first time due to COVID-19. As a person highly interested in online economy, I was wondering what the experience of ordering food delivery in Chicago would be like?

So I explored a few American online food delivery apps. The interesting thing is, if you live in Chicago, you will see your online receipt clearly shows the cost of the food, service fee, delivery fee, tips and any taxes. The service fee is the commission fee the vast majority of third-party delivery companies charge to the restaurants. For your information, Doordash, Ubereats, Postmates and Grubhub are the big four food delivery companies in America. From the transparent receipt, people get to know exactly how much of their money is going to their favorite restaurant, and how much is going to the third-party delivery service company. While in my home country, China, it is not as transparent as it is in Chicago. As the commission fee is often built into the disclosed menu price of the food, people may believe that the restaurant is receiving all the money they’ve paid. However, it is definitely not the case whether in US. or in China. And I am curious for the reason why people in Chicago get to know all these details about their delivery cost while I can’t in China.

One major reason for that is the new policy Chicago imposed recently. On May 12, 2020, Chicago Mayor Lori Lightfoot and the Department of Business Affairs and Consumer Protection announced new rules for third-party food delivery companies. All third-party delivery companies will be required to disclose to the customer an itemized cost breakdown of each transaction, including the menu price of the food, any sales or other tax, delivery charge and tip, and any commission or service fee paid by the restaurant to the third-party delivery company. And Chicago is the first city to impose such kind of regulation in US. That leads us to another question: why did Chicago do that?

All all of the Illinois restaurants have been closed to dine-in amid the coronavirus pandemic, forcing restaurant owners to rethink their businesses. Those eateries that did not already offer delivery turned to delivery apps for help, only to be shocked by the additional costs. According to the mayor’s office, restaurants are sometimes charged as much as 30% in commission fees to use third-party delivery services. Chicago Pizza Boss owner Giuseppe Badalamenti brought the issue to national attention recently when he posted a receipt showing that after all of Grubhub’s fees were deducted, the restaurant was able to keep only $376 after ringing up more than $1,000 in sales. So In an attempt to protect the struggling restaurant industry from being gouged by exorbitant fees, Chicago announced these new rules for delivery apps.

“By providing customers with more transparency when they use these delivery services, we can further ensure not only fair business practices for our restaurants but also maintain the innovation that is essential to this industry.” said Mayor Lightfoot. How does this policy work to support local community? First, it may reduce the high commission that apps often charge for small businesses. To be fair, the rates restaurants pay can vary wildly from platform to platform and from business to business. Every restaurant in the US negotiates its own contract with whatever apps they choose to use. Those who do a high volume of orders, can sometimes negotiate a lower rate, which is bad for small, local businesses. Secondl, it provides customers with the details they need to make fully-informed purchasing decisions. “Given the choice between carryout, delivery by the restaurant or delivery by a third-party, the consumer may wish to choose the method that maximizes the amount of the consumer’s money that is retained by the local restaurant,” Business Affairs & Consumer Protection said.

Until now, we’ve talked about how this new policy affects the tripartite relationships among delivery apps, local restaurants, and customers. However, the food delivery industry involves more than these three parties. Many people are also concerned about delivery drivers’ situations. Seldom does the entire delivery fee customers’ have paid go to the driver, And the new policy in Chicago does not require companies to disclose that, so people still have no idea where the deliver fee goes? That is probably something Chicagoans need to continue to work with in the future.

Now Going back to Chicago’s new policy for delivery apps, Washington DC and LA also codified a similar food service disclosure law, requireing food delivery apps to provide an itemized rundown of all costs to customers. Such rules, starting from Chicago, have quickly swept the nation. To conclude, transparency is essential to a functioning marketplace and this step will bring fairness and openness to the marketplace of the food delivery industry. This is especially important as COVID-19 may permanently change our consumption habits in post-pandemic world, and food delivery industry may become an indispensable part of our daily life.

 

 

References:

Alkon, A. H., Block, D., Moore, K., Gillis, C., Dinuccio, N., & Chavez, N. (2013). Foodways of the urban poor. Geoforum, 48, 126-135. doi:10.1016/j.geoforum.2013.04.021

Cox, E. (2020, May 22). Chicago Now Requiring Food Delivery Apps Disclose Fees To Customers. Retrieved August 20, 2020, from https://chicago.cbslocal.com/2020/05/22/chicago-now-requiring-food-delivery-apps-disclose-fees-to-customers/

Mayor Lightfoot and BACP Announce New Rules to Increase Transparency of Third-Party Food Delivery Companies for Consumers. (n.d.). Retrieved August 20, 2020, from https://www.chicago.gov/city/en/depts/mayor/press_room/press_releases/2020/may/FoodDeliveryTransparency.html

Quig, A. (2020, May 12). City has new rules on food delivery apps. Retrieved August 27, 2020, from https://www.chicagobusiness.com/government/city-has-new-rules-food-delivery-apps

Selvam, A. (2020, April 22). Chicago Considers Capping Delivery App Fees for Restaurants at 5 Percent. Retrieved August 27, 2020, from https://chicago.eater.com/2020/4/22/21231053/chicago-restaurants-delivery-cap-doordash-grubhub-uber-eats-postmates-caviar