The New York City Council has scheduled an oversight hearing on the stiff fees charged by Grubhub and other food delivery apps — setting the stage for a possible government crackdown on the sites’ operations throughout the city, The Post has learned.
The council’s Committee on Small Business, chaired by Bronx Councilman Mark Gjonaj, will hear on June 27 from local restaurateurs — and potentially from Grubhub reps themselves — how delivery apps’ fees and policies are affecting New York restaurants, he told The Post in an exclusive interview.
“We’re trying to figure out ways for small businesses, these mom-and-pop shops, to keep their doors open,” Gjonaj said. “You never expect something like Grubhub to come in and undermine the business model, and have an impact on whether or not they stay in business.”
Gjonaj said he was holding the hearing following The Post’s reports since May on how Grubhub — which also owns Seamless and Menupages — has been charging restaurants bogus fees that have soared into the thousands of dollars for a single month.
“If we see there is abuse, or if there is a manipulation here, then it could certainly be referred to the legal authorities,” Gjonaj said.
“There is always the potential that this hearing will lead to an investigative hearing from the public advocate, the city comptroller or the state attorney general,” he added.
The Post found that many New York City restaurants are routinely being charged fees by Grubhub ranging from $5 to $9 for phone calls that don’t result in takeout orders.
As restaurant owners learned about the practice, they demanded refunds from Grubhub. Some said they were stymied as the delivery giant offered refunds that go back only 60 to 90 days, even though some restaurants have wrangled larger refunds going as far back as a year.
Restaurant owners discovered the charges after listening to recordings Grubhub has been making of these customer calls via a dedicated phone number Grubhub establishes for each restaurant with which it has a contract.
But Gjonaj said the mere existence of such recordings is a potential privacy issue.
“Where are these recordings being stored? And are they being used for something else other than what they were intended for?” he asked.
Gjonaj also raised concerns about the dedicated telephone numbers, asking what happens to them once a restaurant ends its contract with Grubhub. Is there potential for the company to “hijack” a business, he asked.
The hearings are believed to be the first of their kind in New York, and will also look into how other companies, like DoorDash and Uber Eats, are charging restaurants for their services.
The council could propose legislation limiting how much of a percentage businesses like Grubhub charge restaurants, Gjonaj said.
“We could potentially come up with a percentage and a fee structure, and see if that’s in the best interest of New York City,” he said. “Certainly that’s within our rights.”
The hearings could also trigger a quirk in New York law, which requires all restaurant partners who share in revenues to be listed on liquor licenses.
“If X is entitled to a percentage of your sales, in essence, he is a partner,” Gjonaj said. “And I believe in New York state, for the Liquor Authority, all partners are required to be listed on the liquor license.”
That could create a bureaucratic storm for delivery service companies, experts said.
Grubhub “would have to be disclosed and fingerprinted for tens of thousands of restaurants,” said Robert S. Bookman, a former State Liquor Authority official and partner at Pesetsky & Bookman.
“The SLA should issue a ruling telling eateries that you can’t pay a percentage of your revenues to a delivery platform because it’s a violation of the SLA rules,” added Bookman, who alerted the authority to the issue.
Grubhub, the nation’s largest food-ordering site, has angered restaurant owners for years by charging 20 percent or more of the price of a take-out order — a cut that small business owners say they can hardly afford.
“The masses are overpaying,” said one Brooklyn restaurant owner. “They’re forcing us to jack [prices] up.”
The rates have increased from about 12 percent an order a few years ago, several restaurateurs told The Post.
“I would imagine that restaurants are not making 20 percent profit on the gross sales,” Gjonaj said. “But if there’s a provider that’s charging up to 20 percent and higher, then this could potentially undermine an entire industry.”
“At least 50 percent of small businesses [in New York City] fail within the first five years, and restaurants tend to have an even higher failure rate,” said Andrew Rigie, executive director at the NYC Hospitality Alliance.
A Grubhub spokeswoman said the company wasn’t aware of any scheduled hearings.