Edina caps delivery app fees in effort to help restaurants

The city of Edina is capping the cut that third-party delivery apps can claim from restaurant takeout orders, a move city officials say will help establishments hit hard by COVID-19 to stay afloat.

The emergency regulation, which the Edina City Council approved Tuesday evening, limits the amount that companies such as Grub Hub, Bite Squad and Door Dash can charge restaurants on orders to 15% of the total bill. The new rules take effect Jan. 11 and will sunset when the state lifts COVID-19-related executive orders limiting restaurant capacity.

"The thing that I think was driving [the City Council] as a group is this was something they could do for small businesses in our community," said Scott Neal, Edina's city manager. "We've got a great restaurant community in Edina and we want to do what we can to keep it going."

In addition to capping fees at 15%, the regulation requires that customers receive an itemized receipt breaking down all fees and gratuities.

Minneapolis officials implemented a similar regulation last month. Consistency across the border between the two cities is expected to benefit both restaurants and customers, Neal said.

"When we have an opportunity to make the regulatory environment easier for customers and for those being regulated, we all ought to do a better job of coordinating regulatory practices, and that's what we're trying to do here," he said.

Bill Neuendorf, Edina's economic development manager, said he became aware of how much the delivery apps were charging restaurants and its effect on their viability over the summer. It's unusual for a city to get involved in this kind of regulation, he said, but officials want to help the restaurants survive.

Neuendorf said enforcement will be complaint-based and admitted that it will be tough to enforce but that the city wanted to act now.

"I believe time is of the essence," he said. "The stress and the duress is now."

Steve Hesse, chef and owner at Pajarito restaurant, called the action "absolutely fantastic" and said he wanted to see it spread across the state.

Hesse said about 35 to 40% of business at Pajarito, which has St. Paul and Edina locations, comes from delivery apps. They currently charge an average of 22 to 23% commission, he said, though that number varies from a low of 12% up to nearly 30%.

"Thirty percent off the bottom line for restaurants, it's not good," Hesse said.

Pajarito raised prices for customers getting food delivered to make up for the charges. A $9 order of tacos became $13, Hesse said, adding that prices for delivery menu items will now decrease as a result of Edina's regulation.

Hesse said his restaurants have been "staying alive and making it work" during the pandemic, but it's been a tough year. The Edina location was set to open for the first time when Gov. Tim Walz's stay-at-home order came in late March.

Hesse said the caps on commission will help restaurants even as the state begins to loosen restrictions.

"There's still a huge demand for delivery," he said. "There's still a lot of people out there who are scared."