As Restaurants Struggle, Council Weighs Cap on App Delivery Fees

The Pasadena City Council might deliver (economically) for ailing city restaurants.

Following the lead of cities such as Los Angeles and Glendale, among numerous municipalities around the nation, the council on Monday is expected to consider temporarily capping the often-burdensome fees that local restaurants are charged by app-based third-party delivery services such as GrubHub, Postmates, DoorDash and UberEats.

It’s an effort to help restaurant owners whose businesses have been hammered economically by the COVID-19 pandemic and will surely be hammered even more, with dine-in services again restricted as the coronavirus surges anew.

“This unprecedented crisis demands unprecedented action,” said Councilman Victor Gordo. “The capping of delivery fees and demand for itemized receipts is intended to prevent price gouging and also provide more transparency to the residents of Pasadena.”

A report from City Manager Steve Mermell to the council recommends a 15 percent fee cap for Pasadena restaurants, many of which are struggling to survive the pandemic’s economic downturn. Currently, third-party fees can reach the 30 percent range.

“Local restaurants have been severely impacted throughout the pandemic, and the recent rollback of dine-in service will no doubt reduce profit margins even further for businesses that are in peril of financial collapse,’’ Mermell’s report says.

If passed by the council on Monday, a Pasadena fee cap would come some two months after the City of L.A. enacted its own 15 percent cap. The County of L.A., meanwhile, has yet to pass a cap, though the Board of Supervisors is expected to hear a report on that on Tuesday.

The 15 percent cap being recommended in Pasadena would mirror caps already in place in L.A. city, Glendale and Santa Monica, as well as San Francisco, Santa Cruz, New York City and Seattle, among other places.

Cambridge, Mass., and Portland, Ore., have capped fees at 10 percent, while the state of New Jersey has enacted a 20 percent cap.

An anonymous email survey of city restaurateurs conducted by the city recently drew 66 respondents, 92 percent of whom supported a temporary cap on fees charged to restaurants by the delivery services, according to Mermell’s report.

The survey also found, among other points, that local commission fees paid by restaurants ranged between 16 and 31 percent, with a majority of the respondents paying between 25 and 30 percent; and that 89 percent of local respondents use a third-party delivery service, most of them Postmates, GrubHub and DoorDash.

With dine-in services again restricted after a brief period of resumption, many restaurants are relying more heavily than ever on delivery services to stay afloat – and such fees can eat into already thin profit margins.

“After a (third-party delivery service) takes their commission, and our overhead is paid, we do not make enough of a profit,’’ one Pasadena restaurateur replied in the city survey.

“A cap is necessary for us to continue utilizing a third-party delivery service, and given current operating conditions, it is imperative that we are able to offer delivery as an option.’’

Said another respondent: “Please enact a permanent cap on commissions as delivery service fees are significantly impacting our revenues on take-out orders. In some cases, we lose money on delivery orders; however we cannot raise our menu prices to adjust because then our prices would be too high. We do not have the infrastructure or ability to provide our own delivery.’’

If approved by the council, the 15 percent cap would be a supplement to Pasadena’s pandemic-induced “Declaration of Local Emergency,” and would expire once that declaration is lifted. The council would be giving Mermell, as city manager, authority to impose the cap under the emergency declaration.

“Given the variety of options available, a 15 (percent) cap would be the easiest to monitor and enforce as needed,’’ Mermell’s report says.

“However, to remain consistent with the City of Los Angeles, the council could also establish a cap for any other combination of fees, commissions or costs incurred by the service provider and passed through to the retail food establishment.’’

Different cities have included different nuances in their cap orders. In Pasadena, some particulars would still need to be fined-tuned.

“To improve transparency, the recommendation could include a requirement that third-party delivery services disclose to the customer each fee charged through a transaction totaling no more than the allowable percentage cap,’’ the report says.

“In addition, the council could require that the drivers receive the entire gratuity, if paid by the customer.’’

The cap proposal would be one more effort by the city to help ailing local restaurants. Recently, the city also enacted various street closures – significantly, along stretches of Colorado Boulevard – to facilitate outdoor dining, with inside dining now restricted.

Monday’s council meeting, which will be conducted by teleconference, is scheduled to start at 2 p.m. It will be live streamed at www.pasadenamedia.org and at www.cityofpasadena.net/commissions/agendas.