Move to Cap Food Delivery Service Fees Goes Before Council Today

The City Council could ratify the sixth supplement to the city’s emergency health order on Monday when it considers placing a cap on third party food delivery services like Uber Eats and DoorDash.

The city’s resolution would make it unlawful for a third-party delivery service to charge a covered establishment a delivery fee that totals more than 15 percent of the purchase price of an online order.

Third party delivery services would be required to clearly state the fees charged, the gratuities paid, and any discounts offered by the covered establishment.

The resolution would go into effect in about a week.

‘This is an attempt to assist our local businesses, prevent their downswing and increase transparency for our local restaurants in general,” said Economic Development & Technology Committee Chair Victor Gordo last week when that group discussed the issue.

According to a city staff report, “Third-party delivery services such as Grubhub, Postmates, DoorDash and Uber Eats charge restaurants commission fees that can reach up to 30 percent or more per order, including delivery, subscription, and processing fees, potentially eliminating any profit that a restaurant might realize through an online order.

“While fees for the use of these services have not increased to existing restaurant customers during the pandemic, restaurants, especially small independently-owned businesses, are increasingly reliant on their services to maintain take-out and delivery options during safer-at-home orders. Restaurants who are new to the use of third party delivery services are likely onboarded at higher rates than early adopters to the applications.”

“Typically, a restaurant pays a combination of commissions & other fees ranging from 25-30 percent directly to the delivery service, and then the consumer pays service, delivery, taxes, and gratuities directly to the third-party delivery service.”

According to the results of a 72 hour survey emailed to local restaurants, 89 percent of the 66 respondents used Postmates, Grubhub, Doordash and smaller third-party delivery services.

The restaurants paid fees between 16 to 31 percent of the order. The majority paid between 25 to 30 percent.

An additional commission of 10-17 percent on orders captured from the app for take-out/pick-up orders.

Ninety-two percent of respondents support a temporary cap on commissions paid to third-party service providers

In anonymous comments, restaurateurs said they supported a permanent cap.

‘Please enact a permanent cap on commissions as delivery service fees are significantly impacting our revenues on take ‘out orders,’ one comment read. “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.”

Other restaurant owners said a cap could help them expand their customer base.

“Lots of businesses on Colorado Blvd. are dependent on corporate customers who are working remotely. As a result, we have lost 70 of normal business. We need a cap to find new customers at affordable rates. A cap would help small restaurants who have little negotiating power and we know that rates vary a great deal from restaurant to restaurant.

“After a [third party delivery service] takes their commission, and our overhead is paid, we do not make enough of a profit. 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.”

In addition to comments regarding a temporary cap, one restaurateur indicated that the city should not enact any regulations on third party delivery services.

Several surrounding cities, including Los Angeles, Glendale and Santa Monica have already enacted ordinances capping fees at 15 percent of the order. Fees include a markup on menu items combined with a delivery fee, a commission fee charged to restaurants for app and a credit card processing fee, a take-out fee and an optional marketing fee used to increase the visibility of the restaurant on the app.

The meeting begins at 2 p.m. and can be viewed at pasadenamedia.org.