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Economic Development and Technology Committee to Discuss Capping Fees on Food Delivery Services

Companies like Grubhub taking profits from local restaurants

Published on Wednesday, July 15, 2020 | 12:32 pm
 

Third-party food delivery services that drop off food to residents from local restaurants could face a cap on the fees they charge local restaurants.

The Economic Development and Technology Committee (EDTECH) will discuss limiting how much companies like Grubhub and Doordash can charge for delivery services.

The meeting begins at 4 p.m. and can be viewed at http://pasadena.granicus.com/mediaplayer.php?camera_id=2&publish_id=9.

Several surrounding cities, including Los Angeles, Glendale and Santa Monica, have already enacted ordinances capping fees at 15% of the order total. 

According to a city staff report, “Third-party delivery services such as Grubhub, Postmates, DoorDash and UberEats charge restaurants commission fees that can reach up to 30% 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.”

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.  

“Typically, a restaurant pays a combination of commissions & other fees ranging from 25-30% 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% of the 66 respondents used Postmates, Grubhub, Doordash and smaller third-party delivery services. 

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

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

Ninety-two percent of respondents supported 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.”

Another restaurant owner 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 percent of normal business,” the comment stated. “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,” another owner said. 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.

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