Typically, these companies charge commissions ranging from 10% to 30% of an order. On Friday, the mayor of London Breed announced a temporary 15% cap on commissions. The cap will remain in effect for the duration of the local emergency, or until restaurants can reopen for food service.
San Francisco is the first city in California to take action on behalf of restaurants. Supervisors Aaron Peskin and Ahsha Safaí, who said they had started talks on commission caps, joined Breed to make the announcement on Friday.
Some local chefs and restaurateurs see expedited ordering, which comes a week after The Chronicle, the issue of restaurants in the Bay Area struggling with expensive delivery costs, as a financial lifeline for an industry in crisis. But while restaurants breathe a sigh of relief, local delivery companies say the order could trigger higher costs for delivery orders and lower wages for delivery drivers.
In a statement announcing the order, Peskin said the commission limit was necessary because the delivery companies “refused to adjust their rates and are profiting greatly from a public health crisis.” As for the 15% figure, Safaí said he was determined after listening to the concerns of business and business leaders.
“San Francisco restaurants are struggling to stay open. In these difficult financial circumstances, every dollar counts and can make the difference between an open restaurant or a formwork. This can be the difference between staying afloat or having to lay off staff, “Breed said in the statement.
Food delivery operations are exempt from the March on-site shelter order, which provided for the closure of most businesses open to the public. It allowed restaurants to stay open, but only for delivery service and takeout.
The city ordinance covers fees paid by restaurateurs. It does not deal with the fees that customers pay for orders delivered to their doors. A recent TechCrunch study found that service, delivery, and other fees could add 17% to 40% to the cost of a meal delivered. Some delivery companies offer a subscription service which, in exchange for monthly or annual fees, cancels or reduces individual delivery charges. Sometimes, delivery costs are reduced in exchange for promotion in an application, the cost of delivery to the consumer being subsidized by the fees paid by the restaurant. The order may well encourage app companies and restaurants to pass more delivery costs on to consumers.
San Francisco is a center of the delivery application industry. Three of the four biggest players are based in the city – Postmates, Uber and DoorDash, which recently bought the smaller Caviar service – while Grubhub is headquartered in Chicago. The four companies responded to the emergency order in a joint statement Thursday, which called the action “hasty and arbitrary policy”.
“A proposed ceiling for these commissions would increase costs to consumers and reduce service areas, cutting consumers off from the services they depend on in this crisis. Delivery people – who currently rely on on-demand work opportunities to earn income – would have fewer work opportunities and lower incomes. And restaurants that need revenue to keep operations running would see fewer orders, which could force more of these businesses to close, “said the companies.
How restaurant commissions are determined, how they change in different markets, and how an app maker uses fees are complex questions, the answers to which vary from company to company. Delivery companies said the fees are commonly used to cover operating costs, including background checks, insurance costs, marketing, payment processing technology and application maintenance. Most importantly, the companies said the commission fees “guarantee that the delivery people earn a fair amount for their work.”
“We support efforts to help the hospitality industry, which is why we have focused the majority of our efforts on demand for independent local restaurants – a key concern of our partners in these unprecedented times,” said a representative. from Uber to The Chronicle by email. . “Commission regulation would force all delivery platforms to dramatically change the way we do business, which could ultimately hurt those we try to help the most: customers, small businesses, and delivery people.”
San Francisco is home to approximately 4,000 restaurants, most of which are small businesses run on tight budgets by just a handful of employees. Since the on-site shelter order came into effect, restaurants have become increasingly dependent on delivery service, but many owners have commented on how commission fees are hurting the industry.
Some East Bay chiefs have considered boycotting the apps with a 30% commission fee earlier this year, but efforts were halted once the spread of the coronavirus turned into a pandemic.
Anthony Lucas, who owns a small bakery in San Francisco called Anthony’s Cookies, uses Grubhub as a delivery service. He said that 30% commission fees are often passed on to the consumer. By capping fees, he said customers could actually see lower prices on delivery menus.
“That’s why the delivery menus are more expensive, we just take these fees and we have to give them to customers,” he said. “We are adjusting the way we have to do it, but right now, we’re all hit during that. This ceiling will be better for all of us. “
Delivery companies have taken various steps to support small food businesses in the past month. Grubhub runs a Supper for Support program that offers discounts on orders at specific times and aims to boost business in restaurants. Grubhub provided $ 30 million in funding for the initiative.
Uber Eats has removed shipping charges for customers who order from small business restaurants, as well as commissions on pickup orders placed through the app.
Postmates waives commission fees for the city’s new restaurants “seeking to use delivery platforms as the sole source of income”. Likewise, DoorDash and its subsidiary Caviar reduce commission fees by 50% for more than 150,000 restaurants in the United States, Canada and Australia, from April 13 to the end of May.
Breed highlighted other measures in February’s emergency declaration, of which the ceiling is now a part, to support small businesses. Other initiatives by Breed’s office include adding $ 10 million to the paid sick leave program primarily for workers and families; $ 9 million for the Emergency Loan Fund offering up to $ 50,000 in zero-interest loans for small businesses; and $ 2.5 million to support active artists and arts and cultural organizations financially affected by the coronavirus.
California insurance commissioner Ricardo Lara urged insurance companies to extend insurance coverage for drivers who use their vehicles in a related measure to help the food service industry and delivery drivers personnel for the restitution of essential businesses, including restaurants. The ministry is also requesting that coverage be extended to motorcyclists and cyclists.
Justin Phillips is a writer for the San Francisco Chronicle. Email: [email protected] Twitter: @JustMrPhillips