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Local restaurants push for a cap on food delivery app fees in Santa Clara County

Amid limits on indoor dining, struggling businesses say they have few options but to pay fees of up to 49%

Taverna Executive Sous Chef Kevin Nordloff places roasted chicken in to go containers in the Palo Alto restaurant's kitchen in March. A Santa Clara County coalition wants to propose a limit on the fees that app-based delivery companies, like DoorDash, charge restaurants. File photo by Magali Gauthier.

Santa Clara County business leaders are pushing for a cap on fees charged by food delivery companies like DoorDash and Uber Eats, calling the costs exorbitant at a time when restaurants are struggling to survive the coronavirus pandemic.

The Silicon Valley Chamber Coalition is seeking a temporary 15% cap on fees charged by the app-based companies, which handle online ordering, pick-up and delivery services. Restaurant owners say the fees average 30% of the cost of orders and run as high as 50%, cutting into already thin profit margins. But with in-person dining severely curtailed due to COVID-19, restaurants have little choice but to take the hit.

Santa Clara County Supervisor Joe Simitian said his office is working on a proposal to impose such a cap but that many of the details are still to come. He said his goal is to protect restaurants, small businesses and consumers from price gouging during a pandemic.

"At a time when local businesses are struggling to stay alive, and when restaurant workers are at risk of losing their livelihood, we just need to make sure that everyone is treated fairly," Simitian said.

The idea of capping food delivery fees has gained traction throughout the Bay Area, with San Mateo County passing a similar measure in November. Two cities in the south bay, Milpitas and Santa Clara, have also passed their own citywide cap as well. Enforcement is largely left up restaurants, which can take civil action against deliver companies for violating the ordinances.

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In the case of Milpitas, the ordinances prohibit delivery companies from cutting compensation for drivers as a means to offset the added costs.

'I feel like these businesses are taking advantage of the situation to the detriment of restaurants.'

-Margaret Abe-Koga, Mountain View mayor

The loss of indoor dining -- coupled with limits on outdoor dining -- have been brutal for restaurants throughout the county since March, said Mark Turner, chair of the chamber coalition. Every city has stories of beloved restaurants either closing or barely scraping by, he said, and the ones that survive are forced to rely heavily on app-based delivery services.

"As fees start to get to 35% or 45%, it becomes less efficient and effective for the restaurant, but they don't have any choice," Turner said. "They need business to keep going."

Turner said the cap on fees should be temporary and that the coalition is not opposed to the way companies like DoorDash and Uber Eats do business. But the unusual circumstances of the pandemic -- which shows no signs of slowing any time soon -- warrant emergency measures to protect small businesses.

"In an environment right now where these restaurants are teetering between success and failure, we just feel it's important to do everything we can to keep restaurants open," he said.

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A report from the National Restaurant Association estimates that nearly 1 in 6 restaurants across the country closed as of September, either permanently or long-term, and 3 million employees remain out of work. At the time, the organization projected that restaurants would lose $240 billion in sales by the end of the year, while operational costs have gone up.

Though restaurants rely on app-based delivery services in order to reach more customers, the association made clear that excessive fees are a problem that require government action.

"Despite public claims of helping local restaurants during this crisis, several third-party delivery companies continue to charge restaurants exorbitant fees," according to the industry group. "When necessary, governments should take action to cap fees that third-party delivery companies are charging restaurants."

App-based delivery service companies may not be able to absorb the higher costs, however, and historically have not turned a profit. DoorDash reported its first profit of $23 million during the second quarter of 2020, while others remain in the red.

In a statement, a spokeswoman for DoorDash said the company offers a "range of products and services" to help restaurants grow sales and find new customers but that caps on service fees would curtail those options.

"These regulations can cause us to increase costs for customers, which could lead to fewer orders for local restaurants and fewer earning opportunities for (drivers)," she said. "We are eager to engage with policymakers to find solutions that better support restaurants, customers, and (drivers)."

Jose Garcia prepares take-out meals at Oren's Hummus in Mountain View in March. Local businesses groups are calling on the Santa Clara County Board of Supervisors to impose a temporary cap on delivery-app fees during the pandemic. Photo by Sammy Dallal.

Carlos Flores, owner of the restaurant Casa Lupe on Castro Street in Mountain View, called working with DoorDash an unending source of frustration. He said he has tried to negotiate with the company to lower its commission of 30% but found that after numerous hours of phone calls, he does not meet the company's opaque requirements. Fees can only go up, and premium services that could promote his business would ratchet those fees up to as much as 50%.

"I just do not know what to do any more," Flores said.

Mountain View Mayor Margaret Abe-Koga said downtown restaurant owners have been hanging on by their fingertips and have reported some "outrageous" delivery service fees reaching as high as 49%. She said many only tolerate the huge cut from sales because of COVID-19 and that many intend to cut ties with these services as soon as the pandemic subsides.

"I feel like these businesses are taking advantage of the situation to the detriment of restaurants," Abe-Koga said. "It's not a good thing, and we should definitely try to mitigate that."

The coalition is soliciting local cities to formally support the cap on fees while ultimately deferring to the county. Mountain View's City Council is expected to vote Tuesday, Dec. 1, in support of the proposal. Abe-Koga said the countywide approach would be more effective and powerful but that she would revisit a citywide ordinance if county supervisors fail to act quickly.

Peter Katz, president and CEO of the Mountain View Chamber of Commerce, said he is also an advocate for the regional approach similar the ordinance passed in San Mateo County. Many restaurants in Mountain View have additional locations elsewhere in Santa Clara County, he said, limiting the effect a citywide ordinance could have in helping businesses stay afloat. Labor groups and chambers of commerce throughout the county have come out in support of the cap on fees, and he said there should be political will to pass something soon.

"I haven't run into anybody who says this is a bad idea," Katz said.

The Santa Clara County Board of Supervisors is tentatively expected to consider caps on food delivery service fees at its Dec. 8 meeting.

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Kevin Forestieri writes for the Mountain View Voice, a sister publication of PaloAltoOnline.com.

Follow Palo Alto Online and the Palo Alto Weekly on Twitter @paloaltoweekly, Facebook and on Instagram @paloaltoonline for breaking news, local events, photos, videos and more.

Local restaurants push for a cap on food delivery app fees in Santa Clara County

Amid limits on indoor dining, struggling businesses say they have few options but to pay fees of up to 49%

by / Mountain View Voice

Uploaded: Mon, Nov 30, 2020, 4:49 pm

Santa Clara County business leaders are pushing for a cap on fees charged by food delivery companies like DoorDash and Uber Eats, calling the costs exorbitant at a time when restaurants are struggling to survive the coronavirus pandemic.

The Silicon Valley Chamber Coalition is seeking a temporary 15% cap on fees charged by the app-based companies, which handle online ordering, pick-up and delivery services. Restaurant owners say the fees average 30% of the cost of orders and run as high as 50%, cutting into already thin profit margins. But with in-person dining severely curtailed due to COVID-19, restaurants have little choice but to take the hit.

Santa Clara County Supervisor Joe Simitian said his office is working on a proposal to impose such a cap but that many of the details are still to come. He said his goal is to protect restaurants, small businesses and consumers from price gouging during a pandemic.

"At a time when local businesses are struggling to stay alive, and when restaurant workers are at risk of losing their livelihood, we just need to make sure that everyone is treated fairly," Simitian said.

The idea of capping food delivery fees has gained traction throughout the Bay Area, with San Mateo County passing a similar measure in November. Two cities in the south bay, Milpitas and Santa Clara, have also passed their own citywide cap as well. Enforcement is largely left up restaurants, which can take civil action against deliver companies for violating the ordinances.

In the case of Milpitas, the ordinances prohibit delivery companies from cutting compensation for drivers as a means to offset the added costs.

The loss of indoor dining -- coupled with limits on outdoor dining -- have been brutal for restaurants throughout the county since March, said Mark Turner, chair of the chamber coalition. Every city has stories of beloved restaurants either closing or barely scraping by, he said, and the ones that survive are forced to rely heavily on app-based delivery services.

"As fees start to get to 35% or 45%, it becomes less efficient and effective for the restaurant, but they don't have any choice," Turner said. "They need business to keep going."

Turner said the cap on fees should be temporary and that the coalition is not opposed to the way companies like DoorDash and Uber Eats do business. But the unusual circumstances of the pandemic -- which shows no signs of slowing any time soon -- warrant emergency measures to protect small businesses.

"In an environment right now where these restaurants are teetering between success and failure, we just feel it's important to do everything we can to keep restaurants open," he said.

A report from the National Restaurant Association estimates that nearly 1 in 6 restaurants across the country closed as of September, either permanently or long-term, and 3 million employees remain out of work. At the time, the organization projected that restaurants would lose $240 billion in sales by the end of the year, while operational costs have gone up.

Though restaurants rely on app-based delivery services in order to reach more customers, the association made clear that excessive fees are a problem that require government action.

"Despite public claims of helping local restaurants during this crisis, several third-party delivery companies continue to charge restaurants exorbitant fees," according to the industry group. "When necessary, governments should take action to cap fees that third-party delivery companies are charging restaurants."

App-based delivery service companies may not be able to absorb the higher costs, however, and historically have not turned a profit. DoorDash reported its first profit of $23 million during the second quarter of 2020, while others remain in the red.

In a statement, a spokeswoman for DoorDash said the company offers a "range of products and services" to help restaurants grow sales and find new customers but that caps on service fees would curtail those options.

"These regulations can cause us to increase costs for customers, which could lead to fewer orders for local restaurants and fewer earning opportunities for (drivers)," she said. "We are eager to engage with policymakers to find solutions that better support restaurants, customers, and (drivers)."

Carlos Flores, owner of the restaurant Casa Lupe on Castro Street in Mountain View, called working with DoorDash an unending source of frustration. He said he has tried to negotiate with the company to lower its commission of 30% but found that after numerous hours of phone calls, he does not meet the company's opaque requirements. Fees can only go up, and premium services that could promote his business would ratchet those fees up to as much as 50%.

"I just do not know what to do any more," Flores said.

Mountain View Mayor Margaret Abe-Koga said downtown restaurant owners have been hanging on by their fingertips and have reported some "outrageous" delivery service fees reaching as high as 49%. She said many only tolerate the huge cut from sales because of COVID-19 and that many intend to cut ties with these services as soon as the pandemic subsides.

"I feel like these businesses are taking advantage of the situation to the detriment of restaurants," Abe-Koga said. "It's not a good thing, and we should definitely try to mitigate that."

The coalition is soliciting local cities to formally support the cap on fees while ultimately deferring to the county. Mountain View's City Council is expected to vote Tuesday, Dec. 1, in support of the proposal. Abe-Koga said the countywide approach would be more effective and powerful but that she would revisit a citywide ordinance if county supervisors fail to act quickly.

Peter Katz, president and CEO of the Mountain View Chamber of Commerce, said he is also an advocate for the regional approach similar the ordinance passed in San Mateo County. Many restaurants in Mountain View have additional locations elsewhere in Santa Clara County, he said, limiting the effect a citywide ordinance could have in helping businesses stay afloat. Labor groups and chambers of commerce throughout the county have come out in support of the cap on fees, and he said there should be political will to pass something soon.

"I haven't run into anybody who says this is a bad idea," Katz said.

The Santa Clara County Board of Supervisors is tentatively expected to consider caps on food delivery service fees at its Dec. 8 meeting.

Kevin Forestieri writes for the Mountain View Voice, a sister publication of PaloAltoOnline.com.

Comments

Online Name
Registered user
Embarcadero Oaks/Leland
on Nov 30, 2020 at 5:28 pm
Online Name, Embarcadero Oaks/Leland
Registered user
on Nov 30, 2020 at 5:28 pm
21 people like this

Way overdue! Such sleazy practices built into their business model where they rip off their customers and their gig workers.

Web Link

"DoorDash is paying $2.5 million to settle a lawsuit that accused the company of stealing drivers' tips Wed, November 25, 2020, 3:21 PM PST

DoorDash is paying $2.5 million to settle a lawsuit filed in 2019 that accused the food delivery company of using a "deceptive" tipping model.


Midlander
Registered user
Midtown
on Nov 30, 2020 at 6:23 pm
Midlander, Midtown
Registered user
on Nov 30, 2020 at 6:23 pm
1 person likes this

I am rather startled that the County feels it can suddenly impose caps on fees or charges. Perhaps if they are going to do this, they might better start by telling Starbucks to only charge me $1 for a latte or tell my dentist to only charge me $50 for a filling? (And no, I'm not serious.)

Doordash, UberEats, etc, are all normal profit-driven commercial operations. They compete very aggressively with each other and they seem to be meeting a real market need. I don't know what their current economics are, but for a long while they were substantially subsidizing every delivery in order to build market share and it was clear that couldn't last. In the long run, consumers will need to pay a fair price for the food and the delivery costs and the restaurant and delivery companies will have to figure out compromises so they both can make a profit. Expect some unhappy screeching from all concerned along the way.

Dear County, this is all kind of normal. Please don 't leap in to the middle of it!


Lee Forrest
Registered user
Crescent Park
on Nov 30, 2020 at 6:30 pm
Lee Forrest, Crescent Park
Registered user
on Nov 30, 2020 at 6:30 pm
25 people like this

> "Restaurant owners say the fees average 30% of the cost of orders and run as high as 50%."

^ All things considered, 50% is a tad on the high side.


Orchards
Registered user
Palo Alto Orchards
on Dec 1, 2020 at 10:06 pm
Orchards, Palo Alto Orchards
Registered user
on Dec 1, 2020 at 10:06 pm
3 people like this

Missing from this article is a clear explanation of the fee structure, how fees get to reach the higher percentages quoted in the article, and the proportion of orders that actually have such fees. Is 45% fees from very small orders, where delivery doesn't make much sense unless there's some fixed amount charged? And do fees reach that high for half of all orders, or only for 1%?

As written, this article is low on data and content, and high on outrage manufacturing. We're smarter than that, and deserve better information.


Native to the BAY
Registered user
Old Palo Alto
on Dec 2, 2020 at 12:16 am
Native to the BAY, Old Palo Alto
Registered user
on Dec 2, 2020 at 12:16 am
7 people like this

App based delivery service workers (using their personal vehicle) are treated like a metaphoric mule. They get a sugar cube when they deliver on time and severely scolded on both sides when late. What a gross injustice to labor . Also. reminds me of human taxis running barefoot in Asia with rich Americans as riders — thanking the service by not tipping . What a hitched up scam.


Resident
Registered user
Midtown
on Dec 2, 2020 at 4:09 am
Resident, Midtown
Registered user
on Dec 2, 2020 at 4:09 am
3 people like this

All these apps -- Doordash, GrubHub, Ubereats, and a the various upstarts are parasites.
They follow a trend of designing an automatic system governed by AI, while they expect to sit on their ass getting paid as the app does all the work for them.
This seems to be entrepreneurship these days: come up with an app, do nothing, get paid. Try to get a new job without some employer leaning entire on an app to run the company for him.
They will send drivers on $3.00 taco bell runs with $0.00 in tips. The driver depends on tips to cover gas and expenses but there is no mechanism at all in the app to make sure the driver is properly compensated.
There is no minimum. No one should ever drive a car to bring you a $5 KFC meal. Yet the delivery apps allow this. No one should drive for them. The people who sit in their insulated rooms designing apps should instead invest in their own fleet of delivery vehicles or else deliver the food themselves in their own damn cars.
Exploiting desperate, uninformed drivers and bleeding them of their gas money and wear-and-tear repairs is a destructive, parasitic business model.
If you use any of these apps you better give at least $10 in tips.


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