As struggling San Francisco restaurants pin their hopes of staying open on delivery and takeout orders, city officials have stepped in to lower the commissions charged by the makers of apps like Uber Eats, Grubhub, DoorDash, Caviar and Postmates.
Typically, these companies charge commissions that range from 10% to 30% of an order. On Friday, Mayor London Breed announced a temporary cap of 15% on commissions. The cap will remain in effect for the duration of the local state of emergency, or until restaurants are able to open again for dine-in service.
San Francisco is the first city in California to take such action on behalf of restaurants. Supervisors Aaron Peskin and Ahsha Safaí, who said they initiated the talks about the commission caps, joined Breed in making the announcement Friday.
Some local chefs and restaurateurs see the fast-tracked order, which comes a week after The Chronicle reported on the issue of Bay Area restaurants struggling with onerous delivery fees, 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 an increase in delivery order costs and lower pay for delivery drivers.
In a statement announcing the order, Peskin said the commission limit was necessary because delivery companies have “refused to adjust their fees and are profiting immensely off a public health crisis.” As for the 15% number, Safaí said it was determined after listening to concerns from chefs and business owners.
“Restaurants across San Francisco are struggling to stay open. In these tough financial circumstances, every dollar counts and can make the difference between a restaurant staying open, or shuttering. It can make the difference between staying afloat or needing to lay-off staff,” said Breed in the statement.
Food delivery operations are exempt from March’s shelter-in-place order, which called for most businesses open to the public to close. It allowed restaurants to stay open but only for takeout and delivery service.
The city order addresses fees restaurant owners pay. It does not address charges that customers pay for orders delivered to their doors. A recent study by TechCrunch found that service, delivery and other fees could add 17% to 40% to a delivered meal’s cost. Some delivery companies offer a subscription service, which, in exchange for a monthly or annual fee, waives or reduces fees on individual deliveries. Sometimes delivery fees are reduced in exchange for promotions within an app, with the cost of the delivery for the consumer subsidized by the fee the restaurant pays. The order could well prompt the app companies and restaurants to pass on more costs of delivery to consumers.
San Francisco is a center of the delivery-app 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 a “rushed, arbitrary policy.”
“A proposed cap on these commissions would result in fees for consumers rising and service areas shrinking, cutting off consumers from the services they rely upon in this crisis. Delivery people — who are currently relying on on-demand work opportunities to earn an income — would have fewer work opportunities and lower earnings. And restaurants that need revenue to maintain operations would see fewer orders, potentially forcing more of these businesses to close their doors,” the companies said.
How restaurant commissions are determined, how they change depending on the markets, and how an app maker uses the fees are complex questions whose answers vary from company to company. The delivery companies said fees are commonly used to cover operating costs, including background checks, insurance costs, marketing, technology related to payment processing and app maintenance. Most important, the companies said the commission fees “ensure that delivery people earn a fair amount for their work.”
“We support efforts to help the hospitality industry, which is why we’ve focused the majority of our efforts on driving demand to independent local restaurants — a key concern of our partners during these unprecedented times,” an Uber representative told The Chronicle via email. “Regulating commissions would force all delivery platforms to radically alter the way we do business, which could ultimately hurt those that we’re trying to help the most: customers, small businesses and delivery people.”
San Francisco is home to around 4,000 restaurants, most of which are small businesses operated on tight budgets by only a handful of employees. Since the shelter-in-place order took effect, restaurants have grown increasingly dependent on delivery service, but many owners have been vocal about how commission fees are hurting the industry.
Some chefs in the East Bay discussed potentially boycotting the apps with 30% commission fees earlier this year, but the efforts were halted once the coronavirus spread turned into a pandemic.
Anthony Lucas, who owns a small baking operation in San Francisco called Anthony’s Cookies, uses Grubhub as a delivery service. He said the 30% commission fee often gets passed along to the consumer. By capping the fees, he said customers could actually see lower prices on delivery menus.
“That’s why the delivery menus are more expensive, we just take that fee and we have to give it to the customers,” he said. “We adjust how we have to, but right now we’re all getting hit during this. This cap is going to be better for all of us.”
Delivery companies have taken various steps to support small food businesses over the last month. Grubhub is running a Supper for Support program, which provides discounts on orders during specific times, and is meant to drive business to restaurants. Grubhub provided $30 million in funding for the initiative.
Uber Eats has waived delivery fees for customers ordering from small business restaurants, and also waived commissions on pickup orders done through the app.
Postmates is waiving commission fees for new restaurants in the city “looking to use the delivery platforms as their singular source of revenue.” Similarly, DoorDash and its Caviar subsidiary are reducing commission fees by 50% for more than 150,000 restaurants in the U.S., Canada and Australia, beginning April 13 through the end of May.
Breed highlighted other measures in the February emergency declaration, of which the cap is now a part, to support small businesses. Among the other initiatives from Breed’s office are the addition of $10 million toward the Workers and Families First Paid Sick Leave Program; $9 million toward the Emergency Loan Fund, providing up to $50,000 in zero-interest loans for individual small businesses; and $2.5 million in support for working artists and arts and cultural organizations financially affected by the coronavirus.
In a related measure to help the restaurant industry and delivery drivers, California Insurance Commissioner Ricardo Lara on Friday urged insurance companies to extend insurance coverage for drivers who are using their personal vehicles for drop-offs from essential businesses, including restaurants. The department is also asking for coverage to be extended to motorcycle and bicycle riders.