San Francisco Caps Fees From Third-Party Delivery Platforms

London Breed, the 45^th mayor of San Francisco, has implemented new legislation to set a limit on the fees that third-party delivery companies can charge restaurants.

The cap is set to remain during the duration of mandated shutdowns during the coronavirus pandemic and the fee must be below 15%. Many delivery platforms charge between 10% of the low end of the spectrum and more frequently upwards of 30%.

Many restaurant owners were avoiding third-party platforms before COVID-19 but now with only takeout and delivery as an option, many had no choice. Operators are asking customers to pick up their own food and call in their orders when possible but many consumers cannot leave their homes, causing delivery to spike during stay-at-home orders.

Setting Precedent

San Francisco, a pioneer for both tech innovations being the home of Silicon Valley, was already one of the first cities to shut down due to COVID-19. As the nation grabbles with dealing with coronavirus, the domino effect for certain laws tends to quickly go from state to state as we saw with alcohol to-go laws, takeout and delivery only, and mandated closures. Now, we will see if other states or cities follow suit by implementing similar measures against third-party platforms. As reported by NY Daily News, Jeffrey Garcia, President of the NYS Latino Restaurant, Bar, & Lounge Association has said their members are ‘distraught’ by delivery fees and “there must be actions made to cap these fees at 10% of total order”.

The Golden Gate Restaurant Association praised the ordinance that London Breed did to protect the restaurants of San Francisco with many citing they are not even breaking even being open for takeout and delivery. 

While there may not be much sympathy for these platforms with DoorDash with an estimated valuation of $12.6B in 2019, UberEats whose parent company, Uber, is worth $47B, and Grubhub with a $3.6B market cap, there is a debate on allowing free markets and capitalism to drive fair value. Other companies are cropping up to compete with these companies and allow for the operations to own both their customers and the process.

Some third-party platforms like DoorDash were already set to reduce fees by 50% starting on April 13^th through the end of May.

As reported by Eater SF, a Gruhub spokesperson said, “An arbitrary cap is exactly the wrong step at exactly the wrong time: not only could it lower pay for struggling delivery workers, it would disrupt an essential supply chain of meals to San Francisco seniors and families at their most vulnerable time.”

UberEats also fired back and Nation’s Restaurant News reported their spokesperson stated, “Regulating the commissions that fund our marketplace — particularly during these unprecedented times — would force us to radically alter the way we do business, set a far-reaching precedent in a highly competitive market, and could ultimately hurt those that we’re trying to help the most: customers, small businesses and delivery people.”

While the debate of third-party fees will continue long after this pandemic is over, there will be new data available to study the economic impact of lower fees for restaurants, delivery apps, and consumers. We’ll see if the increased costs that consumers will have to pay stunts restaurant delivery sales, if the number of delivery drivers decreased hurting the overall supply, or if restaurants are able to claw back revenue in an already tight-margined operation. Another element of the 'new normal' after COVID-19 could be shaping up in favor of the restaurants.