San Francisco Mayor London Breed issued an emergency order late last week to temporarily cap delivery fees charged by third-party suppliers to restaurants. The order is now effective and requires delivery services to cap these commission fees to 15 percent if they want to continue doing business in San Francisco as the city provides protection.
The purpose of the order is to help restaurants that have difficulty staying alive during government-mandated dining room closings. Many have turned to delivery and take-out models to offset at least some of their lost sales, which for most businesses means partnering with third-party providers like Grubhub and Uber Eats. However, these services charge up to 30 percent commission fees per transaction.
“We have listened to our restaurants and the struggles they are facing in this unprecedented time,” said supervisor Ahsha Safaí in the official announcement of the order. “The high commission fees our companies are billed for remain unchanged, and it can’t stay that way as every dollar can mean staying open or laying off more employees.”
Some of the big third party vendors have already taken steps to lower the high commission fees. Postmates is temporarily waiving these fees for new trading partners running small businesses in San Francisco. And last week, DoorDash, which owns caviar, said it would cut commission fees by 50 percent for restaurants with five locations or fewer in the US, Canada and Australia.
In a move that shouldn’t surprise anyone at this point, Grubhub declines the order – and asks its customers to do the same. As Eater SF found, Chicago-based service claim caps on commission fees add $ 5 to $ 10 to customer fees and “immediately cripple delivery orders and outweigh any potential benefits of having takeaway restaurants the only option with restaurants open have to.”
The problem with this logic is that it assumes that delivery and takeaway are actually saving restaurants during this time, which is far from safe. Transactions for full-service restaurants, many of which had to quickly switch to an external model, are down 79 percent, according to the NPD Group. Even after the switch to off-premises, the restaurants strive to run smoothly and safely. Others simply close temporarily and cite health concerns for their workers. Still others close their doors permanently and already cannot survive the storm.
San Francisco’s urgency decision to cap commission fees appears to be aimed at ensuring more restaurants don’t have to go down permanently when ordering accommodations. And while SF may be the first city to actually issue such an order, it isn’t the first to think about it. In August 2019, the New York State Liquor Authority (NYSLA) proposed capping the commissions full-service restaurants pay for delivery services by 10 percent.
At the time, I wrote that such a measure could have an impact on other cities in the United States. The same goes for San Francisco’s emergency order. As time goes by and more data becomes available on how bad the circumstances are for most restaurants, other big cities – Seattle, Los Angeles, NYC – may be motivated to take similar action. They won’t necessarily make delivery a thriving business for everyone, but they could lessen some of the damage those commission fees do to an industry that’s already damaged.