Capping fees will save restaurants
San Francisco’s local restaurants are vital to the culture and character of the city. But we almost lost them during the pandemic to the same forces of so-called “disruption” that destroyed the newspaper business and drove a generation of taxi drivers into financial ruin.
The would-be destroyers are delivery apps, which in San Francisco usually means DoorDash. Along with Grubhub, they are now suing the city over commonsense measures to protect restaurants from ruin.
Their hope isn’t really to win, but to prevent needed regulations from taking root across the country. If they prevail in chilling these necessary efforts, local, independent restaurants everywhere will suffer.
Consumers may not be aware, but in cities without fee caps, DoorDash charges independent restaurants commissions up to 30% of every transaction, a staggering fee for any legitimate business, and fatal for those scraping by on the 3-to-5% margins typical in the restaurant industry. For small, immigrant-owned restaurants, the uneven playing field is compounded by language barriers and lack of access to legal counsel.
In early 2020 when the pandemic forced restaurant closures, the Golden Gate Restaurant Association contacted DoorDash, hoping it might provide San Francisco restaurants a temporary fee cut so they would stand a better shot at surviving. Surely DoorDash would see the benefit in keeping restaurants afloat, especially given the huge boost they were about to get from pandemic lockdowns, right?
Unfortunately, DoorDash and Grubhub didn’t want to make adjustments to their pricing model, so in April, Supervisor Aaron Peskin asked Mayor London Breed to issue an emergency 15% cap on delivery app commissions. More than 70 other jurisdictions followed, from Seattle to Massachusetts.
Delivery fee caps clearly worked. Restaurant owners who’d been terrified of the awesome power delivery app algorithms wielded over their businesses began stepping forward to share their experiences of being preyed on, price-gouged, plagiarized and arbitrarily deplatformed. At the restaurant industry’s most vulnerable moment, DoorDash had done more to harm than to help.
In June, the Board of Supervisors unanimously passed Supervisor Peskin’s legislation for a permanent 15% cap. Despite being invited to continue policy discussions, DoorDash and Grubhub’s reaction was to sue the city for enacting “unconstitutional price controls.” But the caps, which apply only to the percentage apps are allowed to charge independent restaurants and not any of the other fees which they extract from customers, in no way constitute price controls and do not violate the Constitution.
Proposition 22, on the other hand — which the delivery apps sunk hundreds of millions of dollars into passing so that they would never have to guarantee a fair wage and benefits to their drivers — was ruled by Alameda County Superior Court Judge Frank Roesch to violate two provisions of the California Constitution.
But judges aren’t really the audience for DoorDash’s claims; other cities are. DoorDash needs to show other jurisdictions that it will fight responsible regulation because, despite its $55 billion market cap, 57% market share and refusal to acknowledge its drivers are employees, it is burning cash — lots of it. Last year, amid a national surge in delivery demand, DoorDash still lost nearly half a billion dollars.
So, what’s the real endgame? The most recent bets of Softbank, the primary venture capital backer of both DoorDash and Uber, offer a few hints. Alongside other investors, the Saudi-backed firm has invested millions of dollars into REEF Technology, a parking lot operator that is vying to replace real restaurants with “virtual” ones operated out of often unlicensed food trucks; participated in a $1.9 billion investment round into GoPuff, a purveyor of upscale junk food and liquor with 500 warehouses across the country; and led a funding round of $120 million into Ordermark, a company that dispenses tablets to restaurants, which it then uses to mine data on delivery app demand.
These corporations, like Amazon before them, are pumped full of Wall Street cash in the hopes that someday they will achieve a far more concerning outcome than being a mildly useful middleman. That is: driving local competitors into bankruptcy, merging with one another, then jacking up fees and “leveraging” the data they collected to do it all again across new product lines. It only takes a few billion dollars in venture capital to wipe out thousands of small, local businesses.
Allowing DoorDash and Grubhub to wipe out independent restaurants is an unacceptable fate. Small, locally rooted businesses were the first to give workers a raise when cities reopened. They ensure workers are certified in food and liquor handling and comply with responsible health
safety regulations. They attract tourists who produce billions of dollars in sales taxes. Their survival is critical for our city’s culture, neighborhoods and workforce. Can DoorDash or Grubhub honestly say the same?
Some restaurants have pooled resources to offer delivery services that treat restaurants and workers with respect. But local companies, like Candlestick Courier Collective in San Francisco or USVetsDeliver in Humboldt County, are being undermined by a major advantage of national delivery apps — access to huge amounts of venture capital.
San Francisco has seen this all before. Becoming wildly wealthy thanks to huge infusions of venture capital is not a sign of competence nor of a product being a net good for society. The city has been setting an example for how to protect restaurants and workers from would-be monopolists and will continue to do so to ensure that our local food scene continues to not just survive, but to once again thrive.