Temporary cap eyed on fees for food delivery apps.
Struggling restaurants are paying upward of 30% toward such expenses, supervisors say
SAN JOSl >> As struggling restaurants again face a slowdown of business amid strict stayat- home orders, Santa Clara County supervisors could put a temporary cap as soon as next week on fees and commissions that companies like DoorDash and GrubHub charge. And the county’s largest city, San Jose, is likely to do likewise.
Since the start of the pandemic, restaurateurs have scrambled to figure out how to make money amid ever- changing county guidelines, including setting up makeshift outdoor dining spaces and promoting their takeout options. And the latest lockdown measures have only heightened their frustration.
To make matters worse, food delivery platforms like GrubHub and DoorDash, county Supervisor Joe Simitian said, are charging businesses who rely on these services upward of 30% in commissions and fees on each order at a time when restaurants are trying to make ends meet.
During Tuesday’s county supervisors meeting, Simitian urged his colleagues to support a cap on those commissions and fees to protect local restaurants from “price gouging during a pandemic.” The board will consider what kind of cap it will impose at next week’s meeting, but initial proposals call for a 15% cap.
In San Jose, a proposal from Mayor Sam Liccardo and Council member Lan Diep would create a temporary ordinance, which would last until June, to similarly cap delivery fees that third-party companies charge restaurants. Total fee amounts for the services of delivery companies — including the delivery and processing fees — would be capped at 18% of the price of an online order. Chains with more than four restaurants would not qualify for the city’s relief.
The full City Council will discuss the proposal at its meeting Tuesday.
In response to some pushback from the delivery app companies like Doordash, Council member Diep said his focus was on aiding the city’s small businesses until the economy opens back up again in the summer — not
stif ling the exceedingly profitable app companies.
“I’m not concerned, at least in the immediate short term, that these apps are not going to be able to innovate or aren’t going to be able to get the revenue they need to survive in places like San Jose,” Diep said at a council committee meeting Wednesday.
The county’s proposal from Simitian and board President Cindy Chavez would cap fees and commissions as well as offer new protections for delivery drivers, including assurances that tips to delivery drives are not withheld and “actually go to the drivers as customers intend them to be.”
Simitian described instances in which local restaurants had to pay exorbitant listing fees, platform fees and commissions to get more takeout business.
“Just as we have statutes that protect against price gouging on various products during times of crisis, it seems appropriate here to look at a cap on commissions and fees to charge,” Simitian said. “It seems appropriate to deal with the growing problem of potential and actual abuse of the pandemic for excessive charges to various food services.”
The high- end Taverna restaurant in downtown Palo Alto has struggled to compete with its low-priced neighbors slinging pizzas and burgers ever since the start of the pandemic. Owner Thamasis Pashalidis — whose three-year-old restaurant is currently scraping by — said he spent thousands of dollars to build a 90-foot-long outdoor dining space that he now can’t use.
Taverna isn’t your Chilli’s or local grill. Pashalidis said the food is priced in a way that will sustain the large team of about 45 staffers that he has assembled to cook hand-crafted foods inside a luxurious dining space on Emerson Street.
But people aren’t willing to pay high- end dining prices for takeout food, a problem that has forced Pashalidis to reimagine his restaurant.
Now the same restaurant that before the pandemic offered a New York strip steak at $49 a plate is serving Gyros and a side of french fries for $14.
At the start of the pandemic, Pashalidis set up
an online ordering system for Taverna and didn’t get much luck. Now he has partnered with DoorDash and is in talks with UberEats. But he isn’t happy that DoorDash takes 20 cents of every dollar in each order.
“It’s essentially not profitable,” Pashalidis said, adding that the new health orders makes things much more dire. “If it’s anything like yesterday, we’re looking at a revenue down by 90%, maybe 99% if it keeps going like this. Twenty percent is huge, it ends up eating all of our margins.”
The dearth in orders and income has put restaurants like Taverna in difficult positions, and many of them have fired and rehired staff members as health orders fluctuate.
Health officials on Friday announced they were going to take preemptive actions and start the governor’s latest coronavirus restrictions early as California continues to try to stop the spread of the virus.
In a statement this week, Mayor Liccardo said that he will work with county leaders to “ensure consistency of these laws across jurisdictions.
“Given the legal challenges that the county may face in regulating fees in incorporated areas countywide, we will continue pushing forward our proposed fee cap within the city of San Jose to relieve the unnecessary extra burden for hundreds of our struggling restaurants,” Liccardo said. “… As we enter into another stay-at-home order, it’s imperative we support local restaurants that depend critically on food delivery for their survival.”
During Tuesday’s supervisors meeting, South Bay AFL- CIO Labor Council Senior Director of Political Strategy Dianna Zamora Marroquin said high fees from third-party delivery platforms have contrib
uted to the “largest share of COVID-related unemployment” that has come from the local restaurant industry.
“That disproportionately affects workers of color and minorities,” Marroquin said. “The pandemic has created an opportunity for price gouging and vulnerable essential workers and struggling small businesses need protections from corporations willing to use a crisis to boos their profits.”
As supervisors on Tuesday considered the new cap and appeared to be in agreement, newly elected Supervisor Otto Lee urged the board to move quickly. City staffers initially proposed bringing the item back to the board Jan. 12, but Lee pushed for a meeting Dec. 15.
“Astounded” at the high fees and commissions, Supervisor Mike Wasserman said the board’s action is needed “right now.”
“If restaurants close their doors right now they are delivery only, that takes away options for people,” Wasserman said. “The high fees these companies charges simply makes it profit prohibitive for some restaurants on deliveries. The time to do this is right now.”
For Pashalidis at Taverna, the new cap could save the young restaurant.
“It would help tremendously,” he said. “It would be in (the third party platform’s) best interest to incentivize restaurants to stay in business. Right now it’s time for DoorDash and others to partner with restaurants and keep us alive.”