Bill seeks to place cap on food delivery app fees.
High delivery fees by third-party apps, such as DoorDash and Uber Eats, are often cited by restaurant operators as a source of financial strain, especially during the coronavirus pandemic. A new bill filed in the 87th Texas Legislature is seeking to cap the fees food delivery services charge restaurants at 15 percent.
The industry standard hovers around 30 percent of a customer’s order, depending on the platform. This would be significantly reduced across the state if the bill passes.
“This is one of my wishes for 2021,” says Alex Au-yeung, the chef and owner of Phat Eatery in Katy.
Au-yeung used Grubhub, DoorDash and Uber Eats at one point, but he got rid of them even before the pandemic. Phat Eatery now operates its own delivery system. With razor-thin profit margins, a fee that high is untenable for restaurants, he says: “If you give 30 percent away, how can we survive?”
Rep. Carl Sherman Sr. introduced H.B. 598 in the House after he heard from restaurant owners in his DeSoto-area district that the high delivery fees were creating hardship for their business.
“The impact of COVID exacerbated the problem,” Sherman says. With dining rooms closed, then reopened at lower capacity, restaurants had to rely on takeout and delivery, often turning to third-party apps. “They were unable to factor in the levied costs from these delivery services,” he says.
Chef Justin Turner closed all four locations of his popular Bernie’s Burger Bus restaurants this year. While he said there were many factors at play, high delivery fees were one of them. Turner signed up for the services because he saw the convenience of delivery become increasingly popular with customers. He said representatives for the companies told him he would see an increase in business by being on the platforms, but he hasn’t found that to be the case. Instead, Turner noticed sales simply shifting away from dine-in to carryout over time. The pandemic made this worse.
“People want the convenience,” Turner says.
“Especially in a COVID world, being able to get food dropped off at their door without talking to a person or touching a person.”
Turner adds that these fees also affect the customer. He’s already seen some restaurants increasing to-go prices to make up for the high commission from delivery apps. In his opinion, most food doesn’t travel that well, so people
are paying more money for lesser quality than is offered by dining in person.
To arrive at the proposed delivery cap, Sherman looked at what other cities and states with similar proposals were doing and also asked restaurant owners for their input. “Fifteen percent seemed to be the limit that they felt they could still be profitable as a business,” he says.
Au-yeung believes 15 percent is fair — he would even consider using the apps again if the fee was capped to that.
Turner says 15 percent helps, but he thinks it’s still not low enough. According to him, even a successful restaurateur who has a good deal on rent and utilities is making about 15 percent profit. “You do the math,” he says. “You’re fighting a losing game still.”
The bill also includes a 5 percent cap for other fees not related to delivery, such as for marketing and advertising.
Besides the high commission, Au-yeung had other gripes about the delivery apps. His team couldn’t communicate directly with people ordering through the platforms, which made the restaurant’s mission of great customer service impossible. And while he made the decision to leave DoorDash, he found it impossible to take Phat Eatery down from their website. He says he’s tried to contact the company, to no avail. To turn people away from ordering through the app, he edited the menu items to read “Do not order here.” He also jacked up the prices to discourage people.
One service Au-yeung likes, though, is Favor Fleet, an offshoot of the local delivery app now owned by H-E-B. If the restaurant is busy and short-staffed for deliveries, he can request drivers from Favor Fleet on-demand, for a flat fee of $7.50 per order. “That, I can deal with,” he says.
Turner says he favors the bill’s passage but is skeptical about its chances in the Legislature.
“I don’t think, with two publicly traded companies and lobbyists, that this is going to make it further,” he says. “You're asking them to cut their profits, that they’ve been making for a long time now, in half.”
As this legislative session has only just begun, Sherman says he hasn’t had a chance to gauge support among many of his colleagues for this specific bill, but he has meetings coming up with interested legislators. If the bill passes the House, the Senate, and is signed by the governor, it will take effect in September.