Council, city officials mull cap on delivery service charges
Restaurateurs have issues with high food delivery fee structure
While restaurants are closed for sit-down service, pickups and deliveries are keeping many alive through the tough economic times stemming from the COVID-19 pandemic.
But for the majority of restaurants that rely on delivery apps to get food to customers, profits can be elusive. The added burden of high food delivery fees has compounded their problems.
“I’ve lost money in those eight weeks, but the delivery companies have made money off of me,” said John Schall, owner of El Jefe’s Taqueria, which has locations in Harvard Square and opposite the Boston Common.
“When restaurants operate off of 6[%], 8% profit margins, when you’re paying 18% of your total revenue to the delivery companies, you’re just not viable,” Schall said. “It’s no longer a viable business model.”
Schall testified during a City Council hearing on Friday to discuss the third party delivery services.
Schall testified during a City Council hearing on Friday to discuss the third party delivery services. Companies like Grubhub, Postmates, DoorDash and UberEATS charge substantial commission fees on deliveries. Councilors and restaurateurs advocated for capping the fees before high costs force small businesses to close down.
“Restaurant owners have informed me that the delivery companies charge upwards of 25[%], 35% commission fees on deliveries,” said Councilor Ed Flynn. “Restaurants are now paying a significantly larger portion of their revenues for commissions to the delivery companies, which is a huge burden, especially when their sales are already down.”
Other cities have already capped the fee: it’s 15% in San Francisco, Seattle and Washington D.C. The New York City Council just voted to approve a 15% cap last week.
Kaitlin Passafaro, director of policy for the Mayor’s Office of Economic Development, said the administration of Mayor Martin Walsh is in conversation with the four main vendors.
“It is our hope that these conversations will result in a reduction of commissions,” she said. “In lieu of a voluntary agreement in the near future, we stand ready to work with the council to explore other mechanisms to achieve our goal.”
Councilor Matt O’Malley noted that the four main delivery vendors — Grubhub, Postmates, UberEATS and DoorDash — make up more than 90% of the industry. The companies don’t typically reveal their commission fees, he added, leaving people to speculate the exact percentage. He said they typically charge 20-30%.
“Here we are on week eight of no sit-down service in the commonwealth, and you have restaurants who are just getting absolutely killed by these high fees using these vendors,” he said.
O’Malley said that the commission fees need to be capped in order to support small businesses.
Amy Healy, a Grubhub representative, disagreed.
Amy Healy, a Grubhub representative, disagreed.
“This solution is exactly the wrong thing to do,” she said. “In reality, a cap will lower order volume to locally owned restaurants, increase cost and headaches for small business owners and raise costs to customers.” Grubhub delivery drivers will also have fewer work opportunities, she said.
She was opposed to the principle of the cap idea as well: “We believe that any cap on fees represents an overstep by local officials and will not withstand a legal challenge.”
Healy acknowledged that Grubhub has seen higher profits this year, but also said the platform has higher costs.
Grubhub serves 24 million active diners nationwide, noted Healy. The company was founded in 2004 and its net worth is now estimated at over $5 billion.
O’Malley cited a New York Times article with a breakdown of a Panda Express bill. Extra fees caused the bill to jump in price. The original meal cost $47.10 on Grubhub, despite being $39 in the restaurant. After the Grubhub delivery fee, service fee and sales tax, the final total was $57.91. That amounts to a 37% markup. O’Malley noted that it was even more with different vendors; DoorDash had a 47% markup, Postmates had a 45% markup and UberEATS was 49%.
When asked about high fees, Healy noted that the money goes to a range of things.
“These are costs that we incur,” she said. “We are charged. We have to pay our drivers, we have to pay insurance, we have to pay for marketing.”
Flynn said that restaurant workers are integral to the community.
“We want to support our restaurants, our small businesses, our waitresses and waiters,” he said. “They need a hand up, especially during this difficult, difficult time.”
He called the commission fees “outrageous” and said he was “not happy about it.”
“I’m asking the delivery companies to be reasonable,” he said. “They haven’t been reasonable. They’re not being a good neighbor.”
O’Malley called for swift action.
“Given the fraught economic climate that we are in, given the fact that the Mass Restaurant Association predicts that possibly 40% or more of existing restaurants could not reopen when we return some semblance to normalcy,” he said, “we need to act now.”