San Francisco’s forever-ceiling on what delivery apps charge restaurants is the first in the country. It might not be the last — but it also might not work.
Last week, San Francisco’s Board of Supervisors voted unanimously to approve a permanent cap on the delivery fees third-party apps like DoorDash and Grubhub are allowed to charge restaurants for each order. It is the first permanent cap on delivery fees in the country, potentially heralding a lasting shift in the way that delivery apps charge restaurants — and consumers — as the industry emerges from the pandemic.
Complaints about exorbitant delivery commissions — as high as 30 percent in some instances — were not uncommon before the pandemic began, but they reached a pinnacle last year as many restaurants were forced to drastically alter their business models to include large-scale takeout and delivery operations. As cities and states across the country went into lockdown and began imposing onsite dining restrictions, many restaurants were suddenly reliant on third-party delivery apps for the bulk of their business. Restaurants operate on razor-thin margins in the best of times, so losing as much as 30 percent of profits on every sale was never going to work long-term for the majority of restaurants.
Faced with the annihilation of the restaurant industry, major metropolitan areas — beginning with San Francisco, and extending to Chicago, New York City, Portland, and Seattle, as well as many others — began passing temporary limits on what the apps could charge for delivery, with some cities setting a cap as low as 10 percent. Many of those temporary caps are set to expire in the coming weeks and months, prompting city and state legislatures to question whether or not to extend them, or make them permanent, as the restaurant industry continues to struggle.
The question comes at a pivotal moment. Delivery companies like Grubhub, Postmates, and Uber Eats had their most successful year to date, raking in record revenues, and yet none of them are profitable. (Only DoorDash managed to step out of the red last year, and it only did so for one quarter.) Meanwhile, as restaurants resume onsite dining as cities and states continue to open back up, many are still burdened by the debt they accumulated over the past year. Some have gotten relief from the government, but others are still pleading. And caught in the middle are consumers, who are shouldering more of the costs.
Katy Connors is the advisory board chair with the Independent Restaurant Alliance of Oregon, a nonprofit formed last year to advocate for small restaurants and their workers. She was part of the coalition that convinced lawmakers in Portland, Oregon, to approve a 10 percent cap on delivery fees last July. As Portland’s temporary restrictions approach their expiration date, she thinks the recent vote in San Francisco creates a path forward for cities in the rest of the country to enact similar legislation. “Permanent regulation is going to be absolutely necessary moving forward, because these companies are not regulated by anything,” says Connors.
Connors, who recently managed two popular fast-casual restaurants in Portland, recognizes that as consumer behavior shifts toward convenience — and as restaurant business models shift to keep up — it will be difficult (if not impossible) for restaurants to survive without establishing a presence on delivery platforms. But just as restaurants need the apps, so too do the apps need restaurants (for now). And as things currently stand, the relationship between restaurants and apps feels less like a collaboration and more like a hostage situation. “The way that the structure is inherently set up by these companies is sort of exploitative,” Connors says. “It’s not a partnership when it’s an exploitative relationship. [The apps] are preying on the fact that these restaurants have no other options, and that, at least during the pandemic, the diners had no other options.”
In April 2020, San Francisco Mayor London Breed passed an emergency order that put a ceiling on the total fee that third-party delivery apps could charge restaurants — including delivery commissions, credit card fees, and service fees — at 15 percent. It was the first of its kind in the nation, and set off a chain reaction of similar legislation in other progressive cities across the country. The San Francisco order was set to expire in August, but the Board of Supervisors vote makes it permanent. A pending amendment to the legislation does include a major concession to the delivery apps: permission to charge restaurants higher fees for “marketing” and “additional services.” If the amendment passes, restaurants in San Francisco could opt into higher commission fees (up from 15 percent to 25 or 30 percent) in exchange for better visibility in the app. “The delivery companies were living on 15 percent, full stop,” says Laurie Thomas, the executive director of the Golden Gate Restaurant Association. “Now they have the ability to add marketing [to the bill], so it’s kind of a give.”
Amid the throes of the pandemic and the growing threat of fee caps across the country, and in response to growing resentment from restaurant owners and diners alike, DoorDash, still the largest delivery platform in the country, responded by introducing this exact pricing model, which it calls “partnership plans.” Under the new, tiered commission structure, restaurants can choose between three products — DoorDash Basic, DoorDash Plus, and DoorDash Premier, for 15 percent, 25 percent, or 30 percent commission fees, respectively. With each tier, delivery radiuses increase, the algorithm bumps a restaurant’s chicken wings or jalapeno poppers further up the rankings, and the restaurant gets access to the app’s high-value customers, who tend to order the most food. DoorDash has explicitly positioned the tiered system as a marketing service, a move that’s in line with the proposed amendment in San Francisco.
The new program is supposed to be more transparent than its previous model. Conveniently, it also allows delivery companies to potentially bypass fee caps. Grubhub also offers a tiered commission structure, while Uber Eats offers restaurants a variety of promotional and marketing tools, such as the ability to pay for sponsored listings. At the end of the day, restaurants with more financial resources are more likely to win the delivery app game.
However, Thomas, who owns two restaurants in the Bay Area, says she’s in favor of the amendment. “Some restaurants may want to pay more for ads and promotions, and for the ability to offer discounts to customers, so why limit their ability? What we don’t want is a situation where someone doesn’t understand the contract, or worse, can’t easily get out of a contract if they misunderstand, or feels forced to sign a contract because they need X but not Y ... As long as it’s clear and not a blackmail situation, why not allow them to have marketing capabilities?”
Fee caps have likely helped some restaurants retain a bigger piece of the delivery pie, but as the platforms struggle to reach profitability — Grubhub CEO Matt Maloney recently described delivery as a “crummy business” — there remains enormous pressure to maximize revenue. If they’re limited in what they can charge restaurants, the obvious alternative source is their other customer: the consumer. Following the implementation of caps in various cities, DoorDash began charging diners what it called a “regulatory response fee.” The fees, which were introduced to offset losses in commissions, range from $1 to $2.50 per order. Uber Eats also raised prices on consumers in response to temporary caps, adding similar $2 fees in more than a dozen markets, including Boston, Chicago, Oregon, and Washington.
Last year, as most of the restaurant industry shifted to delivery-only, the major apps unsurprisingly had record years. DoorDash saw revenues grow to $2.8 billion in 2020, up from $885 million in 2019; Grubhub’s revenue grew by a relatively modest but still impressive 39 percent, to $1.8 billion; and Uber Eats saw revenues more than double over the course of the year, pulling in $1.3 billion in the last quarter of 2020 alone. Despite staggering revenue growth, delivery apps are struggling to turn a profit: DoorDash lost $461 million, GrubHub $156 million, and Uber Eats a stunning $873 million.
It would seem that, at some point, these companies are going to have to make money if they want to continue operating. And the only way for them to do that is to generate more money per delivery. (DoorDash, according to a Deutsche Bank analysis cited by the Wall Street Journal, ultimately pockets just 2.5 percent of each order.) And someone is going to have to pay for it, whether it’s restaurants or consumers. But the question remains: If delivery companies couldn’t figure out how to make money during a pandemic that forced everyone to use their apps in record numbers, will they ever figure it out?
When reached for comment, a representative for DoorDash said that delivery caps are having unintended and harmful consequences, and that DoorDash will continue to offer its tiered fee structure in markets with temporary caps. Grant Klinzman, a spokesperson for Grubhub, told Eater via email that fee caps are “arbitrary price controls and exactly the wrong thing to do when restaurants need more support, visibility, and order volume than ever,” and says that a permanent cap would result in long-term damage to restaurants, diners, delivery workers, and local economies. “Fee caps limit how restaurants, and especially small and independent establishments, can effectively market themselves to drive demand, therefore severely limiting how many customers and orders we can bring to these restaurants.”
Thomas doesn’t think there’s any way to make everyone — the restaurants, the apps, the drivers, and the consumers — happy, but thinks San Francisco’s approach is a solid step toward equity. Still, not everyone is convinced that a tiered (and self-proclaimed “transparent”) approach is the right way forward. “Just because they’re coming up with these new transparent fee structures does not necessarily mean that it’s going to benefit the restaurant,” Connors says. “Restaurants deal with very, very, very slim profit margins during regular times, and these are obviously unprecedented times.”
For the time being, it remains unclear if other cities and states will extend delivery commission caps, or make them permanent, though San Francisco also led the way with its initial ceiling on fees. Given the desire and ability of the apps to end-run oversight — their entire model was built on regulatory arbitrage, and they collectively spent more than $200 million just last year to keep gig workers classified as contractors, keeping them barred from employee rights including health insurance and collective bargaining — it might not matter much if the caps are extended at all. In Chicago, where a temporary fee reduction expired in April, Alderman Scott Waguespack says it may not be possible to erect a truly permanent cap. “Any permanent law may bring a lawsuit by apps who aren’t following the laws anyway,” he says, alluding to the fact that the apps restructured their fees in order to get around the city’s caps (something they also did in New York City). “They decided to disregard the legal and legislative intent of the caps.”
Massachusetts’s expired on June 15, and restaurant owners have been left wondering if the state legislature will act to extend the ordinance on a temporary or permanent basis. Bob Luz, the president and CEO of the Massachusetts Restaurant Association, believes that the state should have extended the fee cap, but says that the fact that it wasn’t extended “doesn’t bode well” for restaurants in the state. “Not many people were calling Porto or Davio’s to have a high-end meal delivered before the pandemic,” he says. “But that behavior has exploded, and it looks like it’s here to stay. And now restaurants and delivery apps need to figure out a business relationship that works for both parties.”
Source : food
Posting Komentar
Posting Komentar