Santa Clara County business leaders are pushing for a cap on fees charged by food delivery companies like DoorDash and Uber Eats, calling the costs exorbitant at a time when restaurants are struggling to survive the coronavirus pandemic.
The Silicon Valley Chamber Coalition is seeking a temporary 15% cap on fees charged by the app-based companies, which handle online ordering, pick-up and delivery services. Restaurant owners say the fees average 30% of the cost of orders and run as high as 50%, cutting into already thin profit margins. But with in-person dining severely curtailed due to COVID-19, restaurants have little choice but to take the hit.
Santa Clara County Supervisor Joe Simitian said his office is working on a proposal to impose such a cap but that many of the details are still to come. He said his goal is to protect restaurants, small businesses and consumers from price gouging during a pandemic.
"At a time when local businesses are struggling to stay alive, and when restaurant workers are at risk of losing their livelihood, we just need to make sure that everyone is treated fairly," Simitian said.
The idea of capping food delivery fees has gained traction throughout the Bay Area, with San Mateo County passing a similar measure in November. Two cities in the south bay, Milpitas and Santa Clara, have also passed their own citywide cap as well. Enforcement is largely left up restaurants, which can take civil action against deliver companies for violating the ordinances.
In the case of Milpitas, the ordinances prohibit delivery companies from cutting compensation for drivers as a means to offset the added costs.
The loss of indoor dining -- coupled with limits on outdoor dining -- have been brutal for restaurants throughout the county since March, said Mark Turner, chair of the chamber coalition. Every city has stories of beloved restaurants either closing or barely scraping by, he said, and the ones that survive are forced to rely heavily on app-based delivery services.
"As fees start to get to 35% or 45%, it becomes less efficient and effective for the restaurant, but they don't have any choice," Turner said. "They need business to keep going."
Turner said the cap on fees should be temporary and that the coalition is not opposed to the way companies like DoorDash and Uber Eats do business. But the unusual circumstances of the pandemic -- which shows no signs of slowing any time soon -- warrant emergency measures to protect small businesses.
"In an environment right now where these restaurants are teetering between success and failure, we just feel it's important to do everything we can to keep restaurants open," he said.
A report from the National Restaurant Association estimates that nearly 1 in 6 restaurants across the country closed as of September, either permanently or long-term, and 3 million employees remain out of work. At the time, the organization projected that restaurants would lose $240 billion in sales by the end of the year, while operational costs have gone up.
Though restaurants rely on app-based delivery services in order to reach more customers, the association made clear that excessive fees are a problem that require government action.
"Despite public claims of helping local restaurants during this crisis, several third-party delivery companies continue to charge restaurants exorbitant fees," according to the industry group. "When necessary, governments should take action to cap fees that third-party delivery companies are charging restaurants."
App-based delivery service companies may not be able to absorb the higher costs, however, and historically have not turned a profit. DoorDash reported its first profit of $23 million during the second quarter of 2020, while others remain in the red.
In a statement, a spokeswoman for DoorDash said the company offers a "range of products and services" to help restaurants grow sales and find new customers but that caps on service fees would curtail those options.
"These regulations can cause us to increase costs for customers, which could lead to fewer orders for local restaurants and fewer earning opportunities for (drivers)," she said. "We are eager to engage with policymakers to find solutions that better support restaurants, customers, and (drivers)."
Carlos Flores, owner of the restaurant Casa Lupe on Castro Street in Mountain View, called working with DoorDash an unending source of frustration. He said he has tried to negotiate with the company to lower its commission of 30% but found that after numerous hours of phone calls, he does not meet the company's opaque requirements. Fees can only go up, and premium services that could promote his business would ratchet those fees up to as much as 50%.
"I just do not know what to do any more," Flores said.
Mountain View Mayor Margaret Abe-Koga said downtown restaurant owners have been hanging on by their fingertips and have reported some "outrageous" delivery service fees reaching as high as 49%. She said many only tolerate the huge cut from sales because of COVID-19 and that many intend to cut ties with these services as soon as the pandemic subsides.
"I feel like these businesses are taking advantage of the situation to the detriment of restaurants," Abe-Koga said. "It's not a good thing, and we should definitely try to mitigate that."
The coalition is soliciting local cities to formally support the cap on fees while ultimately deferring to the county. Mountain View's City Council is expected to vote Tuesday, Dec. 1, in support of the proposal. Abe-Koga said the countywide approach would be more effective and powerful but that she would revisit a citywide ordinance if county supervisors fail to act quickly.
Peter Katz, president and CEO of the Mountain View Chamber of Commerce, said he is also an advocate for the regional approach similar the ordinance passed in San Mateo County. Many restaurants in Mountain View have additional locations elsewhere in Santa Clara County, he said, limiting the effect a citywide ordinance could have in helping businesses stay afloat. Labor groups and chambers of commerce throughout the county have come out in support of the cap on fees, and he said there should be political will to pass something soon.
"I haven't run into anybody who says this is a bad idea," Katz said.
The Santa Clara County Board of Supervisors is tentatively expected to consider caps on food delivery service fees at its Dec. 8 meeting.