Delivery Apps Defy Commission Fee Caps and Doom Struggling Restaurants
When COVID-19 crippled the hospitality industry, restaurants scrambled to shift to an online delivery model. Unfortunately, the vast majority of restaurants did not have the digital infrastructure or reach to effectively convert their business. Enter third-party delivery apps.
Delivery platforms like Uber Eats, DoorDash, Grubhub and Postmates became the lifeline for restaurants who needed a quick and easy way to enter the online ordering and delivery market.
Third-party apps provide the backend digital infrastructure so customers can order and pay for meals through the web and mobile devices. Delivery apps as the name imply also provide a vast network of gig food delivery workers to bring food directly to customers. This is a great service and has helped save many restaurants but they also have a complex and deeply anti-restaurant commission structure.
Depending on the service a restaurant chooses a platform can charge a restaurant just to sign up for their service. All delivery platforms charge high commission fees that range from 30% to 40% per order at the highest end of the spectrum. That means even small mom and pop restaurants that are struggling to barely survive can have a third or almost half of their revenue taken away before the restaurant can even see a penny.
Some companies like DoorDash, Uber Eats, and Postmates have offered temporary respite by implementing 50% discounts to commission fees for new members.
“Some of the restaurants that have stayed open are running in the red,” says Laurie Thomas executive director of the GGRA, “and their owners have run the numbers and said that just a 50 percent decrease in the commissions would let them stay in business and keep their workers employed.”
This discount only applied for new restaurants and restaurants already on the platform could not take advantage of the business saving discount. Additionally, the discount only ran for 30 days ending in April, none of the companies have renewed the discount.
The commission fee issue has gotten so dire that state and local governments had to step in and pass legislation to limit the amount that delivery apps are allowed to charge for commission fees.
Such legislation has been passed in cities like Los Angeles, New York, San Francisco, Chicago and many more due to the sheer number of struggling restaurants that desperately need the break.
DoorDash provided the following statement:
“We’ve worked diligently to comply with Los Angeles’ price controls, and as such have reduced commissions for thousands of eligible merchant partners. We can confirm this restaurant has been receiving a commission rate that complies with the City’s mandate. We are actively working to make the communication around our current commission structure clearer for our merchant partners and regret any confusion that may have been caused in this instance.”
Postmates provided the following statement:
“As Postmates continues to fuel tens of thousands of LA businesses, bring needed meals and critical supplies to customers, and enable hundreds of thousands of Angelenos to earn at this critical time — we have been actively working to ensure compliance with the recent LA emergency order by instituting the new rates, we’re in the final phases of the needed product development which will be complete by July 6th, we will be rebating all merchants from the effective date of the order up to present.”
Some restaurants have gotten the reduced commission fees but there are far more restaurants that have complained that the delivery apps will not honor the caps and continue to charge impossibly high commission fees.
Grubhub has openly defied the commission cap and claimed their business is a marketing company and is therefore exempt from the commission caps.
“Unlike our competitors, who are focused on providing restaurants with delivery services, Grubhub is primarily a marketing engine for our independent restaurant partners,” Amy Healy, senior director of public affairs at Grubhub, wrote in a statement.
Another statement Grubhub made to Eater reiterated their defense against the commission fee caps.
“The Portland ordinance applies to “order and delivery” services and does not place any cap on marketing services that Portland restaurants choose to pay that are unrelated to our order and delivery services. While we have taken steps to comply, we continue to maintain that such fee caps are legally suspect and harm the very restaurants they are intended to help.”
Grubhub may claim that these commission caps harm restaurants more than they help but hundreds if not thousands of struggling restaurants across the US are in daily battles with these companies just to find out why they’re not receiving their lawfully mandated discounts.
