Cities are Recognizing That Capping Delivery Fees Hurts Restaurants
When the pandemic hit, restaurants were first to feel the lasting effects of social distance ordinances. Restaurant owners were required to quickly think of creative ways to offer their customers a level of service that would keep them in business.
With dine-in options completely stalled, delivery apps served as a lifeline to help keep businesses afloat in addition to new lines of revenue such as cocktails to go and “streeteries” — which completely changed the traditional ways of dining we were all used to.
Cities like San Francisco, New York City, and Chicago began to take aggressive steps to remedy this economic strain by imposing caps on the fees paid by restaurants to delivery services like Uber Eats, Grubhub, and DoorDash. Shortly after, other cities followed suit.
However, this strategy that originally served to support restaurants caused many debates regarding the potential repercussions fee caps would have on consumers.
These caps actually denied restaurants the ability to choose higher levels of service. Today, delivery companies all offer a tiered service structure in part due to feedback from restaurants that would allow restaurants to choose which service level and commission rate they preferred. For example…
Uber Eats service tiers for restaurants, which they call Lite (15% commission), Plus (25%), and Premium (30%):
DoorDash has similar tiers as well:
And finally here are Grubhub’s service tiers:
The caps may have also unintentionally steered business away from local restaurants toward chains. For example, an academic study assessed 14 U.S. cities that implemented temporary of permanent delivery fee caps and found that in each city independent restaurants were worse off than national chains.
Now, as Americans and restaurants are slowly returning to things as they were pre-pandemic, cities are re-evaluating their pandemic response policies to meet today’s needs.
Popular measures have been commonly legalized among cities in states. The National Restaurant Association reported that 39 states allowed cocktails-to-go at the height of the pandemic and now customers can enjoy drinks to go permanently in at least 18 states. Cities like Philadelphia passed legislation that would retain streeteries and the experience they provide to diners.
So what’s next for delivery fee caps?
Many cities –Denver, Baltimore, and San Jose — have allowed for caps to lapse completely, recognizing the impact they were having on families, restaurants, and delivery drivers.
Other cities have embraced a compromise approach. In San Francisco, for example, a legal suit against the city by DoorDash and Grubhub was paused in order to negotiate a compromise. Instead of continuing the city’s flat 15% delivery fee cap, the Board of Supervisors recently voted in favor of restaurants being able to choose to opt-out of the fee cap limit in exchange for higher tiers of service.
Delivery services with tiered services beyond the 15% threshold can now offer restaurants packages that include more promotion through in-app marketing services. For small businesses and local restaurants, access to these services could be transformative as they are more likely to benefit from visibility on the platform than a widely known chain restaurant in the community.
San Francisco‘s compromise follows other cities like Chicago, Minneapolis, and Philadelphia that have already adopted similar compromises.
Unfortunately, not all cities have taken steps toward a smart compromise on fee caps. New York City and the District of Columbia are still battling legal suits in court — with these compromises as a possible resolution. As the studies above show, limitations on delivery fees will ultimately hurt restaurants, families, and drivers.
The tides are changing as our restaurants are recovering from the pandemic — and increasingly seeing third-party delivery apps as partners rather than opponents who aim to hinder their businesses.
Luckily, policymakers are now seeing the significant value in allowing restaurants the option to choose the fees they are willing to pay while allowing delivery platforms to expand their offerings.
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