San Francisco Mayor London Breed issued an emergency order at the end of last week to put temporary caps the delivery fees that third-party services charge restaurants. The order is effective now and dictates that delivery services must cap these commission fees at 15 percent if they want to continue doing business in San Francisco as the city shelters in place.
The point of the order is to help restaurants as they struggle to stay alive during state-mandated dining room closures. Many have turned to delivery and take-out models to try and make up at least some of their lost sales, which for most businesses means partnering with third-party services like Grubhub and Uber Eats. However, those services charge as much as 30 percent per transaction in commission fees.
“We’ve listened to our restaurants and the struggles they’re facing during this unprecedented time,” Supervisor Ahsha Safaí said in the official announcement about the order. “The high commission fees being charged to our businesses remains unchanged and that cannot continue as every dollar can mean staying open or laying- off more staff.”
Of the major third-party delivery companies, some have already made moves to address high commission fees. Postmates is temporarily waiving those fees for new merchant partners operating small businesses in San Francisco. And last week, DoorDash, which owns Caviar, said it would cut commission fees by 50 percent for restaurants with five or fewer locations in the U.S., Canada, and Australia.
In a move that should surprise no one at this point, Grubhub is opposing the order — and urging its customers to do the same. As Eater SF noted, the Chicago-based service claims caps on commission fees will increase customer fees by $5–$10 and “immediately cripple delivery orders, outweighing any potential benefits when takeout is the only option restaurants have to stay open.”
The trouble with that logic is that it seems to assume delivery and takeout will actually save restaurants during this time, which is far from certain. Transactions for full-service restaurants — many of which have quickly had to pivot to an off-premises model — have dropped 79 percent, according to NPD Group. Even after the switch to off-premises, restaurants are struggling to ensure smooth, safe operations. Others are simply shutting down temporarily, citing health concerns for their workers. Still others are closing their doors permanently, already unable to weather the storm.
San Francisco’s emergency order to cap commission fees seems aimed at trying to ensure more restaurants won’t have to permanently go under during shelter-in-place orders. And actually, while SF may be the first city to actually pass such an order, it’s not the first to consider it. In August of 2019, the New York State Liquor Authority (NYSLA) proposed adding a 10 percent cap on the commissions that full-service restaurants pay delivery services.
At the time, I wrote that a measure like that passing could have a ripple effect on other cities around the U.S. The same is true of San Francisco’s emergency order. As more time passes and more data surfaces about how dire circumstances are for most restaurants, other major cities — Seattle, Los Angeles, NYC — could be motivated to put similar measures in place. They won’t necessarily turn delivery into a thriving business for all, but they might lessen some of the damage these commission fees are wrecking on an already damaged industry.