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Daily news and analysis about the food tech revolution

fee caps

San Francisco Makes Restaurant Fee Caps for Delivery Services Permanent

San Francisco, California voted this week to permanently cap the fees delivery services charge restaurants at 15 percent. The San Francisco Board of Supervisors unanimously approved a resolution. 

The 15 percent fee cap was first introduced in April 2020, when Mayor London Breed issued an emergency order that dictated the limits of what third-party delivery services like DoorDash could charge restaurants in commission fees. The cap was in response to a two-fold problem. Historically, delivery services have charged restaurants (in S.F. and everywhere else) commission fees that can run as high as 30 percent per transaction for being on their marketplaces. Said fees became even more problematic once the COVID-19 pandemic shut cities down and restaurants were left with no way to reach customers save through these delivery platforms.

The original fee cap was set to expire on August 15, 60 days after restaurants were allowed to reopen dining rooms at 100 percent capacity. The new resolution will permanently cap commission fees at 15 percent. 

This week’s resolution marks the first time ever a city has passed a permanent cap on commission fees. Certain amendments are still up in the air, including one that would allow delivery services to charge “marketing fees.”

It’s also unclear how this resolution will change existing moves by delivery services, which have already introduced initiatives that look to be their own answer to the commission fee debate. Most notably, DoorDash introduced tiered commission plans in April that start with commission fees at 15 percent. However, that tier covers only the smallest delivery radius and has the highest cost to customers, who would ultimately have to shoulder the cost burden. 

DoorDash and others have said these fee caps ultimately lower order volumes and hurt the drivers and couriers doing the last mile of food delivery, and that fee caps in certain markets mean customers will wind up paying more for their food.

San Francisco was one of the early movers when it came to capping fees. Dozens of other cities followed, though the cap percentage varies from 5 percent (Chicago) up to 20 percent (NYC). Many of those caps have now expired, though NYC is also considering a permanent cap.

Denver Cracks Down on Third-Party Delivery Practices

Denver, Colo. is the latest U.S. city to introduce mandatory caps on the commission fees third-party delivery services charge restaurants. The Denver City Council this week unanimously approved a 15 percent cap on the amount for delivery per transaction.

It’s the most recent development in an ongoing battle between delivery services like Grubhub and DoorDash and restaurants, regulators, and industry advocates. Delivery services, which normally charge as high as 30 percent per transaction in commission fees, argue that capping these fees undermine services’ ability to effectively operate. (A huge part of delivery services’ revenue comes from commission fees.) Advocates of the fees say the high percentages hurt the smallest restaurants most, and are predatory at a time when many independent businesses have little choice but to use delivery services to fulfill the uptick in off-premises orders. 

Fee caps were first introduced this past spring, just as the pandemic was intensifying and restaurants were closing dining rooms. San Francisco, Chicago, and NYC were among the first U.S. cities to introduce caps. Since then, more than a dozen other cities around the country have joined in, and as the number of COVID-19 cases has ebbed and flowed, some have even extended their caps. At the beginning of September, NYC and Los Angeles both extended their fee caps, while Alameda County and the city of Santa Clara, Calif. implemented them for the first time.

For now, Denver’s caps are set to expire on Feb. 9, though given the uncertain trajectory of both the coronavirus and indoor dining, that could change. Many cities have said fee caps will remain in place as long as emergency orders do, and Denver may yet renew its own deadline.

Nor did Denver’s attempt to regulate third-party delivery stop at fee caps. This week’s ordinance also bans delivery services from adding non-partnered restaurants to their sites. Previously, Grubhub et al. listed restaurants on their platforms regardless of whether the service had an actual contract with the eating establishment. It’s an understatement to say the practice has received some bad press, and California has even gone as far as to outlaw the practice across the state.

Denver may be the latest city to crack down on third-party delivery practices, but it won’t be the last. With more dining rooms closing permanently and virtual restaurants and ghost kitchens now the most popular kid on the block, regulations will multiply over time, rather than go away. With or without a pandemic, the fight for or against the third-party delivery model has only just started.

Floating Kitchens of Burger King

Now that its apparent even contactless tech won’t bring back the glory days of the dining room, restaurant chains are on a tear to refit their existing stores to better serve to-go formats. Efforts run the gamut, from dumping the front of house altogether to geofencing the premises for faster pickup orders to building more drive-thru lanes.

Burger King just one-upped all those efforts. The decades-old burger chain has has compiled all of the above and then some into a whopper of a design prototype for future restaurants. Per a BK press release from this week, the new design — which hasn’t actually been implemented yet — is meant to serve multiple order and delivery formats and will be 60 percent smaller than a traditional BK location.

BK plans to accomplish that with the following:

  • A drive-in area where customers scan a QR code then order and pay through the app. Food is delivered to the car. 
  • Curbside delivery and pickup lockers for customers who order ahead via the BK mobile app. The only element missing from this is geofencing tech for the curbside service, which other QSRs are now using to speed up operations.
  • On-premises service. No surprise that this will be a much smaller part of the overall plan moving forward. In one design, BK swapped out the traditional dining room for a covered patio. See below for the other option.
  • Double- and triple-lane drive-thrus. There will also be a walkup window and a view of the kitchen inside.
  • Suspended kitchens and dining rooms are by far the most intriguing addition, and one we haven’t yet see from another QSR. The kitchen and dining room will hang above the drive-thru lane, cutting down on the restaurant’s overall physical footprint. For drive-thru guests, at least, orders are delivered via a conveyor belt system. This particular design also includes a dedicated drive-thru lane for delivery drivers and is, according to the press release, “a 100% touchless experience.”

The first real-life buildout of these designs will be in Miami and the Caribbean in 2021. 

And while we wouldn’t expect other QSRs to produce a carbon copy of the design, it does feel that BK has raised the bar in terms of both standards and innovation when it comes to reformatting the restaurant experience. Some of the elements, like curbside pickup, are already fully established formats across most QSRs. Others, like triple drive-thru lanes, are more an anomaly. The hanging kitchen is, to the best of my knowledge, unheard of at any other QSR. 

The design does raise some questions around what the company will expect of its franchisees. As we saw last year with McDonald’s, retrofitting stores is an expensive, sometimes frustrating endeavor for franchisees. If Burger King wants this wonder of the QSR world to set the new standard for restaurant chains, it will need to ensure new build outs and existing store updates are as pleasant an experience for franchisees as they seem poised to be for customers. 

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NPD: Drive-Thru Visits Increased 26%

If there’s one true off-premises lifeline for QSRs during the pandemic, it’s the drive-thru. (Sorry not sorry, delivery.) The NPD Group underscored that point this week when it announced that drive-thru visits increased 26 percent in April, May, and June, and that this format “will be key to the industry’s future.”

It’s common knowledge at this point that those restaurants equipped with drive-thrus are faring much better than those that have traditionally focused on dine-in service. And some QSRs and fast casuals that historically never really offered drive-thru service are now doubling down on that format, including Chipotle and Shake Shack. 

Even in July, when more restaurant dining rooms were opened, the number of drive-thru visits increased by 13 percent, according to NPD. That number represents the highest increase among all service modes in the restaurant (e.g., dine-in, takeout, delivery).

David Portalatin, a food industry advisor to NPD, said we should expect to see more chains switching to drive-thru in the future. Whether all of them come with a hanging kitchen and conveyor belt setup remains to be seen. 

Fee Caps ‘Round the Web

This week, Santa Clara, CA moved to finally cap the commission fees third-party delivery services charge restaurants at 15 percent. The ordinance is effective immediately and will last “until the end of the pandemic.”

NYC extended its own emergency fee cap of 20 percent to be in effect 90 days after restaurants are allowed to operate dining rooms at full capacity. Your guess is as good as mine when it comes to that distant day.

Back on the Left Coast, Los Angeles also extended its fee cap with the same criteria as NYC. Fees must remain at 15 percent or lower until LA restaurants can operate dining rooms at 100 percent capacity.

Are Food Delivery Services ‘Violating’ Mandatory Fee Caps in NYC?

NYC regulators are demanding stricter oversight of the recently mandated caps on delivery commission fees, according to the NY Post. NYC Councilman and head of the small business committee Mark Gjonaj this week urged Mayor De Blasio’s Office of Special Enforcement to fine the offending parties (i.e., the delivery services) found to be violating the fee caps.

Which is apparently happening. At a hearing this week, OSE’s executive director Christian Klossner said his office had received two complaints from restaurants that were charged more than fee caps allowed by the delivery companies. Klossner said the companies (unnamed) had refunded the money, but Gjonaj demanded the OSE “consider fining the offending company.” 

Two restaurants isn’t a lot, but Gjonaj, seems to suggest the actual number of businesses being overcharged could be bigger. Speaking at the hearing this week, he said, “If these companies have done it to one restaurant, it must be widespread.”

While not proven, that point wouldn’t exactly surprise, since third-party delivery services have disregarded legislation before, most notably around worker classification. Fee caps are so new on the third-party delivery regulatory front that there hasn’t been much time for companies to flout the rules, or for restaurants to make known that they’re being overcharged. Part of Gjonaj’s call over more enforcement of the caps seems aimed at bringing any violations into the light. “How are you getting the word out to the thousands of businesses that they need to bring this to your attention?” he asked attendees at this week’s hearing.

Like a growing number of U.S. cities, the Big Apple imposed mandatory fee caps on commission fees at the peak of shelter-in-place mandates brought on by the pandemic. The aim of those fee caps is to help restaurants, who normally fork over as much as 30 percent per transaction to third-party delivery companies in commission fees. Needless to say, those commission fees were gutting the already decimated restaurant industry, hence caps imposed by NYC, San Francisco, Los Angeles, Baltimore, and many others. 

Those fee caps are for the most part meant to endure only as long as cities remain in emergency states around the pandemic. Soon enough, though, these cities will have to weigh the ups and downs of mandating — and enforcing — the caps over the long term, along with other measures that can better protect restaurants in a delivery-crazed world. 

Updated: DoorDash Did Not Violate the SF Commission Fee Cap for Restaurants

UPDATE 07/09 at 6:03 EST:

A representative from DoorDash sent the following statement to The Spoon: “We have corrected a separate error affecting fewer than 10 out of over a thousand of our SF restaurant partners and will be issuing reimbursements to these restaurants.”

UPDATE 07/09 at 5:37 EST:

San Francisco chef Christian Ciscle, who originally surfaced news suggesting DoorDash had violated San Francisco’s 15 percent cap on restaurant commission fees, sent an update this afternoon via Twitter: 

“UPDATE: Doordash called around 5:30- I fucked up. While the Merchant Info STILL said 30%, they were actually only taking 15% when I looked at the invoice. They never responded to my emails about it from weeks ago. But, hopefully those “10” Restaurants will get reimbursed.”

The Spoon has reached out to DoorDash for clarification and will post another update in the event of new information on this story.

PREVIOUSLY:

DoorDash looks to have violated the 15 percent cap the city of San Francisco put in place in April for the commission fees delivery services charge restaurants. Some businesses have reported getting charged unexpected 30 percent commission fees from the third-party delivery service after the caps went in place, according to the San Francisco Chronicle. 

DoorDash told the Chronicle that the charges were a mistake and that it will reimburse restaurants affected by said mistake. According to the delivery service, fewer than 10 restaurants were impacted, and those restaurants will be reimbursed.

However, Christian Ciscle, a San Francisco chef, said he had not been notified of any reimbursements “despite multiple calls to DoorDash.” 

Ciscle was the one to shed light on the issue via a screenshot posted to Twitter:

Normally (read: no pandemic), the commission fees services like DoorDash charge restaurants can reach as high as 30 percent per transaction, a point that’s been an ongoing problem in the world of restaurant delivery. When the pandemic shuttered dining rooms around the country this spring, the problem became a major focal point in the debate over the ethics of third-party delivery. 

San Francisco isn’t the only city to have introduced mandatory fee caps for delivery services. New York, Seattle, Chicago, and several others made similar moves in the recent past. Most of these fee caps are set to last so long as cities remain under emergency states due to COVID-19. That could be a while longer, given the record-setting number of cases the U.S. is now seeing.

DoorDash should absolutely pay back restaurants involved. However, let’s hold off a bit before we herald fee caps as the thing that will keep third-party delivery practices in check. They won’t. They’re necessary to some degree while restaurants are forced to do delivery and off-premises orders. But they’re still just a bandage on a much larger ailment, which is the convenience-driven, gig-economy-reliant model on which third-party delivery is built. Until some of delivery’s more fundamental issues, including the glaringly unprofitable nature of the model, are addressed, fee caps are just one in the crowd when it comes to problems for restaurants.

Hold the Phone. Soon it Will Be Your Restaurant’s Menu

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A couple of years ago I came across a restaurant in Dallas, Texas that featured a menu written entirely in emojis. It was unexpected and creative, yet clear enough that a server didn’t have to come over and re-explain everything on the page.

I’m not (necessarily) advocating we battle the current restaurant industry fallout with emoji menus, but maybe we could use some of that outside-the-box thinking when it comes to revising menu formats to fit the new reality we live in. 

Since reusable menus are basically germ repositories, it’s no surprise they’re out now that dining rooms are reopening. The CDC’s recently released guidelines for reopening suggest restaurants “avoid using or sharing items such as menus” and to “instead use disposable or digital menus. . .” The National Restaurant Association’s guidelines tell restaurants to “make technology your friend” and suggest mobile ordering, and every other restaurant tech company that contacts me these days is offering up some form of digital menu for restaurants to integrate into their operations. 

A lot of restaurants will definitely start out by offering simple disposable menus. Paper is cheaper than software most of the time, and typing up and printing out a menu is faster than onboarding your business to a new tech solution.

Over time, though, that could change. As more emphasis gets placed on digital ordering for everyone, we’ll access more restaurant menus through our own phones and mobile devices. That opens up a whole world of possibilities in terms of what restaurants could one day offer on their menus beyond just the food items themselves.

Just a few examples: Menus could provide in-depth information the ingredients in a dish, like where that cilantro came from and how many months the apple traveled before it hit your plate. Menus might also include ratings from other customers, and Amazon-esque “you might also like” recommendations could show up on the screen. Maybe you could dictate the portion size you want, thereby reducing food waste.

With AI making its way into restaurant tech more and and more, restaurants could also build dynamic pricing into menus, based on time of day, foot traffic, weather, and offer coupons and promotional offers in real time. And sure, if someone really wanted to, an emoji menu would probably fly right now in more than a few places.

Most of these things exist already, though they’re not widespread and some are still in conceptual stages. The massive overhaul of the restaurant menu is a chance to start bringing those disparate pieces together to revamp the way we order our food.

Kitchen United Is Open for Business in Austin

One effect of this whole pandemic is that we’ve seen an uptick in to-go orders, and that trend won’t subside anytime soon. That makes now a good time for restaurants — some of them, at least — to consider adding a ghost kitchen to their operations. 

Those in Austin, TX can add Kitchen United to their list of choices when it comes to choosing a facility. The company, which provides ghost kitchen infrastructure (space, equipment, etc.) to restaurants announced this week its new location near the University of Texas is open for business. 

A number of restaurant chains have either already moved into the space or plan to do so in the coming weeks. Kitchen United has also allocated one of the kitchens in the new space to Keep Austin Fed, a nonprofit that gathers surplus food from commercial kitchens and distributes it to charities. As part of the deal, Keep Austin Fed will be able to “rescue” food from restaurants with kitchen operations inside the new KU facility. 

A press released emailed to The Spoon notes that “additional kitchen space is currently available” for restaurants that want to expand their off-premises operations. On that note, a word of advice for restaurants: make sure your restaurant is actually in need of a ghost kitchen before signing up with one. Kitchen United’s own CEO, Jim Collins, told me recently that restaurants need a certain amount of customer demand in order for the economics of a ghost kitchen to make sense. It’s not a small demand, either. In times like these, where the future of all restaurants is uncertain and what little money there is needs to be spent carefully, it pays to exercise some caution, even when it comes to an enticing new trend like ghost kitchens. 

Los Angeles Moves to Cap Third-Party Delivery Commission Fees

Behold, more fee caps for third-party delivery companies. This week, the Los Angeles City Council voted 14–0 to ask attorneys to draft a law that caps the commission fees delivery services charge restaurants at 15 percent. “Why should restaurants, and their customers, be put in a position to subsidize delivery app companies? We need to level the playing field,” Councilman Mitch O’Farrell told the Los Angeles Times.

This week’s proposal would also require that 100 percent of the tips customers leave on delivery orders through these apps go directly to the driver, which is pretty standard nowadays but caused some ruckus in the not-so-distant past. The fee caps would end 90 days after Los Angeles lifts its dining room closures. 

Needless to say, the move — which several other cities have already made — is not popular with delivery companies. Postmates, which is LA’s most popular third-party food delivery service, said governments setting a price on fees threatens jobs and creates “a false choice between local restaurants and the delivery network companies that support them.” The service wants instead to have a fee charged in delivery orders that would assist restaurants. That in turn would translate to yet-another fee for the customer, and be yet-another way in which restaurant food delivery services will suggest/try anything to avoid having to shoulder some of the burden the pandemic has brought on the restaurant industry.

As restaurants slowly reopen and the industry starts to adjust to its new normal, now we’ll begin to see if fee caps actually make a difference for struggling restaurants, and if they are here to stay for the long run.

Toronto, Canada Considering a Cap on Third-Party Delivery Fees

Toronto, Ontario mayor John Tory is considering imposing a cap on the commission fees third-party delivery services like DoorDash charge restaurants. He has said he will impose an emergency, temporary cap on those fees “if his emergency powers allow him,” according to an interview with Canada-based publication The Star.

Tory’s words come shortly after San Francisco, CA imposed its own emergency order last week, mandating that delivery services must cap restaurant commission fees at 15 percent if they want to continue doing business in that city. (Delivery services typically charge around 30 percent per transaction.) For now, that’s a temporary order, meant to assist restaurants struggling with dining room closures as residents shelter in place.

Unfortunately for Tory and Toronto restaurants, imposing a similar measure might be more of an uphill battle. Speaking to The Star, the mayor said that’s at least what “preliminary feedback from city legal suggests.”

So in the meantime, Tory is trying other tactics — including reaching out to the delivery services themselves. At the end of last week, he also left the following tweet, directed at those services:

Not surprisingly, delivery companies are defending their stance on commission fees, according to The Star. How long they can keep that up is another matter, because Toronto isn’t the only city considering potential commission fee caps. Last week, Eater pointed out that elected officials in NYC are asking Mayor Bill de Blasio to issue an emergency order similar to the one in San Francisco. Others are urging the same, including council member Mark Gjonaj, who previously introduced legislation around commission fee caps.

There’s no guarantee a measure will pass in Toronto, NYC, or any other place at this point. Even if they do, emergency caps are a surface-level fix to a much deeper problem around the amount of power food delivery services have over the livelihoods of restaurants. For many (most) businesses, offering delivery via DoorDash et al is still cheaper than trying to manage the logistics and driver fleet oneself.

That doesn’t negate the fact that charging a restaurant 30 percent of each transaction practically annihilates already-thin restaurant profit margins. Third-party services were also the subject of (yet another) controversy recently when a new lawsuit emerged, alleging Grubhub, DoorDash, and others are using their market power to push menu prices higher during the pandemic.

Finally, there is growing evidence that a delivery strategy in the midst of a pandemic won’t be enough to save restaurants.

Temporary caps in the wake of this unprecedented restaurant industry fallout are fine for now. But until we start addressing some of the fundamental flaws with the inherently greedy — not to mention unprofitable — third-party delivery model, the problems will proliferate, pandemic or no. Restaurants and their hourly workers will shoulder the bulk of those burdens.