DoorDash Threatens ‘Quality’ Issues as Oakland Approves Delivery Fee Cap

Oakland’s City Council approved a rule capping the fees delivery apps like Uber Eats, Postmates, GrubHub, and DoorDash charge restaurants at 15 percent this week, joining Bay Area cities including San Francisco, Berkeley, and Fremont in increased regulations for the well-funded startup companies.

According to City Council member Dan Kalb, the “the idea is to help our restaurants,” many of which are struggling during the coronavirus crisis. But even prior to the pandemic, restaurants had raised concerns about the high fees charged by many apps — many of which take as much as 30 percent of each order placed through their platform. In February, multiple meetings at City Hall focused on possible regulations for the startups, with caps on delivery fees floated as one way to help improve revenue for local restaurants.

When sit-down dining shut down in mid-March, delivery apps became even more important for many restaurants’ continued existence, as that or takeout was the only way they were allowed to serve customers. The increased use of delivery apps was enough to convince companies like Uber (valuation: approximately $58 billion) to shift its focus to food delivery, with CEO Dara Khosrowshahi saying that Uber Eats had become the company’s “next enormous growth opportunity,” this May.

Prior to the pandemic, restaurants could often make up what they lost via apps’ 30 percent commissions with the revenue generated by sit-down dining. But with sit-down dining gone, says Laurie Thomas, the executive director of restaurant lobbying group the Golden Gate Restaurant Association (GGRA), restaurateurs are unable to make up the difference, and were actually losing money on every order placed. She contacted the delivery companies herself, asking for a break, and was denied.

That’s when legislators stepped in, with San Francisco the first city in the country to enact an emergency legal order forcing a 15 percent cap on fees apps could charge restaurants. It sparked a wave of cap laws near and far, including New York (20 percent) and Los Angeles (15 percent). In the Bay Area, Berkeley, San Leandro, and Fremont have set 15 percent caps in recent weeks.

Now Oakland has joined the fray, with another 15 percent cap that applies to smaller, independent operations. “Formula retail restaurants,” defined as those with 40 or more locations worldwide, will still be hit with whatever fees delivery apps choose to throw at them.

The news was met with predictable disappointment from the apps themselves. Speaking with Bay City News, an Uber spokesperson said that “Regulating the commissions that fund our marketplace forces us to radically alter the way we do business and ultimately hurt those that we’re trying to help the most: customers, small businesses and delivery people.” (It’s worth noting here that just this month, Uber purchased delivery market competitor PostMates for $2.65 billion, giving it a far larger share of the marketplace than it had earlier this year.)

Taylor Bennett, a spokesperson for DoorDash (which also owns Caviar, and has a valuation: $16 billion, including a $400 million funding round that closed last month) told Bay City News that “merchant fees help pay for a variety of costs to support all three sides of our marketplace. A cap to our commissions means we may not be able to provide the level of quality customers expect, pay Dashers meaningful earnings, and drive sales that are so important to restaurants right now.”

The cap takes effect immediately, and will last for 90 days after Oakland’s COVID-19 state of emergency is lifted, whenever that is. Restaurateurs in Oakland — or anywhere else where there’s a cap — would be wise to keep an eye on their delivery app bills to confirm the companies are actually complying with the law. Eater Portland reports that in that city, Postmates and Grubhub continue to charge commission fees of 30 percent or more, despite that city’s 10 percent fee cap enacted on July 8.

“We are not following the 10% [cap],” a Postmates rep told the operator of a food truck, while a GrubHub rep claimed that “Grubhub is primarily a marketing engine for our independent restaurant partners,” and the fees it charged were therefore not regulated by the cap.

Are you a Bay Area restaurant owner who’s been grappling with delivery apps? The tipline is always open.