Walnut Creek City Council Could Vote to Cap Third Party Delivery Service Fees

On Tuesday night, the Walnut Creek City Council is set to discuss placing a cap on fees imposed by online ordering and delivery services on restaurants.

The move comes after the March 19, 2020 order which declared a local emergency in the City of Walnut Creek which caused the closure of indoor dining with may restaurants moving to third-party food delivery services, which imposed fees on the restaurants served. On September 1, the Walnut Creek Downtown Business Association proposed to the city council to adopt a cap on fees.

For the fee cap to occur, it will require a 4/5 city council vote.

The Walnut Creek businesses are proposing a 15% temporary fee cap that many other Bay Area cities have already adopted. Staffed reached out to a number of restaurants and found that delivery service companies are charging fees ranging from 10-30%.  The staff report highlights that DoorDash, for example, is charging more than 20% during the coronavirus pandemic in addition to other fees.

Per the staff report:

Food delivery services have been charging such commissions prior to the COVID-19 pandemic; it is a part of their business model and not a unique response to the reduction in dine-in opportunities or the increase in takeout orders. However, staff’s understanding and market survey indicate that prior to COVID-19, restaurants in Walnut Creek were able to absorb these fees since delivery/take-out orders for many businesses constituted only a small portion of their business operations, at around 5-15%, and indoor dining accounted for upwards of 95% of the restaurants’ business operations. However, with indoor dining suspended since March, restaurants in Walnut Creek are now reliant on delivery/take-out orders for upwards of 70% of their business operations. The fees on these orders thus result in a significant impact on restaurants’ profitability.

Walnut Creek staff found that DoorDash, Uber Eats, and Grubhub are the primary service providers for Walnut Creek restaurants and each own smaller subsidiary companies the public may be familiar with (such as Caviar, Seamless, and Postmates). Each service offers a different model, fee structure, commission package, and programs to help restaurants reach their customers through online ordering with pickup and delivery options.

Staff said fees are associated with the service with some going to the restaurant and others paid directly to the consumer with the fees varying by company and other factors.

Total fees paid by restaurants typically range from 10%-30% of the cost of the food order with discounts for in-restaurant pick-up orders. The commission charged to the restaurant usually covers three primary functions the delivery service provides:

1. listing the restaurant’s menu and processing the order;
2. delivering the food; and
3. providing marketing services to boost the restaurant’s performance on the delivery service’s app or website

Similar local legislation imposing temporary caps from jurisdictions in the Bay Area, including Berkeley, San Francisco, South San Francisco, San Leandro, and Fremont. The caps imposed are calculated as a percentage of the purchase price per order.

If approved, the ordinance would do the following:

The accompanying urgency ordinance would impose the following:

1. A commission cap of 15% of the order subtotal for deliveries;
2. A commission cap of 10% of the order subtotal for pick-up orders; and
3. A cap of 3% of the order subtotal for credit card pass through fees

The delivery services may provide their services at a lower rate – particularly for pick-up orders – to compete for business amongst themselves. These caps apply to the provision of the three services described above:

1. listing the restaurant’s menu and processing the order;
2. delivering the food; and
3. providing marketing services to boost the restaurant’s performance on the delivery service’s app or website

The ordinance does not prohibit the restaurant from paying additional fees to get upgraded marketing services if offered by the delivery companies.

Relatedly, the ordinance also prohibits food delivery service providers from:

1. reducing the compensation, including any tip or gratuity, paid to any of their workers as a result of these caps imposed;
2. limiting a restaurant’s ability to set their menu prices; and
3. listing a restaurant in their app or website without the restaurant’s consent.

If adopted, the ordinance would become effective seven (7) days following its adoption to give food delivery service providers time to make necessary adjustments in order to comply with the temporary caps. Once in effect, the commission cap imposed by the ordinance would expire 180 days after the City’s Emergency Declaration is terminated by City Council. This approach is intended to provide additional cushion for restaurants as they transition from a delivery-centric model back to in-door dining.

Full Staff Report: Click here

Meeting Info