Third-party delivery services, including Caviar, Grubhub, Uber Eats, and DoorDash, typically charge restaurants 20 to 30 percent in commission fees
According to a news report, the Washington, DC City Council is considering capping commissions from third-party delivery services, which include Grubhub, Uber Eats, DoorDash, and its subsidiary, Caviar, charged to restaurants in a new coronavirus bill. The Washington City Paper (WCP) cited sources, including DC Council Chairman Phil Mendelason and Restaurant Association of Metropolitan Washington President and CEO Kathy E. Hollinger. The Council is looking at the model set in San Francisco and Seattle, in which such ordinances capped third-party fees at 15 percent, and Mendelson confirmed the cap would not be higher.
Commission fees between 20 and 30 percent charged to independent restaurants by third- party app delivery providers have become the norm. This business model has been a source of friction between restaurants and these companies. Because of the fees, the third-party app model is ripe for disruption both at the national and regional level. Restaurant profits typically only range from 5 to 15 percent of sales, so high commissions don’t work for restaurants, athough being exposed to new customers is something restaurant owners consider quite important.
Larger restaurant chains, including The Cheesecake Factory and Chipotle, are able to negotiate much lower fees than what restaurants pay due to their size and resulting volume contracts. What’s more, Chipotle is currently absorbing its delivery fees so it can pass on the savings to customers and increase its digital sales. Customers pay no delivery fees nor service charges.
As WCP noted, some delivery companies have deferred or waived fees temporarily during the COVID-19 pandemic. This includes DoorDash and Uber Eats. The delivery and pick-up-only mode that restaurants have had to embrace has put the “dark side” of third-party delivery in the spotlight.
In addition to the commission fees, apps typically list menu prices that are higher than those posted on menus of restaurants. For that reason, consumers also typically bear a higher cost for third-party delivery due to higher prices and added service charges, even when the actual delivery fee is waived, These incremental charges can represent double-digit percentages in added costs when compared to picking up the phone and ordering takeout directly from restaurants.
Another emergency round of legislation to address COVID-19 issues is headed for debate in the City Council. WCP is reporting that the cap on fees on third-party app delivery commissions could be addressed in the bill, unless legally not feasible. Chicago, Los Angeles and New York are also considering similar legislation.
Photo credit: Drew Beamer (preview image), Victor Aldabalde (inline, right), Charles Deluvio (inline, left)
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