Modesto considers helping restaurants by capping fees from delivery apps like Grubhub
Modesto will consider capping the fees that Grubhub, DoorDash and other food delivery services charge restaurants to help them survive in the pandemic. The fee cap is something other cities across the nation have done.
The City Council on Tuesday will consider adopting an urgency ordinance limiting the fees to 15% of the cost of the meal. A city report says the delivery services now charge restaurants 25% to 30%. Five of the seven council members have to vote in support of the ordinance for it to take effect.
The report says the 15% cap is in line with what many other cities have imposed and says it would be illegal for the delivery services to recover the lost fee revenue by passing them on to the restaurants’ customers.
The 15% applies to delivery and pickup orders made through the delivery services. (Restaurant customers can use the delivery services’ apps to place pickup orders.)
Since Gov. Gavin Newsom issued his first stay-at-home order in March, Modesto has been under a range of public health orders limiting how businesses can operate. These orders at times have banned or limited indoor dining, allowed outdoor dining or just takeout and delivery service.
California on Jan. 25 lifted its most recent stay-at-home order issued in early December for the San Joaquin Valley, which limited restaurants to delivery and takeout. Restaurants now can also provide outdoor dining.
Kimoto Sake & Sushi general manager and co-owner Brandon Dodge said his restaurant does takeout and delivery only because outdoor dining is not practical.
“This is a huge deal,” Dodge said about the city’s proposal. “Prior to the pandemic only about 15 percent of my business was to go or delivery. It’s now 100% percent. ... We are getting by, but it’s very tough.”
Fees take one third of an order
Dodge said Kimoto Sake & Sushi uses all of the delivery services — Grubhub, DoorDash, Uber Eats and Postmates — and they charge his restaurant 30% to 35% of the cost of each order. He said it has helped that the restaurant has loyal customers who have supported it in the pandemic.
He said Kimoto Sake & Sushi does about 100 to 150 takeout and delivery orders a day and more than half are through one of the delivery services.
Doc’s Q’In Pit Stop owner Derek Taylor said the delivery services have made up about a quarter of his business during the pandemic, and he estimates he pays them at least $2,500 a week in fees.
“The delivery services have helped me survive, even though they take a big percentage,” Taylor said. “If you can cap them all at 15%, it would make a lot of restaurants happy. Who likes giving away money?”
Tasty Thai general manager Laureano Salva said he supports lower fees but questions whether there will be unintended consequences, including the delivery services reducing their online promotion of restaurants or finding other ways to charge restaurants or customers to make up for the reduced fees.
“I’m all for the 15%, the lower the better,” Salva said. “But I don’t know what they are going to do next to recoup those fees. The delivery services are businesses, they are not charities.”
Grubhub is half of Tasty Thai’s orders
Salva said Tasty Thai does takeout and delivery orders because outdoor dining is not practical. He said Tasty Thai has an arrangement with Grubhub to use it exclusively, and it makes up about half of his restaurant’s business. Salva said Grubhub has been a very good partner during the pandemic.
Dodge said he has done his own research and said business has boomed for the delivery services in the pandemic, and while they have said they would stop serving or reduce services in cities that have capped their fees, he said that has not happened.
Spokespersons for Grubhub, Postmates and Uber Eats did not respond to requests for comment by deadline. But a DoorDash spokeswoman emailed this statement:
“DoorDash has always supported restaurants, which is why we offer a variety of options, including those with 0% commission ... . Pricing regulations can remove options available to restaurants by limiting their ability to opt-in to additional services to help their business. We remain focused on solutions that better support restaurants, customers, and Dashers.” Dashers are what the company calls the people who pick up and deliver the orders to customers.
The city report says that for the most part the delivery services have not raised their fees in the pandemic, but the fees have become an issue for restaurants because the services have become such a big part of their business. Dodge said the profit margins for restaurants are tiny so any increase in costs is quickly felt.
Modesto Councilman Chris Ricci said he and Councilman Tony Madrigal have been working with businesses and city staff to look at how the city can help businesses get through the pandemic. He said capping fees delivery services charge is part of that.
Modesto considers more help for business
The city also is looking at other ways to help businesses, including contributing to the Downtown Modesto Partnership’s Relief Across Downtown digital gift card program or through a citywide program.
The partnership’s program lets customers double their money for purchases made downtown. Funded through donations, the RAD Card lets someone buy up to $100 in a universal gift card to be used at participating locally owned downtown restaurants and other businesses and then matches that amount — so $25 becomes $50, $50 becomes $100 and so on.
City staff continues to research this and expects to make a report to the City Council’s Economic Development Committee.
The RAD card program “has been incredibly successful, and a ton of credit needs to go to DOMO (the Downtown Modesto Partnership) for coming up with the idea,” Ricci said. “... It’s worked. It’s another example of how working together, we can get through this.”
The fee cap for the delivery services would take effect immediately if the City Council approves it. The city could impose civil penalties of as much as $500 per violation for delivery services that charge more than 15 percent, and the restaurants could seek civil remedies as well, according to the city report.
The City Council meets at 5:30 p.m. Tuesday over Zoom, the videoconferencing platform. Information on how to watch and participate in the meeting is available at www.modestogov.com/749/City-Council-Agendas-Minutes and by clicking on the link for Tuesday’s meeting.
