San Francisco permanently caps delivery app fees for restaurants at 15%(sfist.com)
sfist.com
San Francisco permanently caps delivery app fees for restaurants at 15%
https://sfist.com/2021/06/23/san-francisco-permanently-caps-delivery-app-fees-at-15/
83 comments
I don't disagree exactly. On the other hand, restaurants pay lots of service providers money--albeit not typically pegged to the price of a meal. So there's no real transparency to what "your" money is going to.
> This distinction actually makes some sense because the former is explicit and the latter is hidden.
Hidden to whom? The customer? Why does that matter?
If I phone a restaurant and place an order, is their telephone rate of any concern to me? Or their electricity rate? What relevance does this have?
Hidden to whom? The customer? Why does that matter?
If I phone a restaurant and place an order, is their telephone rate of any concern to me? Or their electricity rate? What relevance does this have?
I prefer price transparency because it helps me decide whether to order directly through the delivery app or via the restaurant. The extent to which I support the restaurant is a factor in my purchasing decisions in addition to the total cost. Having good restaurants that are profitable near where I live is helpful for maintaining the community (and good for property values).
The restaurant is in a much better position to make that decision though. Uber might have high fees and it still might make for phenomenal business. But you would judge the high fees and go somewhere else thus harming the business.
Capitalism isn’t perfect but this is pretty elementary stuff. Information asymmetries are why price is so important: it encapsulates everything.
Capitalism isn’t perfect but this is pretty elementary stuff. Information asymmetries are why price is so important: it encapsulates everything.
Opaque fees that vary based on method of request annoy me in the same way that fees that only appear at the end of the purchase process. They affect my decision whether/how to order, and they cause me to spend time going down one path when I would have otherwise gone down another.
I recall seeing discussion of how Yelp (I think?) was routing users to proxy phone numbers for businesses, and then charging them a referral fee based on order size. Pretty much everyone commenting thought that this was inappropriate. Would you agree? This seems to be pretty close to your example about telephone rates.
I recall seeing discussion of how Yelp (I think?) was routing users to proxy phone numbers for businesses, and then charging them a referral fee based on order size. Pretty much everyone commenting thought that this was inappropriate. Would you agree? This seems to be pretty close to your example about telephone rates.
Yelp was behaving in a morally if not legally fraudulent manner by having up until that point presenting their service not as a reservation system to the customer, but as a Yellow Pages. They didn’t say this is a number you can use to reserve through Yelp; they presented it as the business’s phone number, and without informing either businesses or customers that they changed up. Of course now they’re in the reservations game.
That said, these commissions are a COGS/COSS item that customers don’t actually need to know about. I don’t need to know that you bought your cheesecake at $30 and are selling it for $60. I don’t need to know the cost of the time it took the employee to stick it in a box and ring me up. And I certainly don’t need to know any of the overhead costs. I’m not asking to review your P&L just to determine if you are receiving a fair amount for your goods and services, nor should your books be open to me. I trust that whatever price you set is the price you are okay with receiving for your goods and services. If it isn’t, raise them or close and do something else with your life.
That said, these commissions are a COGS/COSS item that customers don’t actually need to know about. I don’t need to know that you bought your cheesecake at $30 and are selling it for $60. I don’t need to know the cost of the time it took the employee to stick it in a box and ring me up. And I certainly don’t need to know any of the overhead costs. I’m not asking to review your P&L just to determine if you are receiving a fair amount for your goods and services, nor should your books be open to me. I trust that whatever price you set is the price you are okay with receiving for your goods and services. If it isn’t, raise them or close and do something else with your life.
> If it isn’t, raise them or close and do something else with your life.
They don't have that option. The contracts stipulate that delivery prices (before fees are subtracted) cannot be higher than the lowest price. So you can't charge 30% more for Uber Eats to cover the fee vs customer pick-up or dine-in.
In a fair market restaurants could negotiate the clause out of the contract, but of course nobody except the really large chains have any negotiating powers against Uber.
They don't have that option. The contracts stipulate that delivery prices (before fees are subtracted) cannot be higher than the lowest price. So you can't charge 30% more for Uber Eats to cover the fee vs customer pick-up or dine-in.
In a fair market restaurants could negotiate the clause out of the contract, but of course nobody except the really large chains have any negotiating powers against Uber.
That’s also not my business, but point of order: I know several businesses that do exactly this, where the price on DoorDash is about 15-20% higher than what I pay ordering in the restaurant.
These are not your fees. These are the fees the restaurants pay. All of their other fees are opaque to you. You have no idea what they pay for their raw ingredients, and why should you?
Raw ingredient suppliers do not charge restaurants a percentage of their sales, which is what these companies are doing. I don't necessarily think these fees should be capped, but I think it's worth considering whether they should be made more transparent.
If the telephone company charged 20% of the order value whenever you ordered by phone, maybe you would find that relevant?
well, for starters, their telephone rates and electricity rates don't vary on the price of the order.
Of course they do. If I order a huge meal, they will use more electricity and gas (no matter how incrementally small).
But the question remains: who cares? Their payment processor will charge by value. Do you demand to know who their payment provider is and what their terms are?
But the question remains: who cares? Their payment processor will charge by value. Do you demand to know who their payment provider is and what their terms are?
I agree. This is all a red herring.
I think the negative effects really come from the delivery suppliers also being the digital shop fronts, so it's not easy to just switch to another delivery company, nor to start a competing delivery company.
I think the negative effects really come from the delivery suppliers also being the digital shop fronts, so it's not easy to just switch to another delivery company, nor to start a competing delivery company.
How nonsensical to have this as a percentage. The underlying operational cost doesn't really depend on how much money you spent on the food.
I don't see how delivery can be profitable on < $10 orders with a 15% cap.
I don't see how delivery can be profitable on < $10 orders with a 15% cap.
Delivery services are still free to charge whatever they want for delivery. This cap only applies to what they're charging the restaurant to be on their service.
Well, we have to compare against the practical.
I ran single digit labor in our restaurants, and this wasn't negatively affected by the number of deliveries because drivers contribute labor elsewhere.
If you think it's more cost effective to use a delivery service in lieu of staffing, then you'll need to compare against the cost of not having that staff and the sales volume increase having delivery provides.
During the pandemic, fewer family owned restaurants shut down than corporate chains in my county. When talking with owners, each said that delivery services had at minimum doubled their average dine in revenue despite fees. It was less expensive than employing the people required to run deliveries at their volume, and less costly than if they had attempted to do it with existing staff.
You don't want to fire people in a recession or a pandemic, and this was a way that many of those businesses could keep everyone on the schedule without taking on the risk and frustration of attempting to hiring new people who might not work out (or who might have car problems on the same day) or good people who they might not have enough hours to schedule.
Also, some fees are flat, and the percentages are there to compensate. There are also minimum pre-tax totals to qualify for delivery starting around $20-30, so your scenario of $10 delivery orders doesn't apply.
I ran single digit labor in our restaurants, and this wasn't negatively affected by the number of deliveries because drivers contribute labor elsewhere.
If you think it's more cost effective to use a delivery service in lieu of staffing, then you'll need to compare against the cost of not having that staff and the sales volume increase having delivery provides.
During the pandemic, fewer family owned restaurants shut down than corporate chains in my county. When talking with owners, each said that delivery services had at minimum doubled their average dine in revenue despite fees. It was less expensive than employing the people required to run deliveries at their volume, and less costly than if they had attempted to do it with existing staff.
You don't want to fire people in a recession or a pandemic, and this was a way that many of those businesses could keep everyone on the schedule without taking on the risk and frustration of attempting to hiring new people who might not work out (or who might have car problems on the same day) or good people who they might not have enough hours to schedule.
Also, some fees are flat, and the percentages are there to compensate. There are also minimum pre-tax totals to qualify for delivery starting around $20-30, so your scenario of $10 delivery orders doesn't apply.
> I don't see how delivery can be profitable on < $10 orders with a 15% cap.
Then don't serve orders under $10. Your reaction to this implies that delivery taking the cut needed to be profitable on a $1 purchase is ok, ignoring the obvious downside to the restaurant.
Then don't serve orders under $10. Your reaction to this implies that delivery taking the cut needed to be profitable on a $1 purchase is ok, ignoring the obvious downside to the restaurant.
Kinda like how a waitress at a $100 plate steakhouse is making a multiple of the one who works at a greasy spoon diner.
15% seems like a reasonable maximum commission to place on all large digital platforms, that don't also include a physical service or hardware as part of the deal.
I hope Steam, Google, Apple are next, for example.
I hope Steam, Google, Apple are next, for example.
Ah, for once, I agree with the BoS.
They need to ensure these apps don't make up their loss in profits elsewhere (taking from restaurants) or being creative like airlines when it comes to adding cost.
They need to ensure these apps don't make up their loss in profits elsewhere (taking from restaurants) or being creative like airlines when it comes to adding cost.
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It would be better to cap the transaction fee that goes to the (tech) middleman, as a percentage of the bona fide delivery fee that gets paid to the deliveryperson. If a pizza costs $25, a traditional delivery fee/tip adds another $10, and Uber charges $50 total, that is an additional 150% surcharge for simply running a website!
"Simply running a website" may be harder than you think compared with transporting food.
Transporting food takes a person's real time, gas, and wear on a vehicle, for every trip. Running a website is straightforwardly scalable to millions of customers.
In my example (which is based on real prices I experienced when I received an Uber gift card), a $2 fee (20% on top of the usual $10 delivery charges) seems more than enough to cover that.
In my example (which is based on real prices I experienced when I received an Uber gift card), a $2 fee (20% on top of the usual $10 delivery charges) seems more than enough to cover that.
Yes, my point was that they're not just running a website. That's reductive.
If these fees are truly overbearing, wouldn’t you expect new competing delivery services to undercut incumbents?
The delivery space seems very competitive already which leads me to believe that the fees are representative of high operational costs
The delivery space seems very competitive already which leads me to believe that the fees are representative of high operational costs
Not if these companies are willing to price so low they run at a loss.
You just made the point you were attempting to argue against. If the fees currently being charged aren’t even profitable for the delivery company, how on earth does it make sense to come in and push them down further?!?
As many are pointing out, this isn't about pushing prices down. They're free to raise prices as a way to take less from restaurants.
You're making an implicit assumption that these companies deserve to be profitable, or break even. But they don't, and they shouldn't be allowed to abuse their position as a platform to squeeze restaurants who don't have a lot of choice. Food delivery for low prices is not a sustainable business.
You're making an implicit assumption that these companies deserve to be profitable, or break even. But they don't, and they shouldn't be allowed to abuse their position as a platform to squeeze restaurants who don't have a lot of choice. Food delivery for low prices is not a sustainable business.
This is an extremely naive view of economics, and not how things work in reality. If they raise fees on customers that will reduce customer demand, which in effect “takes” from restaurants.
Customers are price sensitive to the all in cost, not just the sub-total. Customers are paying for all of these fees in the end, irrespective of how they are charged.
Customers are price sensitive to the all in cost, not just the sub-total. Customers are paying for all of these fees in the end, irrespective of how they are charged.
This is an extremely naive view of economics, and not how things work in reality. Delivered food is a substitute good for take out or non-delivered food. Artificially cheap delivery services shift consumer preferences to delivered food. It is likely that losing 30% margin on restaurants is worse than the overall growth of the market. But if delivery apps distort the market, restaurants are forced to play ball or lose out to competitors in a classic prisoner's dilemma, bringing everyone down together. Regulation to limit the proportion of revenue taken from restaurants helps prevent cash flooded delivery companies from just burning cash to fuel their own growth while leaving the restaurants to eat shit and die.
The restriction may have made sense during a pandemic, but long term this really seems like something for markets, rather than governments, to solve
The fact that there are many apps competing for this businesses, but the costs to the restaurants are still so high, seems suspicious to me.
Delivery is expensive and network effects are valuable.
Price-fixing is already illegal
Price-fixing is already illegal
Delivery platforms can stay solvent due to capital markets longer than restaurants and drivers they exploit. Regulation is required.
> Food delivery startups: Hey we'll handle delivery for you for a fee, sounds good?
> Restaurants: Ok! / No, thanks.
How is this exploitation? Please.
> Restaurants: Ok! / No, thanks.
How is this exploitation? Please.
https://ilsr.org/biting-back-delivery-apps-are-gobbling-up-r...
https://ilsr.org/wp-content/uploads/2021/05/ILSR_SpecialDeli...
https://thecounter.org/grubhub-domain-purchases-thousands-sh...
https://www.eater.com/22228352/convenience-of-delivery-apps-...
https://www.economicliberties.us/our-work/rescuing-restauran...
https://www.nytimes.com/2020/06/09/technology/delivery-apps-...
https://ilsr.org/wp-content/uploads/2021/05/ILSR_SpecialDeli...
https://thecounter.org/grubhub-domain-purchases-thousands-sh...
https://www.eater.com/22228352/convenience-of-delivery-apps-...
https://www.economicliberties.us/our-work/rescuing-restauran...
https://www.nytimes.com/2020/06/09/technology/delivery-apps-...
Exactly the point - when apps charge too much, people will complain and alternatives will arise.
From your second source: > "Dozens of locally owned services are proving there's a better alternative"
From your second source: > "Dozens of locally owned services are proving there's a better alternative"
Absolutely, local platform competitors can pop up, but the network effects of national platforms is powerful and their influence and actions damaging in the interim. We may just disagree on this, and that's to be expected. As previously stated, I believe more regulation is required, even if that puts national platforms out of business.
In the interim is fine. They also provide a vital role in establishing how online shopping for food should work. It's easy to copycat after, as is evidenced by even local providers being able to do it.
And they will become irrelevant if there are no good restaurants on their platform
Food delivery has been around and profitable for generations. And there are several well-known apps in most markets. And just because a thing is illegal doesn't mean it doesn't happen.
What's suspicious? Isn't it common for the marketplace to avoid competition when possible? Sometimes directly colluding, sometimes indirectly?
I would guess that is because the cost of delivery is very high.
There was a good thread on this topic a year ago: https://news.ycombinator.com/item?id=23216852
That and Matt Levine's take on it ( https://www.bloomberg.com/opinion/articles/2020-05-18/the-un... ) posit the thesis of an entire industry that evolved incorrectly and artifically due to near-zero interest rates and arbitrage.
That and Matt Levine's take on it ( https://www.bloomberg.com/opinion/articles/2020-05-18/the-un... ) posit the thesis of an entire industry that evolved incorrectly and artifically due to near-zero interest rates and arbitrage.
The cost to deliver meals is high.
Not to mention that this just shifts costs to other fees like marketing.
I’d rather that and keep the restaurant afloat. If it’s too expensive, maybe the issue is DoorDash itself and they should lower their profit expectations. It’s easier now for people to actually dine out compared to during the height of the pandemic…
My point is that this doesn't necessarily lower costs for anyone. DoorDash ect can move fees around so they aren't "per-order" fees.
So competitors agree behind the scene and nothing change.
Do these fees also cover the cost of the deliver driver for the restaurant? Because 15% still seems high, but that might not be a bad deal for the restaurants if it's covering the cost of delivery.
The issue is that the user is charged: (restaurant cost) + (delivery cost) and the restaurant is paid (restaurant cost - 15%) (actually around 25%-30% I think without the cap)
So that fee is more like a commission than an actual fee
So that fee is more like a commission than an actual fee
The delivery app’s double dip. That they’re charging the restaurant at all is hidden to the user.
Reading the article I couldn't find anything - is there no minimum amount available? 15% of a $5 order obviously not enough to deliver it. Or is this more of a measure to move the fees onto the customer so they are more explicit?
The cap is on the commission the delivery service can charge the restaurant. They're free to charge the customer whatever they want to deliver the food.
Suppose two meals at a restaurant cost $30 for takeout. Depending on how much you value your time, spending even $20 to have those meals delivered to you might be worth 20 minutes of commuting back and forth. A 67% delivery fee could still be a bargain to you. The government should not interfere.
I don't think that is what is being described here.
Meal = $30, Delivery = $20
Customer Pays = $50 Restaurant gets $30 - fees% (e.g. $25.50 at 15%) Delivery company keeps $24.50
I believe this is about capping that fees% at 15%.
Meal = $30, Delivery = $20
Customer Pays = $50 Restaurant gets $30 - fees% (e.g. $25.50 at 15%) Delivery company keeps $24.50
I believe this is about capping that fees% at 15%.
This is good. Instead of taking profits from restaurants and drivers they'd be forced to be smarter/more agile elsewhere. A lot of restaurants are shook down for participation in the first place where they have no control over the delivery experience so regulating a fee cash cow seems like a good move. Also I don't buy free-market self-regulation at all. It maximizes profits not "for the greater good" things.
This group of domain experts know what's best and there will be no unintended consequences. It's the perfect permanent solution and 15% is exactly the right number.
This is irrelevant. The delivery companies will just increase the prices of the items, or charge Service Fees, or charge Temporary Local Fees, or charge Taxes.
UberEats does exactly this in each of those transactional labels already. And let's not forget the driver tip which often defaults to a percentage of the sum() of the above items.
UberEats does exactly this in each of those transactional labels already. And let's not forget the driver tip which often defaults to a percentage of the sum() of the above items.
DoorDash charges a $1 to $2.50 “Regulatory Response Fee”, explained as follows:
> A local regulation has temporarily capped the fees that we may charge local restaurants. To continue to offer you convenient delivery while ensuring that Dashers are active and earning, you will now see an additional fee that we are charging for local orders in this area.
Mission accomplished, everyone!
> A local regulation has temporarily capped the fees that we may charge local restaurants. To continue to offer you convenient delivery while ensuring that Dashers are active and earning, you will now see an additional fee that we are charging for local orders in this area.
Mission accomplished, everyone!
The snark seems misplaced. This regulation is not about making food delivery cheaper for customers, it's about making sure the restaurants are able to maintain enough margin to stay in business, a notoriously difficult business at that.
Let's assume DoorDash was charging 30% (as was mentioned in the article), on a $30 food order DoorDash would take $9 of that from the restaurant.
I'm happy to pay an extra $2.50 if my local restaurant gets to keep that extra $4.50.
Let's assume DoorDash was charging 30% (as was mentioned in the article), on a $30 food order DoorDash would take $9 of that from the restaurant.
I'm happy to pay an extra $2.50 if my local restaurant gets to keep that extra $4.50.
If DoorDash did something similar to this in response to this proposed rule, it would actually be useful because it would make the system more transparent. As it is now, customers have no idea how much restaurants are being charged by DoorDash. If they kept 15% and then created a new explicit customer-facing fee (as allowed by the proposed rule), then at least customers would know how much of their money is going where.
The only downside is they might be misled into thinking that the new rule caused the fee, when in reality it only caused DoorDash to divide it up and make part of it explicit.
The only downside is they might be misled into thinking that the new rule caused the fee, when in reality it only caused DoorDash to divide it up and make part of it explicit.
This is the point, most of these apps have a clause that caps their price in the app to the price in person (e.g. Uber[1]). This means that the restaurant is either eating the fees directly or it must just simply not sell on the platform. This should be fine during normal times, no one is forcing you to sell via Uber Eats, but it is abhorrent during the pandemic.
I think the proper way to legislate here was to make such clauses illegal: restaurants should be able to price based on whether it is dine-in, pick up or delivery.
[1] 5.6 Pricing. in https://www.uber.com/legal/fr-ca/document/?name=uber-eats-me...
I think the proper way to legislate here was to make such clauses illegal: restaurants should be able to price based on whether it is dine-in, pick up or delivery.
[1] 5.6 Pricing. in https://www.uber.com/legal/fr-ca/document/?name=uber-eats-me...
This doesn't actually do anything meaningful. It changes the proportion of the fees that are visible to the consumer, but the fees will still be there. They'll show up as regulatory fees or just service fees. At the end of the day someone needs to pay for the delivery service (both the actual delivery, as well as the support infrastructure around it, as well as the platform).
It's pretty meaningful if you're a low margin restaurant. This was never about bringing costs down for customers, it was about protecting local businesses.
When you compare the pre internet method of advertising, where the restaurants paid gobs of money to radio stations and periodicals to run an ad with no guarantee of any result, no one thought that had to be capped. Wonder what the typical ad spend was as a proportion of sales, not even considering the risk and difficulty of tracking results.
I'm not a fan of advertising, but at least money spent on promoting your business build your brand and in theory you should benefit from that in the long term.
It seems that restaurants don't have clients these days and are at mercy of delivery companies which, at least some of them, employ hostile tactics to hijack any attempt to contact restaurants directly.
It seems that restaurants don't have clients these days and are at mercy of delivery companies which, at least some of them, employ hostile tactics to hijack any attempt to contact restaurants directly.
Whack one mole and another pops up. This is a nice start but the fees will just be called something else. I don't know what can fix this issue effectively.
Magically lowering the cost of delivering food would do it.
The article answers a lot of questions raised in the comments. Delivery apps are free to continue charging consumers unlimited delivery fees, service charges, etc. What changes is they can’t charge restaurants more than 15% commission.
What many people on HN realize is that whoever collects a tax is not the same as who bears the burden of the tax. It makes zero difference whether money is collected from restaurants or patrons. Both restaurants and patrons bear the tax and the proportion born by each is a function of substitutability ratios. It is not a function which of the two pays a fee. If 100% of the money collected from restaurants were to be shifted to being collected from patrons, restaurants would not and will not save money from this shift.
The very basic concepts of tax incidence or things like the law of supply are unfortunately mysteries that appear to be forever hidden from journalists and government workers.
The very basic concepts of tax incidence or things like the law of supply are unfortunately mysteries that appear to be forever hidden from journalists and government workers.
In the ideal scenario the apps are routing a new customer to you, handling taking the order and payment, picking up the food, and delivering it. That seems like it could be worth more than 15% to the restaurant.
People say these apps have fees that are too high, but they are not profitable, they're actually charging too little. The main issue is that people are extremely price sensitive when it comes to food delivery, which leads to these companies employing every trick in the book (hidden fees, service fees, delivery fees, tips, promotions, %-based charging etc) to stay competitive. I would prefer some regulation is how this is managed to enforce more transparency.
People say these apps have fees that are too high, but they are not profitable, they're actually charging too little. The main issue is that people are extremely price sensitive when it comes to food delivery, which leads to these companies employing every trick in the book (hidden fees, service fees, delivery fees, tips, promotions, %-based charging etc) to stay competitive. I would prefer some regulation is how this is managed to enforce more transparency.
This is one situation where I really struggle to understand calls for regulation. Food is one of the most competitive industries. If the all-in price for my Uber Eats is too expensive, then I go with an alternative (direct order, take out, cook myself).
I think any good proprietor would break out the fees, but why does this need to be regulated?
I think any good proprietor would break out the fees, but why does this need to be regulated?
I’m glad that there is more efforts towards price transparency. I find it strange how much the prices on DoorDash fluctuate. As others have said, this doesn’t cap the delivery fee so it doesn’t impact the economic viability of any transactions.
The interesting thing here is that, while delivery platforms still hold power, they're significantly less poewrful than walled garden tech platforms like Apple's app store, and operate at significantly worse (negative) margins to run the platform. I'm hoping a great deal of near term regulation is about limiting platform holder profitability.
What they really need is to form a new committee to do industry and community research on an ongoing basis so that they can fine tune this percentage over time. Obviously they'd need to meet on a bi-weekly basis, maybe get a little catering because come on, it's 6:30 on a weeknight!
That this is even an issue is an example of why I never order through doordash, ubereats, etc. I literally laughed when I tried once and saw they wanted to charge me 20% just for driving over food. Instead I either drive to places myself, cook for myself, or look for places where the delivery is directly through the company like a local chinese food place that I love.
I think this is an unreasonable interference in the free market. The restaurants are not forced to work with the delivery apps. As loathsome as I am to pay $45 for a Big Mac delivered, the delivery company can charge whatever they want, and the restraunts can choose to pay it, or do their own delivery.
I don't love delivery fees and practically never have food delivered, but I would not want to see the customer-facing fees capped. They are explicit fees, and people can choose to pay them or not to have food delivered.
The thing that is being capped here is more opaque — it's the fee the delivery service charges the restaurant. This fee results in the restaurant raising the price of food (which in turn increases this fee slightly).
This price adjustment is not transparent to the customer, so I'm more open to having it be regulated. I would prefer that instead of capping the fee, that it be made transparent.
That way the information is out in the open and everyone can make their decisions with a full understanding of whom is being charged what.
Also, this rule has not been finalized yet — there's apparently another vote remaining.