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HomeMy WebLinkAboutItem 8.1 - 3362 Third-Party Food Delivery Service Fee Cap Page 1 of 4 STAFF REPORT CITY COUNCIL DATE: September 1, 2020 TO: Honorable Mayor and City Councilmembers FROM: Linda Smith, City Manager SUBJECT: COVID-19-Related Limit on Fees Charged by Third-Party Food Delivery Companies Prepared by: Hazel L. Wetherford, Economic Development Director EXECUTIVE SUMMARY: The City Council will receive a report on the COVID-19-related limit on fees charged by third-party food delivery companies enacted by various cities in the East Bay. STAFF RECOMMENDATION: Receive the report and provide direction to Staff on any next steps. FINANCIAL IMPACT: None. DESCRIPTION: At the August 18, 2020 City Council meeting, the City Council directed Staff to prepare a report on COVID-19-related limits on fees charged by third-party food delivery companies enacted by various cities in the East Bay. Background on COVID-19 Impacts On March 1, 2020, the Alameda County Health Officer declared a Public Health Emergency due to the Novel Coronavirus (COVID-19). On March 4, 2020, California Governor Gavin Newsom issued a State of Emergency Proclamation for the State of California. On March 16, 2020, the Alameda County Health Officer issued an Order (Order) directing all individuals living in the County to shelter at their place of res idence, subject to certain exceptions, and which has since then been amended several times. In response to the Order and the evidence of community-acquired transmission within Alameda County, the City Manager acting in her capacity as Director of Emergency Services proclaimed the existence of a local emergency within the City of Dublin. The City Council ratified this declaration on March 18, 2020. The Order required all businesses, except certain essential businesses, to cease all activities beyond minimum basic operations. While over the preceding months the Page 2 of 4 Health Officer has permitted certain sectors of the economy to re-open, the larger economic ramifications of the pandemic continue to impact resident and business incomes throughout the region, state, and country. The Orders’ restrictions have devastated local businesses, particularly small service, food, and other direct, customer serving businesses. During this time, online ordering and delivery of food has become a critical lifeline to many restaurants and food businesses, with many utilizing third-party, app-based delivery service providers to implement delivery service, such as DoorDash, Grubhub, Postmates, and Uber Eats. There are several fees associated with using food delivery services, some paid by the restaurant, and others paid directly by the consumer. These fees vary by company and a number of different factors, including the service package that the business selected, whether the meal order is placed on the delivery company or individual business’ website, whether delivery or pick-up is selected, the distance of delivery, and whether the restaurant is receiving additional promotion or services. According to the San Francisco Chronicle, third-party food delivery platforms charge a commission that ranges from 10% to 30% of an order1. The commission fee, which is agreed upon between the restaurant and third-party servicer is typically a percentage of the order subtotal. A typical commission fee would include a service fee for the service of the transaction charged by the third-party food delivery service, a delivery fee to go towards drivers’ wages, and the credit card processing fee which is set by payment processors. Recently, some cities in California have put limits on these fees in an effort to ease the economic burden on restaurants and other food businesses during the pandemic. In Alameda County, five of the 14 cities have adopted local ordinances or emergency orders to place a temporary cap on the fee third-party food delivery companies can charge, as shown in Table 1 below. In the five Tri-Valley cities, only Livermore has enacted an emergency order placing the commission cap at 15%. Cap on Third-Party Food Delivery Companies* City Fee Cap Percentage Alameda No** -- Albany No -- Berkeley Yes 15% Dublin No -- Emeryville No -- Fremont Yes 15% Hayward No** -- Livermore Yes 15% Newark No** -- Oakland Yes 15% Piedmont No -- Pleasanton No -- 1 Phillips, J. (2020, April 10). San Francisco Chronicle. [Web page]. Retrieved from https://www.sfchronicle.com/business/article/San-Francisco-mayor-caps-Uber-Postmates-15192738.php Page 3 of 4 San Leandro Yes 15% Union City No -- *Information provided in this table reflects information available at the time this report was written. **Agency is considering a fee cap, but action has not been taken at the time this report was written. Relief Provided by Third-Party Platforms To their credit, some of the third-party delivery companies have provided various relief efforts to help small business owners. In a presentation made by Grubhub and DoorDash representatives on August 5, 2020 to the East Bay Economic Development Alliance Economic Development Directors’ Council, both representatives shared information on their relief packages. For example, Grubhub temporarily deferred its marketing commissions for qualified independent restaurants and recently announced that they will not be collecting those deferred fees. DoorDash allowed restaurants to sign up without charging commissions for 30 days, and commissions were cut in half for mom and pop stores with five or less locations, zeroed out fees for pick up orders, and provided 30-day free trials for new restaurants. Enforcement and Response In the research conducted by Staff, enforcement of delivery fee caps is accomplished entirely through a private right of action, with no involvement of the municipality. If a third-party food delivery service violates the city’s ordinance or emergency order, the affected restaurant can request a refund and the third-party has a number of days to provide the refund. If a refund is not issued, the restaurant has the option to pursue a civil action against the third-party food delivery service for damages. There are some larger metropolitan cities, such as Seattle, New York and Jersey City, that have taken on the responsibilities of enforcement where violations are punishable by a fine or imprisonment. In addition, research has shown that in a controversial move, Uber Eats discontinued delivery service to a Bay Area community, citing the city’s order as an impediment, and in Los Angeles, petitions were circulated by restaurants to the city indicating that if commission revenue to third-party food delivery services were reduced, the third-party delivery platform would cut services to restaurants or drivers pay, or would increase fees paid by customers. Lastly, in Jersey City, NJ where a cap on service fees was enacted, Uber Eats implemented a surcharge for customers ordering through its platform. The third-party food delivery service then noted that the surcharge only applies to restaurants in that city and that customers could order from restaurants in surrounding areas to avoid the surcharge. Issues to Consider Many restaurants have had to pivot to online ordering and appreciate the relief these third-party food delivery platforms provide since many did not have a strong delivery presence prior to the pandemic. Those restaurants have had to build a strong customer base in order to generate revenues, and third-party delivery services are critical to these efforts, particularly due to their ability to advertise to customers regionally. However, Page 4 of 4 capping commission fees could result in some risks and unintended consequences. Third-party delivery services could institute a surcharge that would be borne by Dublin customers, putting Dublin businesses at a disadvantage relative to neighboring communities; or, since Dublin restaurants exist in a competitive regional market, third- party delivery services could decline to provide services to Dublin restaurants since other restaurants offer similar products in neighboring cities. Staff also examined public comments made by third-party delivery service providers regarding potential legal concerns with municipalities imposing a cap on commission fees. While some third-party delivery service providers have issued public statements indicating that such caps may potentially become the subject of legal challenges, for reasons such as being overly burdensome or restrictive, Staff is not aware of any active or pending lawsuits on this subject at this time. Conclusion On an ongoing basis, City staff works to assist restaurants and other food businesses to connect them with resources during these difficult times. Staff shares available grant opportunities (both private and public), webinars, trainings, and breaking news through the COVID-19 Dublin Business Brief (eNewsletter), City website, Dublin Chamber of Commerce, and social media posts. The #DublinEats campaign was created to help support local eating establishments and promote their re-opening for to-go, delivery, and outdoor dining. In addition, the City created the COVID-19 Relief Temporary Use Permit to assist businesses with creating an outdoor space for dinning, retail shopping, and fitness. To complement the COVID-19 Relief TUP, the City created a barricade loan program to assist businesses with blocking off their outdoor space where one may not have existed previously. Due to the financial strain our businesses are facing, many are unable to purchase new equipment and the barricade loan program has served to provide some relief. Lastly, the City Council approved the Small Business Emergency Microloan Program which has assisted more than 40 Dublin restaurants. Next Steps This item is presented as an informational item only. The City Council may provide additional direction, if any, to Staff on potential next steps. STRATEGIC PLAN INITIATIVE: None. NOTICING REQUIREMENTS: None. ATTACHMENTS: None.