Will Capping Delivery Service Commissions at 15 Percent Help Restaurants?

Chances are, you’ve become a lot more intimate with food delivery services like DoorDash, Uber Eats, and Grubhub over the past several months. With spring 2020’s mandated dine-in restaurant closures and this summer’s restricted openings, it’s been a lot easier—and, depending on your comfort level, safer—to order food in.

But many in the restaurant industry are critical of the food delivery services’ business model, wherein these apps make most of their money via commissions charged to participating restaurants, typically to the tune of 15 to 30 percent per order. (The service, order, and/or delivery fees you pay are separate from these commissions, which are paid for by the restaurants.)

To help rein in those fees, Denver City Councilwoman Kendra Black introduced a measure to cap delivery commissions at 15 percent. The ordinance, which is supported by both the Colorado Restaurant Association and EatDenver, will also ensure that all tips go directly to the delivery driver; driver pay can’t be reduced to make up for the lower commissions; receipts are itemized to show all fees and commissions paid; and restaurants must opt in to be listed on the delivery site. (Yes, some delivery apps advertise and sell a restaurant’s food without the restaurant’s permission.) The measure, which Black expects to pass when the council votes on it on October 5, would go into effect on October 9 and last through February 9.

“I feel like the current model is not sustainable for anybody,” Black says.

“I’m excited that city council is pushing this forward,” says Adam Schlegel, co-founder of Chook Charcoal Chicken and Snooze. “Everyone needs every bit of help. It’s already a difficult margin business, and to have it extorted at such high volumes…It’s good to see our government acting in the best way they can to protect small businesses.”

Other cities have already implemented such commission caps. Seattle, New York City, and Los Angeles have all set a cap at 15 percent, citing the cut into restaurants’ profits during an already difficult time.

“We worked closely with EatDenver and Councilmember Black on this ordinance, and we support it as written,” says Colorado Restaurant Association CEO Sonia Riggs. “If passed, the ordinance would cap third-party delivery fees at 15 percent of the purchase price —currently, these fees can be as high as 30 percent of the total purchase, and smaller, independent restaurants often have the hardest time negotiating a good rate. This lowers a cost barrier for restaurants during a time when they’re leaning heavily on takeout and delivery. In addition, restaurants that aren’t able to use third-party delivery services because of the high fees may be able to start using them, giving them an additional revenue stream as we head into the colder months.”

Schlegel agrees that independent restaurants are at a disadvantage, saying he could negotiate a better rate for Snooze, which has several locations, than for Chook. “It levels the playing field for small restaurants versus large organizations,” he says.

But not everyone in the restaurant industry supports the new ordinance. Christian Anderson, co-owner of Chop Shop Casual Urban Eatery, says third-party delivery apps have helped him get more customers than he could reach on his own. “I’ve had pretty good experiences with most of them. There was a time we were slow at a restaurant, and we brought them in and they helped get our product out there. They have their fees, but it’s enough [what his restaurant makes post commissions] to keep our cooks cooking,” Anderson says. “I know government is trying to help, and I think that’s a great thing because no one knows what to do to help restaurants right now, and we’re all hurting. I just think what happens when we put caps on things, these companies still have to find a way to pay their people, and they’re going to find a way to make up ground. Short term it may be good for local restaurants, but in the long term I don’t see it as a positive.”

Before introducing the measure, Black spoke with representatives from the major delivery apps in the Denver market. Their reactions? “They’re not enthusiastic at all,” Black says. “They objected to it. We listened to them, and we made some changes based on their suggestions. I think they appreciated we reached out to them.”

Representatives from Uber Eats and DoorDash say that commission caps can do the opposite of what policy makers intend, interrupting the services that they provide the restaurants. “We support efforts to help the hospitality industry, which is why we continue to focus the majority of our efforts on driving demand to independent local restaurants, which we know is a key concern of our partners during these times,” an Uber spokesperson said in a statement. “Regulating the commissions that fund our marketplace forces us to radically alter the way we do business and ultimately hurt those that we’re trying to help the most: customers, small businesses, and delivery people.”

“DoorDash is committed to supporting delivery workers and restaurants during this critical time, which is why we’ve provided over $120 million in commission relief and marketing investments and cut commissions in half for more than 150,000 restaurants, giving them the additional revenue they need to survive,” a DoorDash spokesperson said in a statement. “Commission caps are a form of price fixing that can have many unintended consequences, and we’re eager to continue working with Denver City Council to find a solution that ensures affordable delivery for residents, flexible work opportunities for Dashers, and more revenue for restaurants.”

With conflicting opinions on the delivery app cap issue, what’s a diner to do who wants to support local restaurants but isn’t yet ready to dine out? Almost everyone—except, presumably, third-party delivery apps—agrees that the best way to support restaurants is to order from them directly, picking up your food or using the restaurant’s preferred delivery method.

Whichever way the Denver City Council vote goes on the delivery commission caps, one thing is clear: Restaurants continue to need our help, and it will become even more critical during the cold winter months, when all those outdoor tables are packed up and put away.