FREMONT — Following suit with several major cities, Fremont officials moved Tuesday to cap the fees food delivery services charge restaurants during the pandemic, aiming to help keep afloat local eateries that have taken a major business hit since COVID-19 upended daily life.
The Fremont City Council on Tuesday voted unanimously to direct City Manager Mark Danaj to work up an executive order limiting the fees third party delivery services can impose on restaurants to 15 percent.
Fees can typically range as high as 30 percent, and with delivery services becoming one of the few ways for customers to get food from restaurants during the pandemic, the fees have become overly burdensome to restaurants’ bottom lines, managers and owners say.
Councilman Yang Shao was absent during the council meeting Tuesday and Councilwoman Teresa Keng recused herself from the vote because she owns a cafe in the city.
It’s unclear how soon the new executive order will be issued, but the council asked Danaj to move on it urgently, and Geneva Bosques, a city spokeswoman, said Tuesday that Danaj asked the city attorney’s office to begin work on it right away.
Restaurateurs in the city say the cap would be a welcome change.
“That makes me feel excited because…we would actually start making a little bit of money,” Patty Segura, the manager of Fremont institution El Patio Original restaurant, said Tuesday.
Segura said before the pandemic, the restaurant didn’t mind paying high fees to delivery companies like DoorDash, Grubhub, Uber Eats, and Postmates, because the cost was seen more as an advertising investment to raise the profile of the restaurant in the area — not a key business driver.
“But now, in the pandemic, people are all using DoorDash. This is the only way to do it right now, when people are trying to stay home, and not have contact. So it’s not really fair anymore,” she said.
Prior to COVID-19, DoorDash offered to give the restaurant better placement on the app if they agreed to increase their fees from 25 to 30 percent, Segura said, and the restaurant went along.
“I could see them trying to create their business that way before,” Segura said of the increased fees, “but now it’s more like they’re getting rich off the pandemic, basically.”
Fremont City Councilman Raj Salwan said he’s heard from many restaurant owners in the city who are hamstrung by COVID-19 safety regulations that make delivery the most viable option to keep their doors open, but forced to pay the high fees from delivery apps.
“That definitely eats up their margins,” Salwan said.
“A good business makes 5 to 10 percent profit, and if you take away such a large chunk it definitely hurts the bottom line,” he said.
DoorDash said in an emailed statement Tuesday that fees help pay for “a variety of business costs” they incur while trying to provide restaurants with delivery logistics, marketing services, and technology assistance.
“A cap to our commissions means we may not be able to provide the level of quality customers expect from a delivery provider, pay Dashers meaningful earnings and drive volume and sales that are so important to restaurants right now,” a statement from a DoorDash spokesperson said.
Similar caps have been adopted in Los Angeles, San Francisco, Berkeley, San Leandro, and New York City, among other cities.
“We’re disappointed that, in the midst of this crisis and when food delivery is more essential than ever, we’ve seen arbitrary caps imposed that can have the unintended consequence of reducing sales for restaurants when they in fact need them most,” the statement said.
DoorDash for much of April and all of May also cut its commission fees in half for more than 150,000 restaurants throughout the United States, Canada, and Australia, so long as the restaurants had less than five locations.
But Salwan said he’s confident the delivery service companies will be OK in the long term, even if more cities enact caps such as the one he suggested for Fremont.
“Many of these big companies are funded by Wall Street and large hedge funds and investment banks, so they can take the hit in the short term, and it won’t affect their returns. But the mom and pop business owner is going to be hit hard. Because they don’t have that cushion, and they can’t lose money,” Salwan said.
“We want them to be able to squeak out a profit,” he said.
Gary Singh, the owner of Chaat Bhavan in Fremont, which has had to cut staff significantly, said delivery makes up about 70 percent of what business he has left during the pandemic. While he’s grateful for the delivery services, he said a 15 percent cap on fees means he might be able to “make a little bit of profit” on those deliveries.
“Even when they increased the fees to 30 percent, people didn’t have any choice. They have to accept it,” Singh said of the delivery services.
“They know restaurants have to use them,” he said.