UPDATE (3:06 p.m. PT) — A little relief is on the horizon for Portland's hard-hit restaurant industry. The City Council voted unanimously Wednesday to place temporary limits on the fees third-party food delivery platforms such as GrubHub can charge.
With restaurants reeling from the financial fallout of the pandemic and counting on delivery orders to stay afloat, cities across the U.S. — including New York, Los Angeles, Seattle, Washington D.C, San Francisco and Philadelphia — have capped the fees these platforms can charge.
On Wednesday, Commissioner Chloe Eudaly and Portland Mayor Ted Wheeler introduced an ordinance that will add Portland to the list. Effective immediately, the rule places a 10% cap on the fees third-party apps delivering orders can charge restaurants. This means if you order, say, the $12 Chicken and Rice dish from Nong’s Khao Man Gai through, say, UberEats, the delivery company could pocket, at most, $1.20, not including tip.
Some of these third-party delivery platforms, such as GrubHub, offer the option to have restaurants deliver the order themselves. For orders where the third-party service is only connecting customers with the restaurant and not responsible for the delivery, the council voted to enact a stricter cap of 5% of the order price.
The ordinance also bars companies from making up for lost costs by placing the burden on their delivery workers. Under the rule, companies could not reduce pay or garnish tips from their delivery drivers due to the new cap.
Andrés Oswill, a senior policy advisor for Eudaly’s office who helped craft the ordinance, said the idea gained momentum after two listening sessions hosted by Prosper Portland, the city’s economic development agency, last month: one intended for restaurant owners and the other for Asian and Pacific Islander business owners. In both sessions, the agency heard complaints about high fees.
Currently, third-party delivery apps in Portland can pocket as much as 30% of the price of every menu item they deliver. A survey of 130 businesses by the Portland Independent Restaurant Alliance found that restaurants were typically handing over 25-30% of the order price to the companies. A little over half had tried to negotiate down that charge, but only 30% were successful.
The delivery companies say their fees are critical to keep the business functioning, paying for necessities such as delivery workers, insurance costs, and the technology for their apps. But many restaurants have countered the charge is driving their businesses to the brink of closure —businesses, they say, that are far more reliant on the marginal dollar than billion dollar companies like GrubHub and Uber.
“If they're paying out 30% commission, every single transaction, these mom and pop restaurant groups are not going to sustain [themselves], said Katy Connors, an organizer with the Portland Independent Restaurant Alliance and director of operations for Hat Yai, a Thai restaurant with locations on Killingsworth and Belmont streets.
Connors said restaurant owners have long been irked by these charges, which gobble up the margin restaurants build into the cost of the dish. But, she said, many in the industry tolerated the fees because the apps were good advertising. The hope was if someone discovered a dish on GrubHub, next time they’d walk through the restaurant’s door to eat it.
But COVID-19 dashed the hope that patrons would arrive for sit-down dining, and Connors said the fees have become increasingly burdensome for restaurants that have to pivot to primarily delivery.
APANO, a nonprofit that advocates for Asians and Pacific Islanders in Oregon, joined the push to cap fees. Many of the Asian-owned restaurants the organization partners with in the city’s Jade District had seen a decline of foot traffic even before the state’s shutdown orders, as the pandemic brought a rise of xenophobia.
Jenny Lee, advocacy director with APANO, said the group began helping some Jade District restaurants bring their businesses onto the delivery apps. But the businesses found they likely wouldn’t be able to break even when they took the charges into account.
“Those restaurants are famously low-margin kinds of businesses,” she said. “So for a lot of the immigrant-owned restaurants, a lot of these now are just basically down to family staffing it and one cook — it's already so bare bones, there’s just no further way to economize right now.
Lee said the delivery services, as they’re currently structured, remind her of payday lending, a form of short-term high-interest loans that often leave low-income borrowers in worse financial shape.
“You just have really desperate people looking on how to survive and then shifting that money out of the community and into corporations,” she said. “We appreciate it's an important service, but we have to have balance during a pandemic.”
But delivery services have countered that they’re already balancing these needs during COVID by waiving certain fees, cutting surcharges, creating options to donate on the app — and that forcing further concessions could ultimately punish the restaurants as more costs are pushed onto the consumer.
“The costs of providing the service, the driver being compensated for the time, the background checks, the safety, the platform,” said Caleb Weaver, who oversees public affairs for Uber in 12 western states and who argued against the proposed rule in Portland. “Those costs have to be covered. A 10% cap doesn’t begin to cover those costs.”
In an email sent to city officials, Weaver said this cap would ultimately lead to rising fees for diners, which would “fundamentally threaten these very restaurants that we all aim to support.”
“A proposed cap on these commissions would result in fees for consumers rising and service areas shrinking, cutting off consumers from the services they rely upon in this crisis. Delivery people — who are currently relying on on-demand work opportunities to earn an income — would have fewer work opportunities and lower earnings,” he wrote. “And restaurants that need revenue to maintain operations would see fewer orders, potentially forcing more of these businesses to close their doors.”
Uber isn’t alone in sounding the alarm over diminishing demand. In a statement, DoorDash’s head of government relations, Toney Anaya, called the fee limit “a dramatic and arbitrary cap that will have the unintended consequence of reducing sales for local restaurants.” Postmates argued it would undermine its ability to function. GrubHub’s head of public affairs, Amy Healy, wrote a letter to the council Monday, warning the cap would lead to lower order volume for restaurants along with “fewer work opportunities and lower earnings” for delivery drivers.
Oswill said Eudaly’s office does not share the concern. Even if there does end up being a decline in traffic to these platforms, he said, it doesn’t necessarily signal that people are being deterred from ordering from restaurants.
He pointed to a conversation his office had with a delivery company, which told the office that a 15% cap leads to 10% fewer orders.
“That means 10% less people making the order on the platform. That doesn’t mean people aren’t going to the restaurant themselves and placing the orders.”
The rule will remain in place until three months after the end of the city’s state of emergency, which the mayor enacted in March. Companies in violation could be fined up to $500 for each offense.
Because it’s an emergency ordinance — meaning it would take effect immediately — all four council members needed to vote in favor of the rule in order for it to pass.
Editor's Note: A previous version of this story identified a specific delivery company discussing the effect of a cap on orders. The story has been changed to reflect that Eudaly's office did not hear that statement from that delivery company.