Delivery Service Providers Frustrate Restaurants

ALEXANDRIA, Va.—Just six weeks after securing passage of the Proposition 22 ballot measure that quashed a California law requiring part-time workers to be reclassified as employees, two of the propositions biggest backers have introduced new fees to offset expenses related to added worker benefits, reports Pymnts.com.

As fees continue to boost foodservice and restaurant bills, critics wonder how much consumers will bear before they decide curbside pickup is a more economical option. The new fees have come from several companies, including Uber and DoorDash, which plan for extra charges in California to cover costs of the concessionary wage and benefit programs the companies promised in lieu of adding thousands of workers to their payrolls.

Uber said it will add surcharges of up to $1.50 for California riders and $2 for deliveries, although in some cities, these charges will be lower initially. DoorDash also plans to add fees but hasn’t specified how much they’d be. Lyft and Instacart, also big backers of the $200 million coalition that fought for Prop 22, have not yet announced plans for adding fees.

But restaurants have reacted as expected. “The fees are outrageous,” said Nick Sanford, owner of Toss ‘n Fire Pizza in Syracuse, New York. “We basically keep Grubhub and third parties on to keep our employees working. We don’t make money on that at all.”

While consumers haven’t yet cut back—most likely due to local governments capping delivery fees—the fee structure is worth a look. California’s Berkeleyside, an independent digital news platform, recently broke down the fees based on a local restaurant called Berkeley Smoke. According to Berkeleyside, if a customer’s order at the restaurant totals $48.07 with tax, it will cost $56.36 if delivered, thanks to a service fee (around $4.30) and a delivery fee (roughly $3.99).

Customers using DoorDash also have the option to leave a tip for the courier—say, $9, for a new total of $65.36. Of that $65.36 paid by the customer, $44 will go to Smoke, $4.07 will go to taxes, $8.29 goes to DoorDash and the entirety of the tip, $9, goes to the courier.

Meanwhile, some local jurisdictions, like Albany, New York, have taken separate measures to protect local businesses, particularly restaurants, from third-party delivery fees that can run as high as 30%. Ahead of voter or legislative approval, Albany County Executive Dan McCoy signed an emergency order on Monday, Dec. 14 that capped third-party food delivery fees at 15%.

In November, Washington Gov. Jay Inslee signed legislation to put a 15% cap on third-party delivery app fees restaurants pay the companies.

While COVID-19 has all but demolished the ridesharing business, it’s also fueled record growth for delivery. New vaccines could eventually impact that, but online and mobile ordering are unlikely to fade this winter as customers seek to dine safely in their homes.

PYMNTS’ research found that the shift to digital ordering is strongest in more populous areas. Some 25.8% of U.S. consumers living in large cities have shifted to ordering online from sit-down restaurants, and 16.3% are doing the same from QSR chains. As much as the high delivery fees erode already thin restaurant profit margins, business owners say the services have been a lifeline.

A recent PYMNTS survey revealed that more than one-third of eatery operators said they would have closed during the pandemic had it not been for these partnerships, and additionally, nearly 28% said they expected to shutter their dining rooms and offer delivery and pickup service only.

NACS Research recently released its landmark “NACS Last Mile Fulfillment in Convenience Retail” study, outlining the opportunity for convenience retailers to grow sales and expand customer reach. Download it free here.

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