In Twist, dozens of Los Angeles restaurants oppose delivery app fee cap

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In an unexpected move, more than 20 Los Angeles restaurants, including Canter’s, Sichuan Impression and Sweetfin, signed a petition opposing a city council proposal to cap the fees for third-party delivery apps.

It’s a position that is in direct opposition to many other restaurateurs, who have criticized delivery apps for gorging them with commission fees of up to 30%. It is particularly shameful, they said, at a time when restaurants are crippled by the forced closure of their dining rooms.

The petition comes weeks after Los Angeles City Councilor Mitch O’Farrell proposed a prescription this would set a cap of 15% on delivery charges per order during the COVID-19 pandemic; San Francisco and New York have already adopted similar measures. The proposal is expected to be discussed at an L.A. city council meeting on Wednesday.

Restaurant owners opposed to the proposal say they fear the commission caps will actually be damaging their business. Indeed, with the reduction in fee revenue, delivery app companies have warned they may be forced to compensate by reducing services, paying their drivers, or increasing fees paid by customers. In the latter case, diners could then choose not to place orders, which in turn would have a negative effect on restaurants.

In some cases, delivery apps may choose to opt out of the Los Angeles market altogether.

“I am writing today to strongly oppose any measure that imposes caps on the commissions agreed to by the on-demand delivery network companies and my restaurant,” reads the petition, which also includes the signatures of Namsan in Koreatown, El Indio Mexicano in Yorba Linda, Fat Sal’s Deli in Hollywood, and Hollywood Pizza Cafe. “These businesses have been a lifeline for customers during the COVID-19 response, and changing a system that works increases uncertainty and concern at a time when I fight every day for the survival of my business. “

The petition was facilitated by Postmates after “business owners reached out to us to see what they can do to support us,” a Postmates spokesperson said. The petition was sent to members and officials of the Los Angeles City Council on Friday and highlighted the complex nature of the delivery app industry: Restaurant owners feel exploited, diners complain about too high delivery prices, and app companies claim that they too are barely earn any money.

Canter’s Deli owner Marc Canter said he didn’t see how it was possible to cut costs without the money coming out of someone else’s pocket, and worried about the government involvement in the way companies set their prices.

“Of course everyone wants a reduction, but how?” he said. “Where are they going to get the money to provide their platform and hire drivers? It would be the same as the government telling Ford Motors to start producing cars and making all the $ 3,000 cars from now on.

Canter said he would only support rate caps during the pandemic if the government made up the difference for delivery app companies. He suggested that apps should track if a customer is referred to an app through a restaurant website and reduce fees on those occasions.

Kelly Xiao, co-owner of Sichuan Impression, feared that delivery drivers would see their wages drop, or fewer orders to pick, if fees were capped at 15%.

“A 15% fee is really helpful for restaurants during this tough time, but I don’t know what the cost and profit margin for these delivery app companies is,” she said. “I appreciate that they have recently provided many job opportunities for people who have lost their jobs.”

If the price cap is approved, Postmates, the city’s most popular third-party ordering app according to the Second Share data collection site, hinted that it may stop offering the delivery as well as many of the other catering services it provides, including data analytics and marketing.

“We will have to turn off the ability to partner even with these restaurants,” said Vikrum Aiyer, the company’s vice president for public policy and strategic communications.

Postmates, which negotiates fees individually with restaurants, has more than 35,000 Los Angeles businesses on its platform and pays its employees $ 30 an hour, according to Aiyer. This brought a declared $ 400 million in revenue in 2018. Aiyer declined to comment on the profit margin of the San Francisco company.

“In 2019, we facilitated sales on behalf of local businesses by approximately $ 500 million, a third of which went to on-demand worker compensation,” Aiyer said. “The costs will have to be recovered somewhere. Customer fees could increase or employee salaries could be reduced.

Timesha Philips, owner of Phatdaddy’s hamburger restaurant in South L.A., has an exclusive delivery contract with Postmates. Last week, she grossed $ 1,289 in sales and paid Postmates $ 315, a commission of almost 25%. However, Philips signed the petition.

“Reducing the commissions would help me, but I’m already a small business and I don’t have enough income to be able to outsource my own delivery people,” she said. “I get so many orders from the app, especially during COVID-19. If I didn’t have a delivery platform to offer my products, I probably couldn’t even be in business. “

Postmates offers a “restaurant resilience fund” as an alternative to the 15% cap. This would require a transaction fee which would either be a fixed fee or a percentage on each transaction. The city would decide on the fixed fee amount or percentage, and determine whether customers or delivery apps would be responsible for paying them.

“In our vision, that would be what would be put on the customer’s side,” Aiyer said.

The royalty money would then go to restaurants, though Aiyer did not specify how. Postmates also offers a model that would allow the city to prioritize certain geographies over others when distributing money as needed. Aiyer said he was in talks with the mayor of West Hollywood regarding the proposal.

“I would be in favor of that if there was a real system of determining who needs the funds and who doesn’t,” said Sweetfin co-founder Seth Cohen. “If a customer has the option of spending an additional 2.5% or 3%, that’s really a negligible amount.”

The poke bowl chain, which also has an exclusive delivery contract with Postmates, has 10 locations in Southern California. Cohen believes the cost of renting and managing your own delivery fleet will be just as, if not more, expensive than using third-party apps.

Xiao said there are other ways the apps could help restaurants.

“They could improve the speed of delivery, the quality of service and the security of the system,” she said.

Georgette Powell, owner of Mel’s Fish Shack in West Adams, recently saw orders increase at her restaurant. It offers delivery through multiple apps, including Uber Eats, Postmates and DoorDash, and sent a separate letter to City Councilor Herb Wesson on May 5 opposing the fee cap.

“We are paying a fair price to those who have kept us viable during these difficult times,” he said. “In 38 years of operations, we have neither needed nor requested such government intervention.”


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