Santa Monica will join several cities across the country in limiting the fees that food delivery apps can charge restaurants.
Restaurants have been serving takeout and delivery exclusively for the last two months with the help of third-party delivery apps, which charge a sizable commission on each order. Many restaurants that grudgingly accepted a 20% to 40% fee when delivery orders made up only a portion of their overall revenue are now struggling to make a profit.
Next Tuesday, Santa Monica will begin capping the fee apps can charge restaurants for delivery at 15% of the price of the online order and limit all other fees to 5%.
The emergency order issued by Interim City Manager Lane Dilg follows similar restrictions set by New York, San Francisco, Seattle and Washington, D.C.
New York is also capping delivery fees at 15% and other fees at 5%.
Los Angeles City Councilmember Mitch O’Farrell proposed a 15% delivery fee cap last month and the council is set to discuss the proposed ordinance Wednesday.
About two dozen Los Angeles restaurants signed a petition against the proposed ordinance, including Santa Monica-based poke bowl purveyor Sweetfin, the Los Angeles Times reported.
Restaurant owners said capping fees could force delivery platforms — which are already being kept afloat by investors — to dock driver pay or charge customers a higher delivery rate, which would deter them from ordering in.
In the Los Angeles market, Postmates is the most popular delivery app with 36% market share, according to a report last month from research firm Second Measure. DoorDash follows close behind at 31% market share.
GrubHub and Uber Eats meet the remaining demand for third-party delivery apps, with 19% and 14% market share, respectively.
Andrea Inio, who owns Orto in downtown Santa Monica, said he supports a cap on delivery fees. He said delivery apps have seen a huge increase in business during the coronavirus shutdown and doubts that delivery platforms will pull out of markets that impose limits on fees.
Inio uses DoorDash and Postmates to fulfill orders, and recently started using Caviar, which was acquired by DoorDash. Postmates charges a 30% fee on each delivery and DoorDash typically charges 25%, but last month halved its fee to 12.5% through the end of May.
“If there’s not a lot of volume, you can understand charging 25% t0 30%, but if the volume doubles or triples you can afford to lower the cap,” he said. “Otherwise, a lot of small businesses will go belly up.”
But Inio won’t have to rely on third-party apps much longer.
After he realized he could hire two delivery drivers for the same amount of money he pays in delivery fees each month, he decided to launch his own delivery service. His drivers will start making deliveries Monday.
Inio said he is looking forward to having more control over how his food is delivered. Some drivers employed by third-party apps have failed to wear masks or were less than cordial to his customers, he said.
“I’ll have control over the food from the time it leaves the restaurant,” he said.