Santa Clara County could cap commissions, fees food delivery apps charge restaurants

Laveta Brigham

SAN JOSE — As struggling restaurants once again face a slowdown of business amid strict stay-at-home orders, Santa Clara County supervisors could put a temporary cap as soon as next week on fees and commissions that companies like DoorDash and GrubHub charge. And the county’s largest city, San Jose, is […]

SAN JOSE — As struggling restaurants once again face a slowdown of business amid strict stay-at-home orders, Santa Clara County supervisors could put a temporary cap as soon as next week on fees and commissions that companies like DoorDash and GrubHub charge. And the county’s largest city, San Jose, is likely to follow suit.

Since the start of the pandemic restaurateurs have scrambled to figure out how to make money amid ever-changing county guidelines, including setting up make-shift outdoor dining spaces and promoting their take-out options. And, the latest lockdown measures have only heightened their frustration.

To make matters worse, food delivery platforms like GrubHub and DoorDash, county Supervisor Joe Simitian said, are charging businesses who rely on these services upwards of 30% in commissions and fees on each order at a time when restaurants are trying to make ends meet.

During Tuesday’s supervisor’s meeting, Simitian urged his colleagues to support a cap on those commissions and fees to protect local restaurants from “price gouging during a pandemic.” The board will consider what kind of cap it will impose at next week’s meeting but initial proposals call for a 15% cap.

San Jose is also considering a 15% cap on delivery fees that third-party companies can charge restaurants for their services that would last until June. Total fee amounts for the services of the third-party delivery companies — including the delivery and processing fees — would be capped at 18% of the price of an online order.

Under the fee cap proposal submitted by San Jose Mayor Sam Liccardo and Councilmember Lan Diep, chains with more than four restaurants would not qualify for the city’s relief. A council committee will discuss the proposal on Wednesday.

Simitian described instances when local restaurants have had to pay exorbitant listing fees, platform fees and commissions to get more take-out business.

The proposal from Simitian and board president Cindy Chavez would cap fees and commissions as well as offer new protections for delivery drivers, including assurances that tips to delivery drives are not withheld and “actually go to the drivers as customers intend them to be.”

“Just as we have statutes that protect against price-gouging on various products during times of crisis, it seems appropriate here to look at a cap on commissions and fees to charge,” Simitian said. “It seems appropriate to deal with the growing problem of potential and actual abuse of the pandemic for excessive charges to various food services.”

The high-end Taverna restaurant in downtown Palo Alto has struggled to compete with their low-priced neighbors slinging pizzas and burgers ever since the start of the pandemic. Owner Thamasis Pashalidis — whose three-year-old restaurant is currently scraping by — said he spent thousands to build a 90-foot long outdoor dining space which he now can’t use.

Taverna isn’t your Chilli’s or local grill, Pashalidis said the food is priced in a way that will sustain the large team of about 45 staff that he has assembled to cook hand-crafted foods inside a luxurious dining space on Emerson Street.

But people aren’t willing to pay high-end dining prices for take-out food, a problem that has forced Pashalidis to re-imagine his restaurant. Now the same restaurant that before the pandemic offered a New York strip steak at $49 a plate is serving Gyros and a side of French fires for $14.

At the start of the pandemic, Pashalidis set up an online ordering system for Taverna and didn’t get much luck. Now he’s partnered with DoorDash and is in talks with UberEats. But he isn’t happy that DoorDash takes 20 cents of every dollar in each order.

“It’s essentially not profitable,” Pashalidis said, adding that the new health orders makes things much dire. “If it’s anything like yesterday, we’re looking at a revenue down by 90 percent, maybe 99 percent if it keeps going like this. Twenty percent is huge, it ends up eating all of our margins.”

The dearth in orders and income have put restaurants like Taverna in difficult positions, and many of them have fired and re-hired staff as health orders fluctuate.

Health officials on Friday announced they were going to take preemptive actions and start the governor’s latest coronavirus restrictions early as California continues to try to stop the spread of the virus.

In a statement this week, Mayor Liccardo said he will work with county leaders to “ensure consistency of these laws across jurisdictions.

“Given the legal challenges that the County may face in regulating fees in incorporated areas Countywide, we will continue pushing forward our proposed fee cap within the City of San Jose to relieve the unnecessary extra burden for hundreds of our struggling restaurants,” Liccardo said. “… As we enter into another Stay-At-Home order, it’s imperative we support local restaurants that depend critically on food delivery for their survival.”

During Tuesday’s supervisor’s meeting, South Bay AFL-CIO Labor Council Senior Director of Political Strategy Dianna Zamora Marroquin said high fees from third-party delivery platforms have contributed to the “largest share of COVID-related unemployment” which has come from the local restaurant industry.

“That disproportionately affects workers of color and minorities,” Marroquin said. “The pandemic has created an opportunity for price gouging and vulnerable essential workers and struggling small businesses need protections from corporations willing to use a crisis to boos their profits.”

As supervisors on Tuesday considered the new cap and appeared to be in agreement, newly elected supervisor Otto Lee urged the board to move quickly. City staff initially proposed bringing the item back to the board Jan. 12, but Lee pushed for a meeting Dec. 15.

“Astounded” at the high fees and commissions, supervisor Mike Wasserman said the board’s action is needed “right now.”

“If restaurants close their doors right now they are delivery only, that takes away options for people,” Wasserman said. “The high fees these companies charges simply makes it profit prohibitive for some restaurants on deliveries. The time to do this is right now.”

For Pashalidis at Taverna, the new cap could save the young restaurant.

“It would help tremendously,” he said. “It would be in (the third party platform’s) best interest to incentivize restaurants to stay in business. Right now it’s time for DoorDash and others to partner with restaurants and keep us alive.”

Staff writer Maggie Angst contributed to this report.

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