SF nixes cap on delivery fees — reeling restaurateurs prepare to pay up to 30%

San Francisco was the first city in the nation to place a permanent cap on food fees that delivery services could charge to restaurants. But, as of Tuesday, that 15 percent cap has been removed, and fees will begin moving up.

DoorDash, for example, will offer restaurants three options: The standard 15 percent, 25 percent with access to DashPass customers and a bigger delivery area, and 30 percent with a guaranteed minimum of 20 orders per month. (Pickup orders will remain at 6 percent.)

Many restaurant owners, most of whom have yet to recover from the pandemic, have responded to the change with bitterness, discontent and perplexity. 

“I always said that if they ever went back to 30 percent, I’m out,” said Mie Katsumata, owner of vegan Japanese restaurant Cha-Ya, who professed to be “kind of prepared” to “say goodbye” to the third-party delivery service, which currently accounts for around seven to 12 percent of her sales. 

Already, Katsumata is facing the major challenge of a dramatic increase in ingredient prices, and customers will only pay so much for soba. Katsumata held up a $17 bowl and said, “In my case, the No. 1 seller is a veggie tofu curry noodle soup. Can I charge $20 for that? No, but that’s what I would need to charge.”

Cha-Ya’s 18-year history on Valencia between 18th and 19th streets has given Katsumata a loyal customer base. Many are willing to call to pick up, rather than order through Uber Eats, which gives Katsumata the backbone to stand up to the apps. Plus, Katsumata is confident that Cha-Ya, as one of the rare 100 percent vegan restaurants in the city, would rank high in the vegan search results on any platform, which has saved her from agonizing over whether to pay a percentage to the apps to improve visibility.

Restaurants, she said, now face a situation similar to how Uber and Lyft treat their drivers. “They’re using the drivers to make more money. They’re getting more money from us,” she said. But despite being the ones really making the money, less and less of it is going to them. “Like, where is this money going?” she asked.

The pandemic brought the lower fee levels, but after the city made the 15 percent cap permanent, food delivery giants DoorDash and GrubHub sued the city over the policy. In exchange, for the companies dropping the lawsuit, the city greenlighted a selection of commission fee options that start at 15 percent. The higher the fee, the more services provided.

“You know, lawsuits can go either way. It’s not a slam dunk that the city was going to win,” said Laurie Thomas, executive director of the Golden Gate Restaurant Association, which played a role in the city’s negotiation with the platforms. “It’s a negotiated compromise, where no sides are entirely happy. But this is what it is.”

Lawsuits to keep the lower cap are also underway in  New York, Boston and Chicago. “If one of those ones goes the way where the city wins, then we should re-look at it here,” said Thomas.

Katsumata said he was disappointed in the city’s decision to walk away from the lawsuit. As “the people who have managed to find our way through the pandemic and through everything else, you should give us a little credit to push back to these companies,” she said. 

Danny Barrious, manager of Luna Kitchen & Cocktails, said he’s not concerned. “Right now, as we don’t really have a big push in takeout, it doesn’t really affect us.”

According to the ordinance, all restaurants and bars that use delivery services should have received and opted into a new contract by Jan. 30. Otherwise their fees will revert to the rates in their pre-pandemic contract which, depending on the restaurant, could reach 25 to 30 percent.

As part of their agreement with the city, the delivery platforms promised to notify restaurants of changes to their contract. But, as of Jan. 27, many of those Mission Local contacted had yet to hear of the changes. 

“What change?” asked James Choi, owner of renowned sandwich restaurant Rhea’s, who does around 20 percent of his business through Uber Eats. “That’s disappointing,” but “we might forego,” said Choi. 

When asked if he would pay 30 percent for higher visibility, Choi responded, “No way,” emphasizing instead his newly launched social media accounts. “If you are great at what you do, people will come looking for you,” he said. 

Michael Ho, owner of Chic n’ Time, became visibly worried when he learned about the new changes, frowning as he jotted notes in a small notebook and remaining silent for several moments. It seems that a representative from the platform had called that day, but failed to explain clearly what the situation was, Ho said.

Now, he was at a bit of a loss as to what to do. “I can charge more, but nobody will buy it,” said the owner of the two-year-old Vietnamese garlic noodle place, which was once listed in the top 100 of the Bay Area. Still, Ho is worried how this might affect his visibility on the apps and position in the search results. “I don’t want to get to the bottom of the list,” he said.

“Maybe I’ll try 15 percent for a month,” Ho said hesitantly.

Curry Up Now does half of its business through DoorDash and Uber Eats. Manager Peter Rzedzian assumed the restaurant would pay an extra seven percent to stay relevant. “Let’s say this way, you might not need extra labor to get all those extra sales that you can get when you’re in this marketing gear,” he said. 

As far as he knows, the core service provided by DoodDash doesn’t include free delivery for customers. “When you stay at 15 percent, DoorDash will try to offset that percentage to the customer. Customers are not gonna want to pay that. So technically, you’re being left out with less orders,” he said. 

For Biriani House, another Indian restaurant just a few blocks away, the expected competition from their peers has already dictated their choices. “We’re gonna choose it, because the market is pretty competitive right now. Everybody’s using it. There’s not really much of an option here not to use it,” said Samson Eric, co-owner of the restaurant and the only server working at 6:40 on a Friday night. 

It was far from an easy decision to make. Half a dozen Indian restaurants are looking over their shoulders in the surrounding blocks. Two-year-old Biriani House wants to bring customers to try their food, but they also want dine-in prices to match prices on the apps. And if all restaurants have increased visibility, is that equivalent to all of them not increasing?

“I don’t know,” Eric said, after a while. 

Among all these worried restaurateurs, Nick, co-owner of Boba shop BoBop, had a more optimistic outlook. “I may have a little different perspective, because I’ve been on that side of the road,” he said, emphasizing his tech-savvy background. “I know how those parts work. It was gonna happen, as part of business is a competitive sport, you’re competing in all kinds of stuff.”