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Spokane, Washington  Est. May 19, 1883

Spokane City Council to consider a cap on what food delivery services can charge restaurants

Uber Eats delivery driver Tyler Lane picks up a customer’s takeout order from NUDO Ramen House on Friday in downtown Spokane. The Spokane City Council is mulling a cap on the fees third-party food delivery services, such as DoorDash, can charge restaurants.  (COLIN MULVANY/THE SPOKESMAN-REVIEW)

The Spokane City Council is mulling a cap on the commission that delivery platforms like DoorDash or Uber Eats can charge restaurants, limiting the fee to 15% of the purchase price unless the restaurant agrees to pay more for additional services such as advertising.

When food is delivered from Spokane restaurants by third parties, customers pay a delivery fee, but restaurants also pay a percentage of the ticket price for the service – as much as 30%.

The proposal to halve that, sponsored by Council members Zack Zappone and Lori Kinnear with support from the Spokane chapter of the Washington Hospitality Association, will be considered during the Nov. 28 City Council meeting.

“(Local restaurants) said that they’re still impacted by COVID, and they’re still struggling to get by, and one issue that’s impacting them strongly is the percentage rates the third parties are taking out for commission,” Zappone said.

DoorDash, Uber Eats and Grubhub, which Zappone said make up around 95% of all third-party food deliveries in Spokane, already offer an option to local restaurants that charges no more than a 15% commission.

Greater Spokane Inc., a business development organization, opposes the proposed fee cap, in part because a 15% commission already exists, said Jake Mayson, public policy director for GSI.

“It doesn’t seem to be fixing the problem, it seems to be a solution in search of a problem,” Mayson said.

But many business owners don’t know that there’s a 15% option for third -party delivery fees, said Zappone, who is also a board member of Visit Spokane and works directly with the hospitality industry.

“The restaurants say that’s not clear, and in fact when they talked to Doordash to lower their rates, they’ve had to fight to lower from 30% to 20%,” Zappone said. “This would guarantee for the local businesses that you can get (a 15%) option for third-party delivery fees.”

Food delivery has exploded since the COVID-19 pandemic, said Anthony Anton, president and CEO of the Washington Hospitality Association.

“A lot of people’s sales pre-COVID were 4-8% to-go, and now, depending, its 30-50%,” Anton said. “Before COVID, you could afford to pay 30% fees, because it was more marketing, people would get exposed to your business and then come in for dinner.”

“But when it became upwards of 50% of the business, we can’t afford to lose such a huge amount of money on each sale,” he added.

While restaurants are doing better than they were in the middle of the pandemic, they’re still recovering from huge hits to their bottom lines. Full-service restaurants in Washington incurred $160,000 in debt on average due to the pandemic, according to the Washington Hospitality Association.

“They need relief right now during such a rough time,” said Derek Baziotis, owner of Cheney breakfast and brunch restaurant Bene’s and chair of the Spokane chapter of the Washington Hospitality Association.

When the pandemic began, Baziotis launched Eagle Bites, a third-party delivery service that operates in Cheney, because the larger platforms didn’t operate in that area. Eagle Bites charges a flat rate of 15% to restaurants for the service, said Baziotis, who supports the proposed ordinance.

“The math just doesn’t add up on the 30% they’re currently charging,” he added. “You’re looking at 40% for labor, 30% and rising for food costs, and 30% overhead. Add on a 30% commission to that and you’re losing 20% on every order.”

The proposal has precedent. On Nov. 25, 2020, Gov. Jay Inslee issued a proclamation that capped delivery fees at 15% and total fees at 18% to support restaurants during the worst of the pandemic, a measure that lasted until June 21, 2021. In August, Seattle passed an ordinance reinstating a 15% cap permanently, joining other major cities such as Minneapolis, Philadelphia and New York.

But a fee cap still faces opposition from GSI and skepticism from some council members, who worry about the unintended consequences to consumers and delivery drivers.

If costs go up for the delivery service, due to things like rising gas prices, that cost increase wouldn’t be negotiated between the service provider and the restaurant, Mayson said.

“That cost increase has to go somewhere else,” he said. “And we believe that will be the consumer, and ultimately that will impact order volume, because when delivery fees go up, people order less through the apps.”

This can mean that fewer drivers are employed by the services, and the services could become less helpful to restaurants, Mayson added.

Following Seattle’s passage of a permanent fee cap, Grubhub voiced opposition to what it called “price controls,” writing that they created strict limits on what restaurants could do to market themselves through the platform.

GSI also opposes the proposal on broader ideological grounds.

“There’s a principled objection to this kind of interference in free market economics,” Mayson said.

Patrick Keegan, who co-owns two Aloha Island Grill locations with his wife, hasn’t always been fond of the big three third-party delivery services.

“When they first came in, Uber especially came in strong and expected 30% off of the ticket price,” he said. “I just laughed.”

In most cases, Keegan avoids third-party delivery services, arguing their commission models don’t seem fair to consumers or restaurants. But he also questions whether the City Council should get involved to prevent business owners from agreeing to a bad deal.

“The operator has to be responsible,” Keegan said. “If someone offers you a delivery service at 30% of the ticket price and you don’t understand your business model enough to realize you’re losing money, that puts you in a bad spot.”