Santa Clara County and the South Bay's largest city, San Jose, both approved caps on food delivery service fees Tuesday in an effort to protect struggling small businesses in the wake of COVID-19.
The county's temporary ordinance caps delivery fees for third-party delivery services, like Uber Eats or DoorDash, at 15% of the purchase price for orders and at 10% for pickup/takeout orders from any restaurant.
The emergency regulation goes into effect on Saturday and expires once restaurants can resume indoor operations or at the county's discretion.
"The current pandemic unfortunately creates opportunity for price gouging," Supervisor Joe Simitian said. "That's the problem we're tackling."
Since restaurants were required to close both indoor and outdoor operations earlier this month, they have had to rely on pickup and delivery orders to sustain themselves into the next year.
And while third-party delivery services are an essential part of fulfilling those orders, fees and commissions can be upwards of 30% of the order and can account for a quarter of the restaurant's profits.
"These fees are a huge cost," Jennifer Verner, Opa! Management Group business operations manager, said in a letter to the county. "We are paying, in some cases, 30 percent for delivery and when you factor in labor costs and COGs (cost of goods), we are oftentimes barely breaking even."
Most restaurants do not have the infrastructure to support their own deliveries and have already spent a lot of money since the start of the pandemic to weatherize their outdoor seating to welcome patrons.
Ryan Summers, owner of Good Karma in downtown San Jose, said he has seen doors close for many local restaurants because of the added costs and other pandemic-related impacts.
"Downtown small businesses feel abandoned during this crisis, but this bit of advocacy is certainly a positive step toward sustaining the downtown economy, which is honestly on its last leg," Summers said during the San Jose City Council meeting.
Councilmember Raul Peralez, who represents the downtown area, said without the cap, many more businesses would go under as well.
But Simitian, who proposed and supported the cap at the county-level, said he is concerned on how the cap will impact consumers.
"What I am worried about is fee-shifting," Simitian said. "If someone can't make an extra buck in one place, they simply shift the extra buck to some other payer -- in this case the consumer."
DoorDash spokesperson Campbell Mathews expressed a similar sentiment.
"We remain concerned that pricing regulations could result in higher costs for customers, which could lead to fewer orders for local restaurants and fewer earning opportunities for Dashers," Mathews said in a statement.
In a blog post, DoorDash said it uses commissions to pay drivers fees, conduct background checks and provide auto insurance, among other costs, and works directly with restaurants to ensure both parties are whole.
It also notes that access to DoorDash's large consumer base also offers exposure for restaurants -- which is much needed.
"We agree that restaurants need to be supported, now more than ever, which is why we offer so many services and products for restaurant partners," the blog post reads, "We hear from our partners that having choice with how to leverage our platform is critical. And that's why limiting the options at restaurants' disposal isn't the answer."
County counsel will come back with a report in January detailing how the ordinance will impact consumers and identify protections for them.
The county's ordinance applies to all 15 cities and unincorporated areas of the county - but cities may implement a more restrictive cap if they choose.
San Jose's ordinance also caps delivery at 15 percent, but unlike the county, caps total fees -- including delivery and processing fees -- at 18 percent. However, chains of four or more restaurants or grocery/convenience stores do not qualify for the cap.
Santa Clara County and San Jose join a long list of several Bay Area jurisdictions who have imposed similar caps including San Mateo, Alameda and Marin counties, as well as the cities of Oakland, Santa Clara and Santa Cruz.