2020 | Coronavirus

Rockville wants to cap food delivery companies’ fees at 15%

Local restaurants say fees of up to 30% eat into their profits

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Logos from DoorDash, Grubhub, Postmates, UberEats

Rockville officials have sent letters to food delivery companies requesting that they cap their fees charged to local restaurants to 15%.

The Rockville City Council sent letters this month to four food delivery companies — DoorDash, Grubhub, Postmates, and UberEats — that charge restaurants usage fees of up to 30% on each order.

In the letters, city officials wrote that they oppose and have “serious concerns” about the fees charged to restaurants that are financially struggling during the COVID-19 pandemic.

“The services your company provides offer a critical lifeline to restaurants struggling to stay in business without indoor dine-in sales,” officials wrote in one letter. “It benefits both your business and the local economy to help these struggling restaurants. A closed restaurant generates no business for your company.”

In Rockville, like the rest of Montgomery County, restaurants are allowed to serve customers outdoors and through pickup or delivery. Montgomery County’s second phase of reopening is expected to start this coming week and will include limited indoor seating for restaurants.

The City Council also requested the companies to forward 100% of the tips they receive to drivers and restaurants.

The letter mentioned that other cities have insisted that usage fees be reduced to 15%, including in San Francisco, Santa Cruz and Seattle.

Sharon Elzarat, owner of The Woodside Catering Company in Rockville, said during a phone interview on Friday that he doesn’t make any money by using the delivery companies because of the fees. He decided to start using Grubhub and UberEats when the pandemic began to add to the number of orders the business was receiving, so his employees could keep working.

Elzarat said restaurants typically make a 25% to 30% profit off each menu item. Because food delivery companies are taking up to 30% of the order’s cost, the restaurant doesn’t make any profit, he said.

“I’m not losing, but I’m not making any money,” he said. “I have employees and the employees need to be busy at all times. This is keeping them busier. As far as money-making, there is none when you work with these platforms.”

The delivery companies especially hurt family-owned businesses, Elzarat said.

Although Woodside has its own free delivery service, most of the delivery orders come through the third-party companies. But as soon as things go back to normal, Elzarat said, he’s dropping the delivery companies.

Stephanie Smith, a spokeswoman for UberEats, told Bethesda Beat in an email on Friday that the company has focused on driving customers to independent local restaurants during the pandemic.

“Regulating the commissions that fund our marketplace — particularly during these unprecedented times — would force us to radically alter the way we do business, set a far-reaching precedent in a highly competitive market, and could ultimately hurt those that we’re trying to help the most: customers, small businesses and delivery people,” she wrote.

David London, senior government relations lead for DoorDash, told Bethesda Beat in an email on Thursday that the company was disappointed that it’s seen “arbitrary caps imposed that can have the unintended consequence of reducing sales for restaurants when they in fact need them the most.”

In May, the company launched a program that lets restaurants create their own website for online ordering. Under the program, restaurants won’t pay a commission and independent restaurants won’t pay any fees for the rest of the year, he wrote.

The company has also cut commissions in half for more than 150,000 restaurants because of the pandemic, he wrote.

“If price controls go into effect, we’ll have to raise the amount that customers pay to continue to provide the same level of service across our platform, which will ultimately lead to fewer people placing orders, which leads to fewer earnings opportunities for Dashers (DoorDash delivery drivers), and which will ultimately hurt restaurant sales, the exact opposite intention of what these caps are meant to offer,” he wrote.

Jad Malaeb, manager of Fontina Grille in Rockville, estimated that the business would pay close to $62,000 in fees to food delivery companies if the restaurant continues using them after the pandemic ends.

“On top of the delivery fees, they have the worst support systems,” he said. “It’s beneficial and bad at the same time. It’s a love-hate relationship.”

The restaurant offers free delivery through its own service, as well as for orders through DoorDash and Postmates.

Ken Skidmore, owner of Botanero in Rockville, said Friday that 30% is the average usage fee that the companies charge on every order.

The restaurant began to offer its own free delivery service after it had to close for sit-down service under Gov. Larry Hogan executive order in March. Deliveries are also done through Grubhub, UberEats and Bite Squad.

Most of the orders are coming through the restaurant’s own delivery service, he said.

“It was different at the beginning. In our personal situation, we were averaging about $1,000 a week in UberEats sales in the beginning. Now, we’re down to a couple hundred dollars,” he said. “I think people are realizing that they’re helping restaurants by calling us instead.”

So far, the restaurant has lost around $5,000 in fees to the third-party companies.

Skidmore said he kept third-party delivery as an option because some people prefer the convenience.

“In our case, we didn’t want to alienate getting an order at all,” he said.

Briana Adhikusuma can be reached at briana.adhikusuma@bethesdamagazine.com.