This article has been updated.
Milpitas follows Santa Clara to become the second South Bay city to cap how much online food delivery companies like DoorDash and Uber Eats can charge at drop off.
The Milpitas City Council voted unanimously Tuesday to enact a 15% cap on food delivery fees. Payment processing fees, such as credit card payments and Apple Pay and Android Pay payments, will also be capped at 3%, separate from the delivery and pickup fee caps.
Online food delivery has been a lifeline for many small restaurants since Santa Clara County implemented dining restrictions nearly seven months ago. But according to the city’s economic development department, online delivery services charge restaurants as much as 30% in delivery fees, taking a large cut of restaurants’ already dwindling profits.
Delivery companies implement delivery fees in order to offset the operational costs of processing orders, delivering food listing and marketing the restaurants they partner with and maintaining their app and website, among other things. Those fees are passed onto the local restaurants that they partner with. Companies like DoorDash, Uber Eats and Grubhub have different fee structures they use to charge restaurants — anywhere from 20% to 30% per order, according to a city memo.
“There are reports that some restaurants have experienced a net loss in profits because of high fees being charged,” read the memo. “As such, the proposed temporary third-party food delivery service fee caps can protect restaurants during a time of heavy reliance and the pandemic.”
Milpitas’s 15% cap was chosen as a middle ground to reduce delivery fees while also ensuring providers won’t see a drastic reduction in revenue themselves.
“I think that this policy is going to a long way towards making it more equitable and giving small business owners and restaurants a fair chance of surviving,” said Councilman Anthony Phan. “Third-party food delivery services are providing a valuable service. If we disrupt the model too much, then that’s where we’re at risk of hurting the small business community altogether.”
The ordinance also prohibits service providers from reducing delivery drivers’ compensation or tips.
Many restaurant owners in the city have been at the mercy of online orders, and have become frustrated with the massive cuts delivery services take from their profits.
Some owners, like Jerry Wang, have taken creative steps to make sure they don’t lose even more profits.
“We handwrite thank you notes signed off from the team, and we include them in the deliveries for large tickets,” said Wang, the owner of Celsius Ice Cream on Park Victoria Drive. “We don’t know anything about the customer other than their first name and last initial from Doordash or Grubhub. But we don’t want to lose that connection. We make sure we let them [our customers] know how thankful and appreciative we are.”
By his estimate, nearly a third of Celsius’s revenue comes from Doordash and Uber Eats.
He added, “We work on seeing the delivery services as a partner helping us succeed rather than our enemy.”
The delivery cap will become effective Oct. 27 following a seven-day grace period for companies to make changes to their platforms.
Should a food delivery provider violate the caps, the company must refund the restaurant it overcharged within seven days. If the provider fails to do so, the restaurant can pursue legal action. However, the city will not be in charge of pursuing damages, leaving that responsibility to the restaurant.
While restauranteurs like Wang appreciate the city’s work on the cap, he says focused help from the state and federal government will play an even bigger role in helping restaurants survive the pandemic.
“[Celsius] is appreciative of the work that the city has put in to help us by capping,” Wang said. “But I think to get back to the ‘before’ times, it’s going to take more than the [caps] on delivery services. The cap is good. Federal assistance would be better. And even more than that, federal assistance of customers is the best.”
The city will lift the cap once Milpitas rescinds its COVID-19 emergency declaration.
