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On October 5, Denver City Council passed a temporary ordinance capping third party supplier fees to 15 percent. The new rule will come into effect on Friday October 9th and expire on February 9th 2021. In the meantime, they are offering a bit of relief to restaurants that rely on delivery as a bigger part of their business during the pandemic.
The restrictions are designed to help Denver restaurants at a time when the “COVID-19 crisis and emergency orders continue to prevent all food establishments from operating freely within the city,” according to the ordinance. While many customers don’t notice, delivery companies often make money on both ends of the service. In addition to the shipping costs and menu price increases that customers of companies like Grubhub, Uber Eats, and Postmates pay when ordering groceries, restaurants are typically charged additional service fees.
“That’s good news, especially in cold weather,” says Executive Chef Clint Wangsnes, owner of three Chop Shop Casual Urban Eateries, two of which are within Denver city limits. “I think every restaurant owner out there is a little nervous this winter, so this should really help. It’s unfortunate it’s only four months, but I hope that maybe it will be extended into spring like we all do know, February and March are some of the snowier months. It’s such a double-edged sword with these companies because we all need them to survive, but after their cut it’s nearly impossible to be profitable. “
In addition to caps, sometimes up to 30 percent, the ordinance prohibits delivery companies from listing restaurants without their permission, a practice recently battled by Boulder restaurants Roaming Buffalo, Freshcraft and Hosea Rosenberg, Santo and Blackbelly, among others.
Restaurant owners also point out that menu prices are often inflated or out of date and many simply do not want to hand over food to drivers who are not on their own payroll.
Johnny Ballen, owner of Cochino Taco on South Broadway and in Englewood, says he does not work with delivery companies for these reasons and is therefore in favor of restricting them from listing menus and delivering food without a company’s permission. “I don’t know who these people are, and if something goes wrong with the delivery, guess who is being blamed – not Grubhub,” he notes. Ballen knows that Grubhub lists its restaurants and does the occasional delivery job without his permission, but he says he’s been fortunate not to have received complaints about poor delivery services.
The pattern is known to many chefs and restaurateurs. In July, Tessa Delicatessen’s head chef and owner Vince Howard dropped Grubhub after a series of run-ins with non-masked drivers in his shop trying to stay one step ahead of waiting in-house customers. The final straw was when a driver became abusive and posted a negative review online after being asked to wear a mask.
Grubhub and other services are facing temporary new regulations in Denver.
The new bill also includes safeguards for delivery drivers, as the Denver city council included a statement that delivery companies cannot lay down driver fees or tips to offset the reduced fees.
Of course, the deliverers themselves reject regulations on their delivery fees for several reasons. A spokesperson for Grubhub said the following about Denver’s new rules:
While we believe fee caps are the wrong way to support restaurants, we appreciate the collaborative approach the Denver City Council has taken to discussing this cap. It has been shown that fee caps have a negative impact on the order volume of restaurants, increase costs for guests and reduce the earning potential for delivery staff.
Our goal is to support restaurants. In Grubhub’s marketplace, independent restaurants can compete for diners against larger corporate brands and chains. This has never been more important as we are all working to support restaurants during the COVID-19 pandemic.
The Grubhub representative found that restaurants in locations with fee caps saw orders drop by about 20 percent (and sometimes more) as the fee normally charged to the restaurant is passed on to the customer, resulting in higher tabs for dinner leads. Lower fees also translate into fewer Grubhub services, such as advertising on behalf of the restaurant. The representative added that the company supports the requirement that a restaurant’s permission is required for listing, as well as protecting the driver’s payment and tips.
Postmates also made a statement regarding the company’s position:
Commissions are privately negotiated agreements between the restaurant or a consumer goods company and the Postmates platform. We work closely with our business partners to create a bespoke agreement that reflects the services we are asked to provide to their business. These services include, for example, paying for and using delivery couriers, marketing, customer service, courier support, and contacting new customers and insurance. Commissions are not “fees”, they are the main source of income for our business, and they are the way we pay for the services we provide to businesses and our customers. The arbitrary setting of on-demand delivery prices has real ramifications that affect our operability, aid funding and benefit programs for merchants, couriers and customers, and the ability of the entire industry to provide the services restaurants need to cope with during this national emergency to stay open. However, in order to keep delivery available to all Denver customers and dealers, we hope the council will consider phasing out the cap in relation to opening capacity for in-room dining.
Third-party vendors found to be in breach of the new regulations can face civil penalties of up to $ 999 per day.
Other cities have had similar rules since the beginning of the coronavirus pandemic, and even before that, independent restaurant advocates were concerned about the high fees that can dramatically lower already low profit margins.
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Mark Antonation is the Westword Food & Drink Editor. He began eating and writing about every restaurant on Federal Boulevard and continues to cover the diverse international food scene on Metro Denver and the city’s rapidly changing dining landscape. Mark was recognized as an Outstanding Media Professional by the Colorado Restaurant Association in 2018.