The following is the opinion and analysis of the writer:
On Oct. 6 the Tucson mayor and council passed Ordinance No. 11787 which, among other things, caps the fee that food delivery services may charge certain restaurants at 15% of the online menu price. Fees have typically run from 20% to 30%.
I asked Steve Kozachik, the Ward 6 councilman, if restaurants were asking the city for help. He said, “We received input from mainly small locals who were having a tough time surviving. One of the causes was delivery fees that exceeded their margins. Adopting the 15% cap will be important for them in the effort to keep their doors open. We wanted to respect the costs the gig delivery guys have, but find that middle ground where everyone has a chance of coming out of this pandemic on their feet. The fee cap will sunset when the restrictions imposed by the State have been removed.”
In my opinion, the mayor and council genuinely want to help their constituents. Alas, sometimes exercising restraint is better than adding another constraint to small businesses.
I had occasion to speak with my friend Libby who manages the contracts and operations with food delivery vendors for the Egg Connection, a family-owned and operated breakfast and lunch restaurant at Fort Lowell and Country Club roads. Libby is a daughter of Frank, the owner. Libby has been taking advantage of food delivery services since before the pandemic.
She has contracts with Postmates, Uber Eats, Grub Hub, and Door Dash. The commissions that the delivery services charge the restaurant range from 25% to 33% of the online menu price. According to Libby, she was able to negotiate each delivery service vendor contract, and when the lockdown came she was able to renegotiate some of them to adjust to the new environment.
She said, “If I didn’t have my parents set up on these platforms before the pandemic, we would not be having this conversation, we wouldn’t be open. ... These delivery platforms have let us hang on.”
The ordinance states that “restaurants, and in particular those with only a single of (sic) few locations, have limited bargaining power to negotiate lower commission fees with these third party delivery services,” yet Libby was able to negotiate a contract that was acceptable to both her restaurant and the delivery services.
The ordinance is less of a problem for the delivery workers because they can either charge more to the customer side, or stop doing business with restaurants that serve low-cost meals — a $50 meal yields a greater commission at 15% than a $15 meal from Egg Connection at 30%.
The cap actually limits the ability to arrive at a deal between restaurants and delivery vendors. It is the small mom-and-pop businesses that are more vulnerable in this regard. Now, an astute consumer might ask, “How can the restaurants possibly pay the 30% delivery service fee unless they are already charging me 30% too much?” The answer is that they are not charging 30% too much; and they cannot afford the 30% fee. I suspect that they cannot afford the 15% either.
The food/service package associated with dine-in and the food/service package associated with delivery are different. That difference is expressed in the prices on the online menus as compared to the prices on the dine-in menus.
Our astute consumer might also ask, “Wait, the delivery service is charging me a delivery fee and charging the restaurant a commission?” The answer is yes, the delivery service is collecting money from both ends. So, the restaurants and the delivery services have figured out a way to get it done with all the constraints of the declared emergency, when yet another constraint comes down from the city.
I want to reiterate that the intent of the new constraint is to help small-business restaurants, but what small restaurants really need is fewer constraints, not a new “helpful” one. Perhaps an alternative solution for struggling restaurants might be to have an existing local industry organization, or even just a few individuals, show restaurants on the edge how restaurants like Egg Connection have made delivery platforms business-saving assets.
