You can protect your RDS from the disruption of a fee cap by making a plan now.
During the pandemic’s peak, a number of cities put a 15% cap on restaurant delivery fees. Their goal was to protect restaurants from losing revenue when the future was so uncertain.
It’s been over two years since the pandemic began in the United States, but these caps are still affecting RDSs. Two big cities recently announced changes to their own regulations around delivery fees:
- San Francisco adopted a permanent 15% restaurant delivery fee cap in June of 2021. However, the city is allowing for a little wiggle room. Starting on January 31, 2023, that 15% cap only applies to “core delivery services.” If a restaurant chooses an additional service that costs more than 15% of the purchase price to provide, an RDS can charge more.
- Seattle implemented a temporary 15% fee cap in April of 2020. As of August 2022, city council has voted to make the cap permanent. Seattle’s law allows RDSs the same flexibility recently granted by the city of San Francisco. In other words, they can charge more than 15% if they are providing extra services.
Is your city next?
San Francisco and Seattle are hardly the first cities to announce caps on delivery fees. Your city may have done the same—or it may be planning to do so in the future. Most RDSs charge 25-30% commission, so the possibility of a 15% cap can be a bit daunting for their finances. Thankfully, there are things you can do to prepare your RDS.
Pass on the extra charge to the customer.
On a grand scale, a 15% cap can put a huge dent in revenue for your RDS. But for a single customer, it may only amount to a few dollars in savings. You can build back that revenue, one order at a time.
In fact, many RDSs did exactly this when all those 15% caps were first announced. They needed a way to close the gap between their usual commission revenue and the new cap. So they simply added a “delivery surcharge” to every order and charged the customer those extra dollars to make up the difference.
At this point, no one has reported a dramatic drop in revenue as the result of implementing these surcharges. Food delivery is virtually never the cheapest option for eating. So it’s safe to assume that most delivery customers aren’t particularly price sensitive. If they’re got their heart set on delivery, a few extra bucks is unlikely to stop them from placing an order.
Consider what “extra services” you might offer to justify an extra fee.
Given the trend we’re seeing on the West Coast, there’s reason to believe that more cities will copy San Francisco. In other words, you may have a way around the 15% cap—if you can provide additional, valuable services. In fact, you may already be doing so!
There doesn’t appear to be a formal definition of “additional services” just yet, but these might qualify:
- Marketing services. You might promote your restaurant clients via email, social media, your website, and more.
- Digital storefronts. Offering to host and manage your restaurant clients’ online menus may constitute an additional service.
Start doing the math now.
Your city may not have implemented any temporary or permanent restaurant delivery fee caps yet. But these laws are becoming increasingly common, and it’s probably best to have a plan in place.
Block off a few hours now to think about what you’ll do if you find yourself dealing with a delivery fee cap. Explore all your options: surcharges, customer fees, additional services, anything you can think of. If you can make a plan now, you’ll be ready to act if a law gets passed in your area. As a result, your RDS can keep moving without pause.
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