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By Elena Kadvany

To help struggling restaurants, Santa Clara imposes cap on third party delivery fees

Uploaded: Sep 3, 2020

Santa Clara has joined several Bay Area cities in adopting a temporary cap on the fees third party delivery apps can charge restaurants, which owners say can be prohibitively high and eat away at revenue that's already been drastically reduced during the pandemic.

The Santa Clara City Council unanimously approved on Tuesday an emergency ordinance implementing a 15% per-order cap for food delivery companies like DoorDash and Grubhub. The temporary measure aims to "accomplish the legitimate public purpose of easing the financial burden on struggling restaurants during this emergency while not unduly burdening third-party platforms," the ordinance reads.

Signs in the window of Osteria Toscana in Palo Alto promote the restaurant's takeout and delivery options. Photo by Magali Gauthier.

"Several restaurant owners told me they are facing fees as high as 30% from these third-party food delivery apps," Mayor Lisa M. Gillmor said in a press release. "Many of them have no choice but to pay these fees due to their current reliance on delivery orders. Now, the city is enacting this ordinance to help our struggling restaurants stay in business during the pandemic and beyond."

Ruth Shikada, assistant city manager, said that the city started looking into the possibility of a delivery cap after hearing concerns about the fees from local restaurant owners. They found several local examples of similar ordinances: San Francisco, Santa Cruz, Berkeley, Fremont, San Leandro and South San Francisco have all adopted delivery caps in recent months.

Navin Tekchandani, an owner at The Yellow Chili in Santa Clara, told the council that the modern Indian restaurant is now relying heavily on delivery orders after its usual source of revenue -- corporate meals and consultants traveling to Silicon Valley for work -- dropped off during the shutdown.

"We are highly dependent on corporate revenue to survive as a fine dining restaurant ... which has almost disappeared," he said. "Fine dining restaurants are not going to survive if the delivery fee is more than 15% simply because our margins are not that high."

Some local restaurants have started offering delivery themselves and many urge customers to place orders with them directly and pick them up to avoid the delivery fees.

The ordinance applies to all restaurants in Santa Clara, regardless of where they're delivering food, staff said. It took effect immediately, but if a delivery company charges a fee higher than 15% between Sept. 2 and 9, they won't be considered in violation of ordinance if they provide a refund to the restaurant before Sept. 19.

The Santa Clara ordinance also makes it illegal for delivery companies to keep any portion of a driver's tips, ensuring any gratuity goes directly to the driver. The ordinance requires third-party delivery companies to disclose the fees charged to app users, gratuities paid and any discounts offered by the restaurants.

The delivery cap will remain in effect in Santa Clara until the end of the city's COVID-19 state of emergency.

"30% is not acceptable when their revenue has gone down," Councilmember Raj Chahal said of restaurants. "This is in the right direction."