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AN ORDINANCE ENACTING A NEW ARTICLE IV IN CHAPTER 9 OF THE COMMERCE CITY REVISED MUNICIPAL CODE TO ESTABLISH A TEMPORARY MAXIMUM FEE THAT CAN BE CHARGED FOR THIRD-PARTY FOOD DELIVERY SERVICES IN THE CITY OF COMMERCE CITY, COLORADO
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Summary and Background Information:
Restaurants all around the world are struggling during the COVID-19 pandemic and many are in danger of closing. The National Restaurant Association estimates that the COVID-19 pandemic will result in $225B in lost revenue and the elimination of 5-7 million jobs in restaurants.
There are over 80 restaurants in Commerce City, including full-service, quick service and fast food. All restaurants in Colorado were ordered to close their dining rooms on March 16, 2020 and they remained closed until June 19, 2020. At this time, the Colorado Department of Public Health and Environment (CDPHE) allowed restaurants to reopen their dining rooms at 50% their normal capacity. CDPHE began the DIAL or county tiered system on September 15, 2020 and on October 28, 2020, due to rising COVID cases, Adams County went to a Safer at Home Level 3 tier which further limits in-dining capacity from 50% to 25%.
Due to restaurants in Commerce City currently only able to have 25% of their normal in-dining capacity, many have or are looking at increasing food delivery options. Some restaurants are utilizing third party delivery apps companies to offer delivery service to customers, such as GrubHub, Postmates, Door Dash or Uber Eats . A report from eMarketers said that 40 million Americans used a food delivery app in 2019. That number has likely risen exponentially in the past few months, due to the coronavirus pandemic.
Reportedly, this is how the delivery app business model works:
- Customer pays a delivery fee ($5-10 per order)
- Customer pays a tip to delivery driver (typically 15-20%)
- Restaurant pays up to 15-35% commission on each order
- Restaurant may pay additional fees for on-line marketing support
- Platform pays the driver, driver background check, app technology
- --Driver earns around $1+ per delivery and 100% of tip. Drivers use their own vehicle and are responsible for their own expenses (ie. gas, insurance, phone etc.)
Restaurant owners that use these services have shared that there are growing issues when using a third party delivery app company, including rising commissions/fees (up to 35% of food charge), which are turning off some customers and shrinking restaurant revenues. When Adelante’s Board of Directors was asked to give support to placing a temporary cap on third party delivery fees, they agreed and shared this story: El Lechon food truck tested third party delivery fees. They had someone order using a third party app and the order total was $80 with a 90-minute delivery time. The same order in person was $32 with about a 10-minute wait time.
To support restaurants during the COVID pandemic, when many restaurants need to increase food delivery services, the Colorado Restaurant Association is asking municipalities to place temporary caps on third party delivery fees and include language in ordinances that ensures 100% of the tips go to delivery drivers--driver pay cannot be decreased to cover fee caps. Several local municipalities have or are in the process of passing ordinances to this effect, including Aurora, Broomfield and Denver.
When staff asked about third party delivery app companies and if Commerce City restaurant owners would support a temporary cap on fees, this is what they shared:
“The few (customers) that have used these services have made complaints about the fees. This reflects on our business negatively because customers call us to complain.” -Elsa Rojo, El Camaron
“We use GrubHub, DoorDash and Uber Eats. Their fees are high (28-33%) and can be misleading. We would definitely support a temporary cap on fees.” -Theo Castrejon, Ted’s Philly Cheese Steaks & Mexican Grill
"We don't use third party delivery app companies because of the high fees. When we refused to use services from Uber Eats, their website started listing us as closed. When we did use them, the company would post our menu and increase the prices of the menu items." -Ben Martinez, El Jardin restaurant.
"We would support a temporary cap of 15%. When Denver's ordinance took effect, we saw an increase in the total number of sales because people were paying less." -Gabe Wheeler, G's Tacos.
Staff supports placing a temporary cap of 15% on third party delivery fees as a way to bring some financial relief to Commerce City's restaurants during the pandemic. The proposed ordinance prohibits the following actions:
- Performing delivery or other service or offering that service for a restaurant without the restaurant’s consent.
- Charging commissions or fees for the delivery platform service (for delivery or pick up) exceeding 15% of the purchase price (based on the restaurant menu price, not including taxes, tips, or other fees).
- Garnishing tips to cover the fee limit.
- Charging fees for phone orders through the platform that don’t result in a transaction.
The ordinance also requires clear disclosures of fees and other costs prior to concluding the order and on receipts.
The ordinance provides for a civil penalty consistent with the City’s existing civil infraction penalties. A violation will be investigated and may be cited by a designee of the city manager. A platform cited for a violation of this section may protest the citation using the City’s existing administrative hearing process. Revocation or suspension of a business license may be sought.
The ordinance is effective through March 31, 2021. The ordinance requires the city attorney to prepare an ordinance repealing the ordinance if restaurants are permitted to operate at full capacity before that date.
Commerce City will name a restaurant delivery fee program coordinator to investigate complaints and initiate notices of violation if necessary as part of any needed enforcement action.
Staff Responsible (Department Head): Michelle Claymore, Economic Development Director
Staff Member Presenting: Michelle Claymore, Economic Development Director
Staff Recommendation: Approve Ordinance
Suggested Motion: Motion to approve Ordinance 2300