HomeMy Public PortalAbout2020-09-22 Item 14CITY COUNCILAGENDA REPORTCITY0^€sfe•^a^•r-?•CITY OF MILLBRAE621 Magnolia AvenueMillbrae, CA 94030SUBJECT:Consideration of Urgency Ordinance to Impose aTemporary Cap on Charges Imposed by Third-PartyDelivery Services on Food Purveyors During theDeclared Local Emergency Resulting from theCOVID-19 PandemicATTACHMENTS:1. Ordinance2. Letter from RestaurantsReport No.^3Agenda Item: /^fFor Agenda of: September 22, 2020Department: Community DevelopmentElisa Tierney, Economic^v^lqpment ManagerI/ApproveBudget Action:YesI NoFinance^review:N/AREPORT TYPE: |S| ACTION D INFORMATIONALITEM TYPE: D CONSENT D PUBLIC HEARING D EXISTING BUSINESS [g] NEW BUSINESSRECOMMENDATION:Staff recommends that the City Council adopt an urgency ordinance by at least four-fifth's vote to imposea cap on fees charged by third-party delivery services on food purveyors during the local emergency dueto the COVID-19 pandemic.BACKGROUND:The CO VID-19 pandemic has had a dramatic impact on restaurants and other food purveyors, many ofwhich had previously relied on dine-in services for a substantial amount of their revenue. Over the lastfew months, through a series of orders, the Governor, State Public Health Officer, and County PublicHealth Officer have indicated county by county, which industries can open, and which must close or stayclosed. With the exception of a short period in July, indoor dining has been prohibited in San MateoCounty.The impacts on the local business community have been substantial, and especially severe on restaurantsand food purveyors. Many have been forced to close or reduce hours, and with the exception of restaurantsoffering outside dining, the rest have been forced to rely on food takeout and delivery as the sole sourceof revenue. Most of these businesses rely on third-party delivery services to handle food orders, sincethese delivery platforms provide the restaurant a streamlined and expedient process from food ordering toorder delivery, using delivery drivers employed by the third-party service.16881721.1
The City has taken a series of actions to support local restaurants and other food purveyors. Consistentwith the State and County, the City Council adopted an Urgency Ordinance on June 9, 2020 suspendingseveral provisions of the Municipal Code that restrict the ability of restaurants and food facilities toprovide outdoor dining services. This action allows restaurants and food facilities to use certain cityproperty for outdoor dining services - once properly permitted through a no-fee outdoor diningencroachment pennitting process issued by Community Development and Public Works, as well ascompliant with all safety measures from the State of California and the County of San Mateo.DISCUSSION:Prior to the CO VID-19 pandemic, the City had a vibrant restaurant scene. According to the City'sBusiness License database, Millbrae is home to roughly 150 eating and catering businesses. Sinceimplementation of the SIP order in March 2020, food purveyors have been prohibited from providingindoor dining, banquets and catering, and as a result have lost significant revenues. Staff reviewed secondquarter (Q2 April - June) aggregated sales tax data for 2020, as this period demonstrates the full effectof the Pandemic. Millbrae's aggregated sales tax data for Q2 2020 indicates a likely 35% - 45% dropfrom Q2 of the previous year (numbers are still preliminary as many restaurants made delayed sales taxpayments in Q2). Staff is hopeful that with measures taken such as outdoor dining and restaurantpromotion, restaurant revenues will at least increase in subsequent quarters, though a return to pre-pandemic levels is unlikely for some time.One of the significant changes made by restaurants and other food purveyors over the course of thepandemic is greater use of third-party food delivery services. The various prohibitions on indoor dininghave resulted in heavy reliance on these third-party food delivery services, as more consumers morefrequently order takeout/delivery to avoid leaving their homes. Not surprisingly, these third-party fooddelivery services have greatly benefited from increased demand and sales during the Pandemic. A cursorysurvey of Millbrae restaurants indicates that DoorDash, Uber Eats, and Grubhub are the dominant fooddelivery services, with each owning smaller subsidiary companies such as Caviar (owned by DoorDash),Seamless (Grubhub), and Postmates (Uber Eats), which also serve the Millbrae community. Businessmodels differ among third-party food delivery services, with the fee structure and commission packagesvarying, but all having the underlying goal of reaching their customers through online ordering with pick-up and delivery options.Discussions with RestaurantsRecently, several owners of food purveyors approached staff to voice their concerns about thecommissions charged by these third-party food delivery services. Staff subsequently surveyed otherMillbrae restaurants to gather more information and hear their concerns and found that these third-partyfood delivery services have been a double-edged sword for restaurants during the pandemic. While aconsiderably greater percentage of sales have been conducted through the online platforms operated bythese third-party food delivery services, allowing restaurants to stay in operation, the profit from thesesales have been greatly reduced by the large commissions and fees such third-party food delivery servicescharge. Responding restaurants indicated that capping the commissions and fees charged would benefit16881721.1
their business. Restaurants also indicated that Doordash and Uber Eats are the most commonly usedthird-party services used, and that the percentage of their business conducted via third-party platformsranged from a low of 10 percent to a high of 70 percent. Typical commissions range from 25% - 30%of the total. This means that for $100 worth of food purchased through a third-party service, dependingupon the commission percentage, the restaurant would pay $25 - $30 of that $100 to the service provideroff the top (this is separate from any fees and taxes paid by the customer). Such a significant percentagesubstantially cuts into the profit potential for the restaurant. If capped, a reduction to 15% would mean10% -15% more of the proceeds would go to the restaurant. The following charts illustrate the restaurantproceeds currently and with a proposed commission cap in place.Restaurant Proceeds from $100 order - FoodDelivery Service - CurrentCommission Paid30%%•»RestaurantProceeds70%a.^Commission PaidRestaurant ProceedsRestaurant Proceeds from $100 order - FoodDelivery Service - Proposed^,.:.,.^,»^•-W^'a.N'1?E?Commission Paid15%^.iRestaurantProceeds85%Commission PaidRestaurant Proceeds^'Wvt'..,iw-^I"-;• s^«&fei:16881721.1
Staff recommends the proposed ordinance also prohibit food delivery services from reducing thecompensation, including any tip or gratuity, paid to any of their workers as a result of these caps imposed.Economic Vitality Advisory Committee and Status of Other CitiesAt its August 27, 2020 meeting, the Economic Vitality Advisory Committee discussed implementing acommission cap. Although no formal action was taken, the membership enthusiastically supported theconcept, with the only concern raised being whether Millbrae alone would have sufficient clout in theform of market share for the platforms to comply. Staff has subsequently discussed the concept withother jurisdictions to gauge interest. South San Francisco has already implemented a cap, and it is beingdiscussed at the staff level in a number of other cities such as Redwood City, San Bruno, San Carlos andSan Mateo. Other Bay Area cities, including San Francisco, Berkeley, Fremont, and San Leaadro havealready adopted similar measures, as well as other cities around the country, such as Seattle, Los Angeles,and New York City.Proposed Urgency OrdinanceThe proposed ordinance limits the fees that third-party food delivery services can charge to restaurantsand other food purveyors to 15% of the order's purchase price where the order is delivered to thecustomer, and 10% where the customer picks up the order. The limit applies to all fees charged to foodpurveyors, including fees for marketing, listing, and credit card processing. The ordinance prohibits thethird-party food delivery service from charging other fees to the food purveyors, from altering the pricesset by the food purveyors, or from reducing the compensation of drivers as a result of the ordinance.This limit is consistent with the measures taken by other Bay Area cities.The ordinance does not limit the ability ofthird-party food delivery services to charge fees to customers.The ordinance also requires that third-party food delivery services provide receipts to customers and foodpurveyors that itemizes each fee and discount applied. The ordinance grants the City Manager authorityto issue additional regulations implementing the ordinance.If adopted, enforcement would take the form of civil action on the part of the restaurant or driver to seekdamages or injunctive relief to prevent continued violations. The ordinance would require that a notice ofalleged violation be first given to the third-party food delivery service, who would have seven businessdays to cure any alleged violations (such as issuing a refund or adjusting their mobile applications forordering), before a civil action may be filed.The ordinance would be effective for 180 days after the expiration of the local emergency and emergencydeclared by the City Council in response to the COVID-19 pandemic on March 19, 2020 via ResolutionNo. 2020-18. Extending the effect of the ordinance beyond the duration of the emergency is necessary togive food purveyors additional time to recover as the public regains trust in the safety of indoor dining asthe pandemic subsides.California Government Code Section 36937 authorizes the City Council to introduce and adopt anordinance it declares to be necessary for immediate preservation of the public peace, health, and safety atone and the same meeting if passed by at least four-fifths affirmative votes. The continuing operation of16881721.1
restaurants and other food purveyors is important to the preservation of the public peace, health, safety,and welfare of the City, its residents, and business community. Operation of restaurants and other foodpurveyors has been designated as an essential activity under several emergency orders due to their role inproviding food to the public. The closure of these restaurants and food purveyors would limit the abilityof many employees and owners to provide for themselves and their families. Closure of these businesseswould also degrade the City's economic vitality and ability to recover from the COVID-19 pandemic.While an urgency ordinance may go into effect immediately, staff recommends delaying implementationof the ordinance for ten business days to allow third-party food delivery services to implement anynecessary changes.Outreach to Third-Party Food Delivery ServicesAs a courtesy, staff has contacted the respective public affairs managers for DoorDash, Uber Eats, andGrubhub to notify them of this item for Council consideration. Any responses received will becommunicated to Council at or prior to Tuesday's Council meeting.FISCAL IMPACT:There is no impact to the General Fund of adopting the proposed Urgency Ordinance. Staff may incurincidental expenses for outreach and implementation of the program.COUNCIL ACTION:Staff recommends that the City Council consider adopting an urgency ordinance by at least four-fifth'svote imposing a 15% cap on commissions charged by third party delivery services on local restaurantsfor delivery and a 1 0% cap on commissions for pick-up orders, which would expire six months followingthe expiration of the emergency and local emergency declared by the City Council in response to theCOVID-19 pandemic.16881721.1
ATTACHMENT 1ORDINANCE NO. 2020-CITY OF MILLBRAE, COUNTY OF SAN MATEOSTATE OF CALIFORNIAADOPTING AN URGENCY ORDINANCE ESTABLISHING A TEMPORARYLIMIT ON THE CHARGES IMPOSED BY THIRD-PARTY DELIVERY SERVICES ONFOOD PURVEYORS DURING THE DECLARED LOCALEMERGENCY RESULTING FROM THE COVID-19 PANDEMICWHEREAS, international, national, state, and local health and governmental authorities areresponding to an outbreak of respiratory disease, COVID-19, caused by a novel coronavirus ("CO VID-19");andWHEREAS, on March 4, 2020, the Board of Supervisors of the County of San Mateo proclaimed alocal state of emergency and the Health Officer of County of San Mateo declared a local health emergency inresponse to the COVID-19 outbreak; andWHEREAS, the Centers for Disease Control and Prevention, the California Department of Health,and the San Mateo County Department of Public Health have all issued recommendations including, but notlimited to, social distancing, staying home if sick, canceling or postponing large group events, working fromhome, and other precautions to protect public health and prevent transmission of this communicable virus; andWHEREAS, on March 13, 2020, the President of the United States of America declared a nationalemergency and announced that the federal government would make emergency funding available to assiststate and local goveriiments in preventing the spread of and addressing the effects ofCOVID-19; andWHEREAS, on March 19, 2020 the City Council adopted Resolution No. 2020-18 proclaiming theexistence of an emergency and a local emergency within the City; andWHEREAS, on March 19, 2020, the Governor of the State of California, through Executive Order N-33-20, imposed a statewide shelter in place order except as needed to maintain continuity of operations of thefederally-defined critical infrastructure sectors or to access necessities such as food, prescriptions, and healthcare or other authorized activities; andWHEREAS, the County of San Mateo previously requested and was approved for a variance allowingthe County to re-open businesses and activities in accordance with the re-opening stages outlined in the StateResilience Roadmap for California; however, since the State and County began re-opening, the number ofidentified COVID-19 cases continues to grow; andWHEREAS, on July 13, 2020, the State Public Health Officer issued an order closing all bars, pubs,breweries, brewpubs, dine-in restaurants, wineries and tasting rooms, family entertainment centers, zoos,museums, and cardrooms; andWHEREAS, since July 29, 2020, San Mateo County has been on the State Department of Health'swatch list of counties that are being monitored for worsening COVID-19 trends, resulting in furtherrestrictions on reopening; and16874857.5
ATTACHMENT 1WHEREAS, restricting restaurants to takeout or delivery offerings, and limited indoor and outdoor diningwith decreased capacity, has placed a sudden and severe financial strain on many restaurants, particularlythose that already operate on thin margins, adding to financial pressures in the industry that predate theCOVID-19 crisis; andWHEREAS, it is in the public interest to take action to maximize restaurant revenue from the takeoutand delivery orders that, with the exception of limited dining operations, are currently one of the primarysources of revenue for these businesses to enable restaurants to survive this crisis and remain as sources ofemployment and neighborhood vitality in the City; andWHEREAS, as restaurants return to modified, lower capacity restaurant service, it is unclear howrestaurants will fare, as restaurants must create new, physically distanced dining areas and implementincreased training and sanitation measures; andWHEREAS, it is unclear how quickly restaurant patrons will return to restaurant dining andrestaurants may continue to see a significant loss of revenue for an ongoing period of time; andWHEREAS, many consumers use third-party applications and websites to place orders withrestaurants for delivery and takeout, and these third-party platforms charge restaurants fees; andWHEREAS, service agreements between some restaurants and third-party platforms provide that theplatform charges the restaurant 10 percent of the purchase price per order while others charge up to 30 percentof the purchase price per order; andWHEREAS, restaurants have limited bargaining power to negotiate lower fees with third partyplatforms, given the high market saturation ofthird-party platforms, and the dire financial straits restaurantsare facing in this COVID-19 emergency; andWHEREAS, risk of price gouging increases with a sustained state of emergency, and news outletshave reported incidents of unjustified increases in fees for food delivery services threatening the continuedviability of local restaurants; andWHEREAS, state anti-gouging laws do not provide any protections in the market for food deliveryservices; andWHEREAS, capping the per-order fees at 15 percent will accomplish the legitimate public purpose ofeasing the financial burden on struggling restaurants during this emergency while not unduly burdening third-party platforms; andWHEREAS, the California Constitution, Article XI, Section 7, provides cities and counties with theauthority to enact ordinances to protect the health, safety, and general welfare, of their citizens; andWHEREAS, California Government Code Section 36937 authorizes the City Council to introduce andadopt an ordinance it declares to be necessary for immediate preservation of the public peace, health, andsafety at one and the same meeting if passed by at least four-flfths affirmative votes.NOW, THEREFORE, THE COUNCIL OF THE CITY OF MILLBRAE ORDAINS ASFOLLOWS:16874857.5
ATTACHMENT 1Section 1. INCORPORATION OF RECITALS. The City Council finds that the facts in theforegoing recitals and the agenda report presented with this Ordinance are true and correct and areincorporated into this Ordinance by this reference and adopted as findings of the City Council.Section 2. URGENCY ORDINANCE. The City Council hereby finds, determines, and declaresbased on the facts in the foregoing recitals, the agenda report, and all testimony and evidence presented to theCouncil that this Ordinance is needed for the immediate preservation of the public peace, health, safety, orwelfare pursuant to Section 36937 of the California Government Code. Capacity for indoor dining is severelyrestricted. Many food purveyors use third-party food delivery services, and due to the high fees imposed bythird-party food delivery services, must increase food prices to stay in business. Residents who rely on fooddelivery may be not be able to absorb increased food prices. Also, some food purveyors being charged highfees struggle to remain financially viable. If these food purveyors close, their workers will lose employment,which affects their ability to feed and shelter their families.Section 3. DEFINITIONS. For purposes of this Ordinance, the following definitions apply:(a) "Online Order" means an order placed by a customer through or with the assistance of a platform providedby a third-party food delivery service, including a telephone order, for delivery or pick-up.(b) "Purchase Price" means the price, as listed on the menu, for the items contained in an online order, minusany applicable coupon or promotional discount provided to the customer by the covered establishment throughthe third-party food delivery service. This definition does not include taxes, gratuities, and any other fees orcosts that may make up the total amount charged to the customer of an online order.(c) "Covered Establishment" means any purveyor of processed or prepared raw and ready-to eat food orbeverages located in the City, including, without limitation, restaurants, delicatessens, bakeries, coffee shops,and other eat-in, catering, or carry-out services.(d) "Services" means all services provided by the third-party food delivery service to the coveredestablishment, including, without limitation, promoting, advertising, or otherwise strengthening the businessor performance of the restaurant, credit card processing, listing, and delivery.(e) "Third-Party Food Delivery Service" means any individual, firm, association, corporation or entity throughwebsite, mobile application or other internet service that offers or arranges for the sale of consumer food orbeverage items for same-day delivery or same-day pickup from a restaurant, eating or drinking establishment,or similar food purveyor.Section 4. LIMITATION ON FEES.(a) A third-party food delivery service may not charge a covered establishment a fee per online order forthe use of its services that totals more than 15% of the purchase price of such online order where the order isdelivered to the customer.(b) A third-party food delivery service may not charge a covered establishment a fee per online order forthe use of its services that totals more than 10% of the purchase price of such online order where the order isnot delivered to the customer.(c) A third-party food delivery service may not charge a covered establishment any fee, commission, orcost for use of its services other than as permitted in Subsections A and B, above.16874857.5
ATTACHMENT 1(d) A third-party food delivery service may not charge a customer any purchase price for a food orbeverage item that is higher than the price set by the covered establishment on the third-party food deliveryservice or, if no price is set by the covered establishment on the third-party food delivery service, the pricelisted on the covered establishment's own menu.(e) A third-party food delivery service may not reduce the compensation rates paid to the delivery servicedriver or retain any portion of amounts designated as a tip or gratuity as a result of this Ordinance. The third-party delivery service must pay any tip or gratuity, in its entirety, to the person delivering the food orbeverages.(f) Each receipt generated by the third-party food delivery service for both the customer or the coveredestablishment must clearly state each fee charged, the gratuities paid, and any discounts offered by the coveredestablishment.Section 5. REMEDIES.(a) Violation of this Ordinance subjects the violator to a civil action to recover all actual damages resultingfrom the violation, and for injunctive relief.(b) A court must award reasonable attorneys' fees and costs to a plaintiff that prevails in an action against athird-party food delivery service. If plaintiff fails to prevail against a third-party food delivery service, a courtmust award reasonable attorneys' fees and costs to the third-party food delivery service upon a determinationby the court that the plaintiffs action was frivolous.(c) A civil action alleging a violation of any provision of this Ordinance may commence only after theplaintiff has provided written notice to the third-party food delivery service of the provisions of the ordinancealleged to have been violated and the facts to support the alleged violation, and the third-party food deliveryservice fails to cure the alleged violation within seven days, or continues to violate the same provision of theOrdinance with respect to the plaintiff.(d) Violations of this order is punishable as set forth in Chapters 1.05 of the Millbrae Municipal Code. Forthe puqioses of Section 1 .05.020, the Community Development Director has citation authority for thisOrdinance.(e) This order is not intended to, and does not, create any rights or benefits, substantive or procedural,enforceable at law or in equity, against the City ofMillbrae, its departments, officer, or employees.Section 6. DELEGATION OF AUTHORITY. The City Manager, or designee, is authorizedto implement this order and issue any necessary guidance or rules consistent with this order.Section 7. CEQA NOT APPLICABLE. This Ordinance is not subject to the CaliforniaEnvironmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15060(c)(2) (the activity willnot result in a direct or reasonably foreseeable indirect physical change in the environment) and Section15060(c)(3) (the activity is not a project as defined Section 15378 of the CEQA Guidelines because it hasno potential for resulting in physical change to the environment, directly or indirectly).Section 8. SEVERABILITY. In the event any section, clause or provision of this Ordinance isdetermined invalid or unconstitutional, such section, clause or provision is deemed severable and allother sections or portions hereof remain in full force and effect. The intent of the City Council is that itwould have adopted all other portions of this Ordinance irrespective of any such portion declared to be16874857.5
ATTACHMENT 1invalid or unconstitutional.Section 9. PUBLICATION. The City Clerk is directed to promptly cause the Ordinance to postedin the City Clerk's office; posted on the City's website; and be published once in a newspaper of generalcirculation published in the County of San Mateo and circulated in the City ofMillbrae.Section 10. EFFECTIVE TERM. This Ordinance is introduced and adopted on September 22, 2020and is effective on October 3, 2020 in accordance with Government Code Section 36937, and remains in fullforce and effect for 1 80 calendar days after the expiration of any emergency or local emergency related toCOVID-19 declared by the City Council under Chapter 2.25 of the Millbrae Municipal Code and/or Section8630 et seq. of the California Government Code, unless repealed, extended or replaced by an affirmative voteof the City Council.The foregoing ordinance was adopted by the City Council of the City ofMillbrae, County of SanMateo, State of California by the following vote:AYES:NOES:ABSENT:MayorATTEST:^City Clerk16874857.5
ATTACHMENT 2^M€"Catering and Event PlanningSeptember 15, 2020.Millbrae City Councilc/o Ms. Elisa TiemeyHousing and Economic Development ManagerCityofMillbrae621 Magnolia AvenueMillbrae,CA 94030Dear Ladies and Gentlemen of the Council,I am writmg to you to endorse the plan to cap the commissions that food delivery services chargerestaurants at 15%. This does not have to be a permanent move but it is especially needed now, duringthe Covid-19 government restrictions on restaurant occupancies. The food business is a relatively lowmargin industry and adding costs to an already straggling group of local businesses is not good for ourlocal economy.I speak as an owner of a catering company that moved from San Francisco to Millbrae in 2016. We arelooking for other business opportunities since our special events business has all but disappeared becauseof the pandemic. We have the resources to offer meals for third-party delivery but the currentcommissions for food delivery services prevents us from entering this line of business as a profitableopportunity. Our entire staff was encouraged to hear that you are considering this proposal which givesthem hope that we will be able to develop another sales outlet that will help us remain in business.Thank you for your interest in this proposal and, if I can be of any assistance in answering questions,please let me know.Sincerely,Janet W. GriggsOwnerTaste Catering and Event Planning201 Adrian Road, Millbrae, CA 94030 415.550.6464 Fax415.550.1858
ATTACHMENT 2Rose VelillaSubject:RE: Delivery Service Commission CapFrom: Gary Lin <lailaimillbrae@gmail.com>Sent: Thursday, September 10, 2020 12:43 PMTo: Khee Lim <KLim@ci.millbrae.ca.us>Subject: Delivery Service Commission Cap9/4/2020RE:_ReguestfQrCitv .Council to Impose Commission Cap of 15% on Food Delivery Services (DoorDash, uberEATS, Postmates)Dear Tom,This is Gary from Lai Lai Restaurant on Broadway in Millbrae.Since the shelter-in-place, most of the restaurants in Millbrae have been operating in survival mode. Since indoor dining is prohibited,consumers have turned to delivery methods as a main way of getting the restaurant meals. Delivery sales now is more than 50% of overallsales at Lai Lai. This is killing the restaurants because Lai Lai, like other restaurants, pays 30%+ commission to delivery services such asDoorDash and uberEATS. No restaurant or other small businesses could survive on more than half of sales that pays out 30%+ commission.I did some research and found that various cities in the U.S. started to cap the commission. San Francisco, Oakland, Fremont, Berkeley, LosAngeles, Seattle, Philadelphia, Las Vegas, Washington DC, and San Leandro all have imposed a 15% cap on commission. New York Cityimposed the 15% cap until 90 days after restaurants are allowed to reopen to indoor dining at 100% capacity. I believe the City of Millbraecould do the same. Here is a link to an article from EATER SF that relates to what I'm proposing.https://sf.eater.com/2020/7/30/21348198/doordash-postmates-uber-eats-grubhub-oakland-delivei-y-feesThis is most urgent to all the restaurant operators in Millbrae and I hope you and the Council could draft a similar regulation. This willimmediately inject 15% of sales directly into the restaurants and help them survive. This will make a HUGE difference!You've supported Lai Lai throughout these years. Your action will help us make it through the COVID-19 pandemic. Thank you in advancefor your consideration and assistance.Gratefully,Gary LinManangerLai Lai Restaurant334 BroadwayMillbrae,CA 94030650.692.8898 work650.302.0976 mobile1