Your favorite neighborhood restaurant has been through a lot during the pandemic — and most are nowhere near out of the woods. Remember those on and off and on-again indoor dining bans? They succeeded in keeping customers away from restaurant dining rooms. Unsurprisingly, they also caused restaurants’ revenues to plummet.
For those fortunate enough to make it through the pandemic, the average restaurant now carries $160,000 in debt — the equivalent of more than three years’ profit, according to the Washington Hospitality Association. With restaurants’ net revenue plummeting yet again as we move into the current high inflation, post-pandemic phase, the city of Seattle should make the 15% third-party delivery fee cap temporarily imposed during the pandemic permanent.
Third-party delivery services were an important tool for many local restaurants who made it through the impossibly difficult pandemic, providing a viable connection to customers that might otherwise have been unavailable. Pre-pandemic delivery companies were already charging restaurants 30% or more in some cases, which was already untenable.
But when restaurants became so quickly dependent on third-party delivery services because indoor dining was prohibited, the risk of unconscionable fees became a concern just as quickly, which is why the city capped delivery fees at 15% within the first few months of the pandemic as part of its emergency orders. The reasons cited by then-Mayor Jenny Durkan and members of the Seattle City Council at the time were urgent and sound: Inflated fees paid by restaurants to delivery services created undue financial hardship for businesses who were already suffering financially.
Today, even as customers have returned to restaurants for in-person dining, they continue to rely on third-party delivery as a routine dining option. Thankfully, the city’s emergency orders are set to expire as we move into the post-pandemic phase — yet the rationale for capping third-party delivery fees is as urgent and sound as ever, perhaps even more so.
Restaurants operate under the tightest of margins in the best of circumstances, earning less than a nickel for every customer dollar spent, according to state Department of Revenue data. Food represents a third of restaurants’ costs, and labor represents another third, with rent, utilities, debt service and supplies making up the remainder.
But two years of pandemic response efforts have created seismic shifts in the economy, which have upended the business playing field for restaurants and made our operating margins even tighter.
Wholesale food prices are up nearly 16% over last year. Earnings for restaurant workers are up over 15% year over year. And yet, since inflation hits households too, restaurants resist raising their prices to reflect their growing costs because they need to keep their guests coming back. When you add to the picture the debt mentioned earlier that restaurants took on just to keep their doors open during the pandemic, it should come as no surprise that, even as customers are coming through their doors once more, restaurant net revenues have plummeted yet again. Data collected by the National Restaurant Association indicates it has fallen as much as 75%, with margins just above 1%.
Unless delivery fees are permanently capped at 15%, we should expect unconscionable fees to return, which would force impossible choices on many in Seattle’s diverse network of locally-owned, independent, mom-and-pop restaurants. With margins for restaurants as razor thin as they are under current economic circumstances, a return of 30% third-party delivery fees would wipe a restaurant’s entire margin on a given sale. Many locally owned restaurants would either forgo third-party delivery services and the wider customer base they provide or take a loss on third-party delivery transactions. This no-win scenario is neither just nor equitable.
Making the fee cap permanent will ensure the best customer experience by keeping delivery a viable option as restaurants navigate post-pandemic challenges, including inflation, supply-chain issues and staffing shortages. Capping the delivery fee will not level the economic playing field for restaurants all by itself, but it will provide them with much-needed assistance and predictability without additional financial hardship as they seek to recover and thrive.