Alan MacIntosh has done everything he can to keep his restaurant customers happy during the COVID-19 pandemic.
Since shutting down his dining room in March, the owner of Doragon Ramen shop in Ashland has been doing 99 percent of his business through online take-out orders after he asked his customers to pre-pay and order on the web to help keep his employees safe.
So MacIntosh was puzzled when customers began asking about a new service fee they’d noticed on their bills. Upon further inspection, he realized that his point-of-sale system, provided through the Providence-based company Upserve, had begun tacking on a 5 percent fee to all orders. Not only had the company added the new fee without his knowledge, they did so without adequately explaining to customers that it was Upserve, not MacIntosh, who was pocketing the charges, he said.
“People weren’t leaving tips because they thought the fees were service charges for the staff,” MacIntosh said. MacIntosh pays a monthly service fee to Upserve for its system, which allows him to take orders and manage sales. The company also charges 15 cents per transaction, plus the cost of processing credit card fees. Nearly 10,000 restaurants use the platform and typically pay between $99 and $199 a month for the service. But since the pandemic started, the company has begun offering free online ordering and management tools to recruit new users.
MacIntosh believes that the company added the new service charge to take advantage of the fact that restaurants were solely dependent on online sales. “It was a really bad business practice and based on pure greed," he said.
Upserve chief marketing officer Aman Devgan countered that the company is providing “a lifeline” for restaurants, and that the fees are standard practice in the industry. During the crisis, the company has been offering additional resources to its partners and launching online ad campaigns to help drive sales. “These investments come at a difficult time and have substantially increased our cost burden,” Devgan said in an e-mail.
The COVID-19 pandemic has laid bare the fragility of the restaurant industry. With its razor-thin margins and a payment structure reliant on tips, every additional charge adds up quickly for owners, particularly now as the cost of food has been rising due to shortages. Despite this, many are purposely keeping their prices low to keep their customers’ orders coming in. While there’s been a national push for legislation to force services like GrubHub and Uber Eats to lower delivery fees, few owners were worried about their point-of-sale systems, which act as a financial backbone for their businesses. So, to find out that Upserve was tacking on fees without their knowledge was infuriating for owners.
“For many, many years, many people have looked at restaurants and tried to figure out ways to get into our income, because we’ve always had a steady revenue steam and a growing revenue stream,” said Tony Maws, the owner of Craigie on Main and one of the leaders of the Mass Restaurants United Group, which has been advocating for federal and state relief for restaurants during the pandemic.
That revenue stream helped lead to the rapid ascent of Boston-based restaurant payment system Toast, which completed a $400 million funding round in February, bringing the company’s valuation to $4.9 billion. The company laid off 1,000 workers shortly after the pandemic’s impact on the restaurant industry became apparent.
Upserve, which was founded in 2009 in Providence under the name Swipely, holds the title of top-funded startup in Rhode Island, having raised $191 million to date, according to CB Insights. In 2017, the company became part of the Vista Equity Partners private equity firm’s portfolio; Upserve founder Angus Davis, a major business leader in the city, stepped down from his role as CEO in 2018.
Until the pandemic, only a handful of Upserve users were placing online orders through the service. But from February to April, the company saw a 169 percent increase in restaurants using its online ordering platform, the company told Rhode Island Inno last week. Upserve also furloughed workers but did not provide exact numbers, but has said it has had workers return to work.
Many of Upserve’s current users say that its development hasn’t kept pace with other point-of-sale systems on the market. And now hundreds of frustrated restaurant owners across the country have been pushing back on the new service fees, saying Upserve is undermining them when they’re at their weakest.
“It’s been very disappointing, I feel like they’re taking advantage of the situation, and they’re taking money from our customers,” said Mayra Ramirez, the owner of Mexico City Taqueria, which is adjacent to Doragon Ramen in Ashland. Ramirez noticed that her customers are placing more phone orders, and fears their attempts to avoid service fees means she’ll have to begin swiping more customer’s cards in-store, thus putting herself and employees at risk.
Several owners say they have gotten angry calls from customers about the added charges, which in some cases caused credit cards to be flagged for fraudulent activity. Some have pulled down their online ordering platforms to avoid the fees entirely. And many owners feel like their hands are tied; if they quit using the Upserve system they could be subject to early termination fees worth thousands of dollars, while the cost of moving to a new platform and getting it up and running is a big expense and risk.
“The timing couldn’t be worse, considering everything that we’re facing right now,” said Maura Davis McAuliffe, the co-owner of The Mad Raven in Waltham, and The Raven’s Nest and Tessie’s bar & kitchen in Walpole. “We’re working twice as hard and making half as much money but we haven’t put our prices up and now they’re dipping in?”
McAuliffe, a former attorney who served as general counsel for the Boston Globe, said she believes that Upserve violated its terms of service in instituting a fee without properly informing its client base. The company included the fee update in an email to users of the platform with the subject line: “Want to increase your order revenue 60%?” Near the bottom of the e-mail was a notice about the new fees.
McAuliffe herself caught wind of the charges after she noticed them on a patron’s e-mailed receipt. Attempting to figure out the charge, she placed on online order at her own restaurant, and noticed a $1.99 fee on a $10.70 order of fried pickles.
“Restaurants have no way of tracking these charges as they go directly to Upserve and they are not reported anywhere in our system. We do not even know of the charge unless a customer alerts us," McAuliffe said. She said Tessie’s is making about $100,000 a month right now in online orders, so by her estimates, Upserve went "from making $200 a month in subscription fees to $5,000 a month, but now off our customers, for no additional service provided.”
Last week, after restaurant owners complained, the company said it would scale back the charges from 5 percent to 2.99 percent per order, and remove the $.99 minimum service fee. Upserve also said it would make the fees more transparent to customers placing orders at restaurants.
“It is clear to us now that we could have been more explicit in sharing this change and explaining the reasons behind it,” the company’s CEO, Sheryl Hoskins, wrote in an e-mail to users.
“Upserve is proud to work with and tirelessly support our restaurant customers as together we face the damaging effects on the industry brought on by the pandemic,” Devgan wrote in an e-mail to the Globe. The fees, he added, are “plainly permitted under the relevant agreements and is clearly communicated to consumers.”
Some users say they’re still committed to Upserve. Katie O’Donnell, the owner of the Bywater restaurant in Warren, R.I., said many of her customers haven’t noticed the charges, and she’s willing to give the company the benefit of the doubt in a chaotic time in the industry.
“They pivoted so fast to roll out online ordering and they did it for free” without thinking through whether it was sustainable, she said. She plans to stick with Upserve, but said she "would rather pay Upserve a flat fee per month for online ordering as opposed to having my guests be charged a percentage based on volume.”
But the damage has been done for some owners like Brandon Knoepfle, who runs the Acorn Grill in Sullivan, Indiana. Even though he’s resumed in-store dining at 50 percent capacity, 75 percent of his sales are still coming in through take-out orders. So he’s upset that his customers are going to be paying the service fees, “after we busted our butts to secure their loyalty and earn their trust.”
Now, he says he’s planning to switch point-of-sale systems entirely.
“I was a loyal fan of Upserve,” he said. “Now we all feel betrayed.”
Janelle Nanos can be reached at email@example.com. Follow her on Twitter @janellenanos.