DoorDash pushes back against fee delivery commissions with new charges
Wasem is one of thousands of restaurant owners nationwide who have come to rely on such apps during the pandemic. In the absence of indoor customers, restaurants have relied on pickup and delivery options to try to stay afloat. While the apps offer convenient services — processing sales, picking up and delivering food to customers — they also impose large commissions, typically 20 percent to 30 percent of an order, on the restaurants, while also charging customers delivery fees.
With the rising dependence on food delivery through the pandemic, several dozen cities, counties and even states have pushed back by capping commissions at 15 percent of the total cost of orders — what DoorDash can charge restaurants for generating a sale and delivering food. In the most comprehensive look at commission delivery caps, NBC News has found 68 localities that have passed such caps. Last month, DoorDash said on a call with investors that it had counted 73 caps by the end of 2020. As of March 15, Uber said it was facing 78 caps nationwide.
DoorDash has not taken the pushback lightly. To recoup what it considers lost revenue, DoorDash has tacked on another flat surcharge of $1 to $2.50, which it often calls a "Regulatory Response Fee." The money goes straight to DoorDash. Only when customers click a tiny button does an explanation pop up saying the city has "temporarily capped the fees that we may charge local restaurants."
NBC News found that DoorDash added supplemental local fees in 57 of the 68 locations that have fee caps, far more than have previously been reported. The charges have been imposed in several large cities, including St. Louis, Denver, Philadelphia, Cleveland, Seattle, Chicago and Tucson, Arizona.
While Campbell Matthews, a spokeswoman for DoorDash, did respond to some questions by email, DoorDash declined to make an executive available for an interview.
The newer surcharges have befuddled the legislators who thought they had finally made progress to limit the cost of takeout food in the pandemic. Dan Kalb, the City Council member who wrote Oakland's fee cap bill, was unaware that DoorDash had instituted a $2 "Oakland Fee" until NBC News brought it to his attention.
"I was not anticipating that there would be this extra fee. But I'm not sure that I can stop them from doing that," said Kalb, who represents the northern part of the city. "It is concerning that the fee might be misinterpreted that the city of Oakland is charging something."
DoorDash's relationship with restaurants has not always been this fraught. When four Stanford University graduates started the company eight years ago to address their challenges getting takeout, they initially marketed DoorDash as a company that "enables delivery in areas where it was not available."
"Our mission is to empower small business owners to offer delivery in an affordable and convenient way," they said.
By 2019, DoorDash had become the country’s leading food delivery company, overtaking its rivals, including Grubhub and Uber Eats. In March 2020, as the pandemic began, DoorDash had a market share in meal delivery of 42 percent, the single highest of any company in this field, according to the research firm Second Measure. Today, DoorDash, Grubhub and Uber Eats represent nearly 90 percent of the meal delivery market. DoorDash is by far the largest, having taken 55 percent of sales in February nationwide.
Through the pandemic, DoorDash became a bridge between restaurant owners and hungry diners who could no longer frequent the more than 110,000 restaurants that the National Restaurant Association has identified as having permanently closed since the pandemic began.
"The pandemic put independent restaurants in an exceptionally vulnerable place," said Katie Lazor, the executive director of Eat Denver, a professional organization for independent restaurant owners. "The pandemic gave these third-party delivery companies these incredible advantages — it was a total springboard for them to explode."
The variables sound like good news for DoorDash's bottom line. But DoorDash, more so than its rivals Uber Eats and Grubhub, has been doing everything it can not to lose its pandemic gains and to keep its investors happy, according to legislators and DoorDash earnings transcripts.
In the second quarter of 2020, DoorDash made its first profit ever, just $32 million, and it went public in December. But the company remains billions of dollars in debt, and it lost a combined $355 million in the third and fourth quarters of 2020.
In an earnings call last month, DoorDash executives told investors that the number of commission caps more than doubled from August, when there were 32, to December, when there were 73. Still more have been added since then. Localities that imposed caps are small cities like Pacific Grove, California, and larger cities like Oakland; some are entire states, like Oregon and Washington. Prabir Adarkar, the company's chief financial officer, said the company made $36 million less in revenue during the last three months of 2020 because of the new limits.
Meanwhile, DoorDash is also starting to deliver non-restaurant goods, including products from large retailers like CVS, Michael's and Macy's, and even Covid-19 test kits.
DoorDash executives have argued that they have no financial choice but to fight back by adding fees in jurisdictions where there are caps.
"Operating our platform, paying and insuring Dashers, and ensuring high-quality service can be expensive, which is why in some markets, where local governments have passed pricing regulations, we have begun charging customers a small additional fee," Matthews, the DoorDash spokeswoman, said by email.
DoorDash's rivals seem divided about whether the new fees are necessary. Meghan Casserly, a spokeswoman for Uber, said the company has imposed similar "consumer-facing fees" in 25 jurisdictions; she declined to produce a full list. Grubhub spokesman Grant Klinzman said in an email that the company had not imposed any city-specific fees.
As the rush to implement caps appears not to have slowed, all three major food delivery companies have stepped up their lobbying efforts. Minneapolis, Indianapolis and Saratoga County, New York, are also considering such caps. Some large-state legislatures, including New York's, Texas' and California's, are contemplating similar statewide measures to make such caps permanent.
"After the pandemic, we can't let these exorbitant rates continue," said California Assembly member Lorena Gonzalez of San Diego, who wrote a bill to cap commissions statewide. "The negotiating ability of a mom-and-pop restaurant is limited."
That has led all three delivery companies to heavily lobby local governments not to cap such commissions at all, or at minimum to impose a time limit.
In a letter a Grubhub representative sent in May to St. Louis Alderwoman Christine Ingrassia, the company portrayed commission caps in dire terms.
Amy Healy, Grubhub's head of public affairs, said the commission caps were "exactly the wrong thing to do." She suggested that if such caps were to be instituted beyond an emergency health order, they could be subject to a legal challenge.
In Oakland, according to the city's online lobbyist database, DoorDash now has a dedicated representative registered with the city for the first time. Other lobbyists for DoorDash are handling efforts for multiple cities. On March 15, Chad Horrell, a lobbyist for DoorDash, left nearly identical public comment voicemails for the city councils in Akron, Ohio, and Huntington Beach, California.
"We provide a service for restaurants just like credit card processing services or product distributors," Horrell said in the audio message. "Commission caps are an attempt to pick winners and losers in the marketplace."
Jurisdictions responded to the lobbying efforts in different ways. Huntington Beach rejected the commission cap proposal because lawmakers, by a 4-3 vote, agreed with DoorDash's argument that it should not stand in the way of one private company's doing business with another.
However, Akron passed its bill unanimously. James Hardy, Akron's deputy mayor for integrated development, said restaurants were suffering too much without it.
"We are hearing from our independent restaurateurs that the fees are just astronomical," Hardy said. "It was tough before the pandemic. But then you could make the argument that they have a choice, but now there's no choice. There is no free market right now given the effects of the pandemic: You have to have a delivery service as part of your business model in order to survive."
New DoorDash fees in nearly a dozen markets frustrate diners, officials
DoorDash has raised fees for diners in nearly a dozen cities and counties in an effort to offset limits on what the company charges restaurants, frustrating consumers and angering officials.
The additional fees, which range from $1 to $2 per order, are now being added to customers’ tabs in at least 11 municipalities: Chicago; Denver; Philadelphia; Cleveland; Seattle; St. Louis; Oakland, Calif.; Clark County, Nev.; Westchester County, N.Y.; Fresno, Calif.; and Emeryville, Calif.
All of those places last year imposed limits on the fees DoorDash and other third-party delivery companies charge to restaurants, typically capping them at 15% of the order total. The measures are intended to help restaurants struggling during the pandemic, as third-party delivery fees can account for 30% or more of an order.
Delivery companies have warned that the caps would force them to pass costs to the consumer. DoorDash, the largest delivery provider in the U.S., is doing just that.
“Operating our platform, paying and insuring Dashers, and ensuring high-quality service can be expensive, which is why in many markets where local governments have passed pricing regulations, we have begun charging customers a small additional fee,” a DoorDash spokesperson said.
The new fees have appeared over the past few months as a separate item on diners’ order total, and are labeled with the city name, such as “Philadelphia fee.” This has led some guests to wrongly assume the charge is coming from the city instead of DoorDash. Others are frustrated they have to pay yet another fee for an already expensive service.
Responses to a viral tweet about DoorDash’s $1.50 “Chicago fee” earlier this month illustrate some of those sentiments.
Officials who worked to create delivery fee caps in their cities also pushed back against the new fees.
After DoorDash added a $1 “Cleveland fee,” City Council President Kevin Kelley tweeted on Dec. 31 that the council would explore legislative action, saying “DoorDash’s arrogance, chutzpah and greed is astounding.”
And in a Dec. 19 letter published in the Denver Post, City Councilwoman Kendra Black and Katie Lazor, executive director of restaurant advocacy group Eat Denver, questioned why a company of DoorDash’s size would need to level such charges against consumers.
“DoorDash closed its IPO today at a value of $39 billion. It donated $500,000 to Colorado’s Outdoor Dining Grant Program, yet it is nickel-and-diming consumers with a $2 fee,” they wrote.
DoorDash contends that the fees are necessary to operate in the expensive delivery marketplace. The intention is that they will expire when the caps do.
“We realize this isn’t ideal, but with these regulations in place, these fees help us to continue providing convenient delivery for customers, meaningful earning opportunities for Dashers, and valuable services that help drive orders for merchants,” the spokesperson said.
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New fee structure at Doordash could cost customers more
Doordash is attempting to give restaurants more control over the fees it charges following widespread pushback by mom-and-pop restaurants over delivery-app economics.
The food delivery company on Tuesday rolled out a new a la carte menu of services as it braces for more people to eschew takeout in exchange for sit-down dining.
The new commissions will allow restaurants to choose to pay as little as 6 percent of an order, rising to 15 percent, 25 percent and 30 percent, depending on their needs. Previously, restaurants were forced to negotiate their fees, which led to many smaller restaurants forking over 30 percent of every food order to a tech giant simply because customers chose to order their food via a website or app instead of calling the restaurant directly.
“DoorDash is thrilled to offer new and better options that empower businesses to pick and choose the products and services they want and need,” Doordash’s government relations executive, David London said in a statement.
But San Francisco-based company’s new fees will cost consumers.
Customers of restaurants that choose the least expensive Doordash service will get whacked with a $5 delivery fee while customers of restaurants who choose the cadillac version will only pay $2 for delivery.
Customers who pay $10 a month for a DashPass would be exempt from the fees.
The new fee structure comes as the relationship between the restaurants and delivery companies, including GrubHub and UberEats, has become strained in recent years. In 2019, for example, restaurants were outraged after The Post exposed a system of bogus fees GrubHub had been charging eatery owners for orders that never took place.
After the pandemic hit, many cities governments, including NYC, mandated that delivery apps charge no more than 15 percent per order in an effort to help the restaurant industry survive state-mandated lockdown orders. Most of the fee caps are temporary, but some legislators are eyeing making them permanent, according to industry sources.
The delivery companies fought the pandemic caps, arguing that consumers would wind up paying more and that restaurants would lose business. In fact, many delivery companies did better than ever during the pandemic as stuck-at-home consumers turned to delivery more often for their meals.
“This is us listening to our merchant partners and making adjustments,” chief operating officer Christopher Payne said according to a Wall Street Journal report. “Essentially we’ve been learning together about what restaurants need and testing our way into what the next phase of pricing should be.”
Shares of Doordash were up by more than three percent Tuesday morning.
DoorDash announces new pricing for restaurants, with commissions as low as 15%
DoorDash is announcing new pricing plans for the restaurants that use the platform for pickups and deliveries.
Before this, the company did not offer standardized pricing across restaurants. However, the question of how high delivery app fees might go (and how parsimonious the payments might be for restaurants as a result) prompted DoorDash to publish a long blog post about its fee structure last fall.
In fact, Oregon and Washington have passed caps on delivery fees, while lawmakers in California, New York and Texas have proposed similar caps. On a call with reporters to discuss the new pricing, DoorDash COO Christopher Payne denied that the company changed its pricing to appease lawmakers.
“This is not designed in response to legislation,” Payne said. “It’s designed in response to listening to restauranteurs and learning what they need.”
DoorDash now offers three plans: DoorDash Basic, where restaurants only pay a 15% commission on deliveries, which shifts “a higher portion of the delivery cost to the customer” and supports a smaller delivery area; DoorDash Plus, where restaurants pay 25% to be part of DoorDash’s DashPass subscription program and get increased visibility in the DoorDash app; and DoorDash Premier, where restaurants pay 30% in exchange for the lowest customer fees, the largest delivery area and a growth guarantee of at least 20 orders per month across pickup, delivery and DoorDash-owned Caviar.
Across all plans, DoorDash says it will now charge only a 6% commission on pickup orders.
The company’s announcement includes statements from restaurant owners who are adopting the new plans. For example, here’s Sherry Copeland, owner of Jai Meals in Plano, Texas:
Jai Meals operates out of a local mall, so delivery has been an important part of how I have made up for lost income over the past year of dine-in closures. Despite this, my previous commission didn’t work for my business; it was hard to absorb that high of a cost, especially when delivery became a large percentage of my orders. With the Basic plan, I can offer delivery to customers, who increasingly enjoy the convenience delivery provides, but at a cost that is more aligned with my products, my goals and my customers’ needs.
Payne said these plans will become available to all restaurants on DoorDash today, although it may take up to five days for the new pricing to fully take effect. He added that DoorDash has been testing these plans over the past few months and that “we believe this will have negligible impact — no impact, really — on our economics, nor on Dasher earnings.”
.DoorDash is now charging customers an extra $2 fee to make up for their lost commissions
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