DoorDash Allows Restaurants to Choose Commissions in Post-Pandemic Future
DoorDash Inc.
is changing the way it charges restaurants to deliver their food, marking a shift in a business model that has met with increasing pushback over fees as the company positions itself for a post-pandemic world.
Starting Tuesday, San Francisco-based DoorDash said it would allow restaurants to pick from three rates, setting commissions at 15%, 25% or 30% of every order. DoorDash said it would offer varying degrees of marketing and product support based on the different fee levels.
Previously, restaurants didn’t have a choice. Delivery apps charged restaurants a cut of every order and set the rate. Some bigger chains used their scale to negotiate commissions as low as 15%. Many small restaurants paid as much as 30% of every order.
Orders on major delivery apps boomed as shelter-in-place orders kept consumers at home and restaurant dining rooms closed. DoorDash now controls nearly half of the U.S. food-delivery market, up from one-third before the pandemic.
Small-business owners bristled over the fees, blaming the apps for squeezing their already thin margins as the coronavirus pandemic raged. Regulators in several cities, including New York, San Francisco and Seattle, stepped in to cap what the apps could charge restaurants as a result. Lawmakers in Chicago are considering whether to extend the city’s commission caps on apps, which expired earlier this month.
As the health crisis wanes, keeping restaurants happy is crucial if DoorDash wants to maintain its lead. Tuesday’s changes are among the early steps the company is taking as it prepares for dining rooms to reopen and delivery volume to slow after a year of exponential growth.
“This is us listening to our merchant partners and making adjustments,” DoorDash Chief Operating Officer
Christopher Payne
said at a virtual event announcing the changes. “Essentially we’ve been learning together about what restaurants need and testing our way into what the next phase of pricing should be.
DoorDash also lowered the commission on food that is picked up to 6% from 15%.
DoorDash’s effort to rework the commission structure comes with a few caveats. The company plans to offset lower restaurant commissions by raising delivery fees for consumers. For instance, consumers would pay a $4.99 delivery fee, on average, for restaurants that choose the lowest commission. By contrast, consumers would pay a delivery fee of $1.99, on average, for restaurants that choose the highest commission.
“Would that negatively impact order volume? Yes it will,” Mr. Payne said. “Delivery is a very cost-intensive service,” Mr. Payne said, “so we need to blend the economics on the consumer side and merchant side in order to make the overall system economics work.”
The food-delivery industry has made temporary concessions before.
Grubhub Inc.
deferred commissions during the early months of the pandemic. DoorDash and
Uber Technologies Inc.’s
Eats waived commissions for small businesses in March, but returned to charging them a few months later.
Hurt by high commissions, some restaurant owners signed up for lesser-known services offering more favorable rates during the health crisis; a few others tried to redirect business to their own websites and redeployed idled staffers as delivery drivers. Big chains are investing in building high-tech pickup services.
The company said part of the calculus over the new framework is that the additional costs to consumers mean the company won’t have to adjust driver pay.
The National Restaurant Association said it has been working with delivery companies to improve their relationships with restaurants during the pandemic, and DoorDash’s move helps to create more transparency and options for food businesses.
“We continue to see improvements,” said
Mike Whatley,
the trade group’s vice president for state affairs and grass-roots advocacy.
Despite record revenue last year, major food-delivery companies didn’t report annual profits. DoorDash posted a profit in the second quarter of last year before slipping back into a loss. Uber trimmed losses for its Eats division last year, but the unit hasn’t posted a profitable quarter. Meanwhile, Grubhub reported a wider loss last year, attributing it to spending during the pandemic and the commission caps, in part.
Sam Toia,
president of the Illinois Restaurant Association, said DoorDash’s commission move is a step in the right direction for restaurants still trying to manage with occupancy restrictions and growing costs. Mr. Toia said he is concerned that local restaurants will have less prominence on the service’s app if they choose the lower-cost option, though.
“I worry about independent restaurants,” Mr. Toia said.
—Heather Haddon contributed to this article.
Write to Preetika Rana at preetika.rana@wsj.com
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