DoorDash shakes up fees in search for profit

The biggest food delivery app in the US is shaking up the fees it charges restaurants, in the hope that it can push more merchants into paying it as much as 30 per cent of each order.

DoorDash on Tuesday announced restaurants would be able to choose from three new tiers of commission — 15, 25 or 30 per cent — with different levels of service, depending on whether they wanted to focus on “profitability or growth”.

The introduction of a 15 per cent fee comes as DoorDash is facing pressure in several US cities, including San Francisco, Chicago and Portland, where officials are concerned that the app, which became essential for restaurants during coronavirus lockdowns, would start to raise its prices after winning market share.

But while DoorDash hopes to win over regulators with the lower tier, it comes with several caveats, including a tightly restricted delivery radius, less prominence on the app, and additional fees forced on to customers.

Katy Connors, from the Independent Restaurant Alliance of Oregon, said she thought the 15 per cent tier was designed “to avoid permanent regulation”.

Meanwhile, as DoorDash searches for profitability, having recorded a $312m loss on $970m of revenue in the last quarter of last year, it hopes that more restaurants will opt for the 30 per cent tier, which has the widest delivery radius and includes additional marketing and app visibility.

Christopher Payne, DoorDash’s chief operating officer, said he expected most merchants would choose 30 per cent, describing it as the best way to maintain the “status quo”.

He denied that DoorDash had introduced the lowest tier option to ward off scrutiny from legislators, and said: “A blanket, one-size-fits-all policy for pricing is not what these merchants want or need. They want choice to be able to dial up or down various packages.”

He noted, however, that the 15 per cent option could reduce the delivery radius for restaurants to just a few blocks, depending on travel time for couriers. “It’s a choice between balancing profitability and growth,” he said.

DoorDash declined to reveal its typical commission rate prior to the change, saying that it varied greatly between types of merchants and locations.

Payne said the changes would not affect the income of its couriers, known as Dashers. Larger restaurant businesses, with several locations, would still be able to negotiate a different fee outside of the three tiers, Payne said.

The commission on pick-up orders, where a customer fetches the food themselves, has been lowered from 15 to 6 per cent.

In California, there is a bill seeking to force delivery apps to give a full cost breakdown of each transaction. “It will help give restaurants information on whether they want to sign agreements with these companies,” said Lorena Gonzalez, member of the California State Assembly and the bill’s co-author, calling DoorDash’s new pricing a “PR game”.

Payne said DoorDash would resist such efforts. “The concept of exposing the totality of the deal between DoorDash and the merchant, I don’t think is a good idea, because there’s lots of complexity in the deals,” he said.

“You can imagine that a restaurant that does 1,000s of orders [ . . .] might have a different deal than someone that’s doing four or five orders a week.”