The move comes as cities such as Chicago, and states such as New York and California, are considering setting permanent limits on the commissions that can be charged by delivery services such as DoorDash, Grubhub and Uber Eats.
Commission caps in Chicago have recently expired. In the interim, Grubhub plans to slowly increase its rates beginning in mid-May and bring them back to pre-pandemic levels 30 days after that. But Ald. Scott Waguespack, 32nd, is looking to make a 15 percent cap permanent. Mayor Lori Lightfoot indicated last week that she wouldn’t support such a cap extending far beyond the pandemic.
“There was a reason for this to be in place for a time, I think we’re reaching the outer edges of that,” she said. “We’ll be working with the aldermen to make that determination” for how long such limits could last.
Lightfoot deferred to Ald. Tom Tunney, a restaurant owner. Tunney was quoted the DoorDash press release on the pricing changes saying, “As we step closer to fully reopening our city, ensuring the stability of our restaurants is critical to rebuilding Chicago. I commend DoorDash for providing restaurants with options that meet their specific needs, allowing them to customize their services and set them up for success.”
San Francisco-based DoorDash has benefited from the pandemic-induced boom in food delivery as indoor dining shuttered and people stayed home. But while many restaurants were able to stay afloat thanks to delivery options, DoorDash and other services have faced mounting scrutiny for charging commissions that can reach as much as 30% of an order, squeezing small businesses’ already razor-thin margins.
U.S. lawmakers imposed temporary caps on the fees last year to help the ailing restaurant industry keep a larger slice of its profits during the pandemic. DoorDash was operating with price controls in 73 jurisdictions at the end of last year, the company said in a letter to shareholders in February.
DoorDash’s new pricing plans vary depending on how much marketing support the restaurant needs and the size of the delivery area. The new “Basic” plan limits commissions to 15% and offers delivery and pickup to customers. It doesn’t include any in-app marketing programs, though restaurants still have the chance to opt in. This plan shifts a higher portion of the delivery cost to the customer and reduces the delivery area “in order to ensure that Dashers continue to make meaningful earnings,” said Katie Egan, director of B2B product marketing, on a call with journalists.
The next “Plus” tier is priced at 25% and includes an expanded delivery area and access to customers on DashPass, a loyalty program in which, for a monthly subscription, customers get reduced service fees from participating restaurants. Because DashPass customers order more often, restaurants see increased growth, the company said.
DoorDash’s “Premier” plan charges a 30% commission for the lowest customer fees and the largest delivery area, in addition to the benefits of DashPass. This plan is intended to yield more new customers and increase the order volume. In fact, DoorDash promises to refund a restaurant’s full commission for any month they accept fewer than 20 total orders across pickup and delivery.
Commissions for pickup orders are also being lowered to 6% from 15% and DoorDash is eliminating the fees for setup, software and merchant delivery for Storefront, its online ordering product that helps restaurants create their own websites for pickup and delivery.
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The new pricing structure—which DoorDash said has been tested over the last six months—will have a “negligible impact” on the company’s profitability and Dasher earnings, said Chief Operating Officer Christopher Payne. “Delivery is a three-sided marketplace—you’ve got restaurants, consumers and Dashers. It’s very important to keep the system in balance so that we can all benefit and make profit from the system that we designed.”
Payne reaffirmed that the local commission caps will “supersede” the new pricing structure in the jurisdictions where caps are lower until they expire.
The company said it will also be appointing a “chief restaurant adviser” who will work as a liaison between DoorDash and restaurants.
A.D. Quig and John Pletz of Crain’s contributed.