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Daily news and analysis about the food tech revolution

commission fees

DoorDash Launches Tiered Commission Fees for Restaurants

DoorDash announced today that is has launched a new pricing structure to deal with its historically controversial restaurant commission fees. Via these “Partnership Plans,” as the service calls them, U.S. restaurants can now choose between three different commission price points.

Plans are priced according to how much area a restaurant wants its delivery radius to cover and how much marketing it needs from DoorDash. 

The DoorDash Basic plan has the smallest delivery radius and the highest cost for customers, since most of the delivery costs are shifted to them. The commission fee for restaurants with this plan is 15 percent. It does not include in-app marketing.

DoorDash Plus has a 25 percent commission fee, offers a bigger delivery radius, and includes the DashPass loyalty program. DoorDash Premier has the biggest delivery radius and, in addition to DashPass, also offers what it calls a “growth guarantee.” Via this feature, restaurants will be reimbursed their full commission for the month if they receive fewer than 20 orders for delivery, pickup, or DoorDash subsidiary Caviar.

DoorDash also announced a new and reduced commission fee for pickup orders, which is 6 percent across all plans. 

The new tiered pricing structure is very clearly a response to the commission fee caps dozens of U.S. cities implemented last year. With dining rooms closed because of the COVID-19 pandemic, restaurants were forced to rely more heavily on third-party delivery services like DoorDash. We weren’t too many months into restaurant restrictions before many across the restaurant industry started to decry commission fees, which often go as high as 30 percent per transaction, as detrimental to restaurants’ bottom lines. 

DoorDash and others oppose fee caps, saying they hurt order volumes and result in the service having to raise prices for customers. 

Granted, with a plan like DoorDash Basic, customers will still pay more for their meals to be delivered. From the looks of it, bringing those costs down will mean hiking commission fees for restaurants back up, so it remains to be seen if this new pricing structure is truly beneficial for businesses or if it’s more of the same old story.

Ritual Teams Up With NYC to Provide Commission-Free Delivery to Restaurants

Online ordering system Ritual has teamed up with New York City to offer restaurants in the Big Apple access to its platform for delivery and pickup orders at no extra cost. The deal is part of the second phase of New York’s Empire State Digital Initiative, which is providing support for restaurants and foodservice industry businesses impacted by Covid. Restaurants can use the Ritual platform free of charge from now until April 2021, according to a statement from New York Governor Andrew Cuomo. 

Ritual brought its online order platform to the U.S. earlier this year. The software plugs into a restaurant’s main system and enables the business to process delivery and takeout orders through its own website, rather than those of the major third-party delivery platforms. It’s another example in the recent wave of technologies dedicated to native and/or hybrid ordering, where restaurants get to manage orders through their own digital properties and need only rely on Grubhub, DoorDash, and others for things like the last mile of delivery.

Right now, with the pandemic numbers still rising and indoor dining once again banned in NYC, cutting away at least some of third-party delivery’s control over the restaurant industry is important for a couple of reasons. For one, it lets restaurants own their interactions, and therefore the data on those interactions, with customers. Most importantly, decreasing reliance on delivery apps also diminishes the commission fees restaurants must pay. As we discuss ad infinitum here at The Spoon, those fees are highly controversial because they can stretch as high as 30 percent per transaction, further decimating what little margins restaurants have left (if any). 

NYC imposed mandatory caps on these commission fees several months ago. However, the city also just shut indoor dining down once more in an effort to curb the spread of the pandemic. This time, the shutdown is indefinite, with some calling it a “death blow” to businesses, especially the independent ones. Once again, restaurants have to rely on delivery and takeout as their only channels for business. 

Ritual’s commission-free order platform may not be able to save every business, but it could quite possibly pull a few back from the brink by saving them a little money that would otherwise go towards lining the pockets of DoorDash et al.

For restaurants that join the platform through the Empire State Digital Initiative, Ritual will waive setup, subscription, and some credit-card processing fees. 

Denver Cracks Down on Third-Party Delivery Practices

Denver, Colo. is the latest U.S. city to introduce mandatory caps on the commission fees third-party delivery services charge restaurants. The Denver City Council this week unanimously approved a 15 percent cap on the amount for delivery per transaction.

It’s the most recent development in an ongoing battle between delivery services like Grubhub and DoorDash and restaurants, regulators, and industry advocates. Delivery services, which normally charge as high as 30 percent per transaction in commission fees, argue that capping these fees undermine services’ ability to effectively operate. (A huge part of delivery services’ revenue comes from commission fees.) Advocates of the fees say the high percentages hurt the smallest restaurants most, and are predatory at a time when many independent businesses have little choice but to use delivery services to fulfill the uptick in off-premises orders. 

Fee caps were first introduced this past spring, just as the pandemic was intensifying and restaurants were closing dining rooms. San Francisco, Chicago, and NYC were among the first U.S. cities to introduce caps. Since then, more than a dozen other cities around the country have joined in, and as the number of COVID-19 cases has ebbed and flowed, some have even extended their caps. At the beginning of September, NYC and Los Angeles both extended their fee caps, while Alameda County and the city of Santa Clara, Calif. implemented them for the first time.

For now, Denver’s caps are set to expire on Feb. 9, though given the uncertain trajectory of both the coronavirus and indoor dining, that could change. Many cities have said fee caps will remain in place as long as emergency orders do, and Denver may yet renew its own deadline.

Nor did Denver’s attempt to regulate third-party delivery stop at fee caps. This week’s ordinance also bans delivery services from adding non-partnered restaurants to their sites. Previously, Grubhub et al. listed restaurants on their platforms regardless of whether the service had an actual contract with the eating establishment. It’s an understatement to say the practice has received some bad press, and California has even gone as far as to outlaw the practice across the state.

Denver may be the latest city to crack down on third-party delivery practices, but it won’t be the last. With more dining rooms closing permanently and virtual restaurants and ghost kitchens now the most popular kid on the block, regulations will multiply over time, rather than go away. With or without a pandemic, the fight for or against the third-party delivery model has only just started.

Deliveroo Lowers Restaurant Commission Fees to 5 Percent, but There’s a Catch

Deliveroo this week said it would lower the commission fees it charges restaurants to just 5 percent — but only on orders where the restaurant provides its own delivery drivers. The announcement comes as restaurants increasingly call for the service to address its steep fees and as Deliveroo’s overall business struggles during the pandemic. 

The UK-based service will also completely waive commission fees on all pickup orders. Both forms of commission relief, if you can call it that, will be in effect until June 5. 

It’s a nice PR gesture, but it doesn’t solve the commission fee problems for restaurants that can’t afford to pay their own delivery fleet. With the restaurant industry currently on the brink of collapse, even paying one or two couriers on bicycles to deliver food could be more than an independent restaurant is realistically able to pay. Third-party services like Deliveroo charge up to 30 percent, and sometimes more, per transaction for these commission fees, which renders any chance at making profit null and void for many restaurants. Dropping commission fees to 5 percent but still expecting restaurants to foot the bill for their own last-mile delivery won’t benefit many businesses.

The ongoing collapse of the restaurant industry has wiped away any lingering optimism that food delivery apps are actually good for restaurants. What was for a brief minute called a “lifeline” for businesses as they pivoted to off-premises orders in the wake of the novel coronavirus is now under scrutiny from the entire industry, and the subject of much debate among governments. Multiple cities in the U.S. have already imposed mandatory caps on commission fees; overseas governments are now considering similar measures.

There’s also the fact that delivery orders won’t save a lot of restaurants. According to a recent survey from the James Beard Foundation, only 1 in 5 restaurant owners believe “with certainty” they will survive the COVID-19 crisis, and two-thirds of them are “uncertain” that off-premises orders will sustain their business. 

Some delivery companies are reportedly gaining business from the collapse, but Deliveroo doesn’t appear to be one of them. Just last week, the service cut 15 percent of its staff and furloughed others. The company said the cuts are in response to coronavirus. The UK’s Competition and Markets Authority recently approved a major investment in the service from Amazon, citing Deliveroo’s “significant decline in revenues” as reason for the approval.  

A smart piece from The Guardian’s James Ball last weekend noted that the entire (and heavily venture-backed) third-party delivery system is based on optimism. “Without that optimism, and the accompanying free-flowing money to power through astronomical losses, the entire system breaks down.”

The current state of Deliveroo could be a hint of how other third-party delivery services will weather the pandemic. Meantime, restaurants that need help making deliveries will still be paying the service those astronomical commission fees.  

Report: New York City Council Eyes Capping Commissions Charged by Grubhub, et. al.

The New York City Council wants to limit the commission fees that third-party delivery services like Grubhub and DoorDash can charge restaurants while dining rooms remain closed in response to the COVID-19 pandemic.

According to the New York Post, the bill being considered would seek to to cap the delivery fees that third-party services charge restaurants at 10 percent.

Currently, the commission fees third-party delivery services charge restaurants can stretch up to 30 percent and sometimes higher. The economics of those exorbitant fees were barely justifiable for a restaurant back when they had dine-in customers to offset the cost. In these coronavirus times, when people are being forced to shelter in  place, and millions are losing their jobs, handing over 30 percent of an order is untenable.

The proposed cap expands on existing legislation that was introduced in NYC in February of this year. Deliver services that violate this provision could be fined up to $10,000 per infraction — up from the $1,000 fine during non-emergency times, according to Eater.

New York isn’t the only city looking to reign in third-party delivery fees. Earlier this week Toronto Mayor John Tory said he was exploring similar measures in his city and actually calling up delivery services himself in an effort to fight commission fees. And last week, San Francisco Mayer London Breed issued an emergency order capping delivery commissions at 15 percent.

Talk of caps on delivery fees is a good example of shooting the wolf closest to the sled. High fees are an immediate problem for restaurants and customers when money is tight but everyone still needs to eat. But there is a deeper, systemic problem around the economics of third-party delivery in general. Famed restauranteur David Chang knows it, and it’s been a bit of a crusade for my colleague, Jenn Marston, who wrote recently:

Temporary caps in the wake of this unprecedented restaurant industry fallout are fine for now. But until we start addressing some of the fundamental flaws with the inherently greedy — not to mention unprofitable — third-party delivery model, the problems will proliferate, pandemic or no. Restaurants and their hourly workers will shoulder the bulk of those burdens.

According to the Post, the New York City Council will take up the proposed cap on fees at their virtual meeting on April 29.

Update: Chicago is now also considering a cap on third-party delivery commission fees. A bill to cap those fees at 5 percent is currently in front of the city council, who will vote on the matter. If passed, this would be the lowest commission fee cap yet.

Toronto, Canada Considering a Cap on Third-Party Delivery Fees

Toronto, Ontario mayor John Tory is considering imposing a cap on the commission fees third-party delivery services like DoorDash charge restaurants. He has said he will impose an emergency, temporary cap on those fees “if his emergency powers allow him,” according to an interview with Canada-based publication The Star.

Tory’s words come shortly after San Francisco, CA imposed its own emergency order last week, mandating that delivery services must cap restaurant commission fees at 15 percent if they want to continue doing business in that city. (Delivery services typically charge around 30 percent per transaction.) For now, that’s a temporary order, meant to assist restaurants struggling with dining room closures as residents shelter in place.

Unfortunately for Tory and Toronto restaurants, imposing a similar measure might be more of an uphill battle. Speaking to The Star, the mayor said that’s at least what “preliminary feedback from city legal suggests.”

So in the meantime, Tory is trying other tactics — including reaching out to the delivery services themselves. At the end of last week, he also left the following tweet, directed at those services:

Not surprisingly, delivery companies are defending their stance on commission fees, according to The Star. How long they can keep that up is another matter, because Toronto isn’t the only city considering potential commission fee caps. Last week, Eater pointed out that elected officials in NYC are asking Mayor Bill de Blasio to issue an emergency order similar to the one in San Francisco. Others are urging the same, including council member Mark Gjonaj, who previously introduced legislation around commission fee caps.

There’s no guarantee a measure will pass in Toronto, NYC, or any other place at this point. Even if they do, emergency caps are a surface-level fix to a much deeper problem around the amount of power food delivery services have over the livelihoods of restaurants. For many (most) businesses, offering delivery via DoorDash et al is still cheaper than trying to manage the logistics and driver fleet oneself.

That doesn’t negate the fact that charging a restaurant 30 percent of each transaction practically annihilates already-thin restaurant profit margins. Third-party services were also the subject of (yet another) controversy recently when a new lawsuit emerged, alleging Grubhub, DoorDash, and others are using their market power to push menu prices higher during the pandemic.

Finally, there is growing evidence that a delivery strategy in the midst of a pandemic won’t be enough to save restaurants.

Temporary caps in the wake of this unprecedented restaurant industry fallout are fine for now. But until we start addressing some of the fundamental flaws with the inherently greedy — not to mention unprofitable — third-party delivery model, the problems will proliferate, pandemic or no. Restaurants and their hourly workers will shoulder the bulk of those burdens.