DoorDash tries tiered commission structure to deal with restaurants’ complaints

Discussion
Photo: Getty Images/hapabapa
May 03, 2021

DoorDash launched a new tiered commission plan for restaurants following outrage over its high fees as delivery took off during the pandemic. The service’s lower commission rates, however, will provide less marketing support and pass on higher costs to consumers.

The three plans are:

  • Basic (15 percent commission): The most cost-effective option allows restaurants to stay listed in the app, but reduces the delivery radius and charges the highest delivery fees ($4.99 on average) to customers; 
  • Plus (25 percent commission): Reduces delivery costs, expands the delivery area and provides access to DashPass, DoorDash’s loyalty program; 
  • Premier (30 percent commission): Offers the lowest fees to customers ($1.99 on average), the largest delivery area and DashPass access. The plan offers a “Growth Guarantee,” or a fee refund if monthly orders are less than 20.

Restaurants have the option to switch plans as needs change.

Previously, standardized pricing wasn’t offered. Some bigger restaurants were able to negotiate fees as low as 15 percent while some smaller ones were charged as much as 30 percent per order. Lawmakers in dozens of cities and states temporarily capped delivery commission fees as restaurants increasingly relied on delivery during the pandemic, and some are considering making the caps permanent.

Doordash, which is estimated to control nearly half of the U.S. food delivery market, said the new setup gives restaurants more options to choose a plan that works with their needs and cost structure. For instance, an established restaurant or one in a heavily trafficked area may have less need for Doordash’s marketing outreach.

The varied plans also increase transparency around the underlying costs of delivery to restaurants, customers and contract drivers.

Restaurants appeared pleased with the more flexible options but concerned about the potential limitations on placement and promotion within the app as well as the smaller delivery radius under the 15-percent plan.

DoorDash’s COO Christopher Payne also said at a virtual event that raising delivery fees to customers under the lowest commission plan will impact order volume. The Wall Street Journal reports that he said, “Delivery is a very cost-intensive service so we need to blend the economics on the consumer side and merchant side in order to make the overall system economics work.”

DISCUSSION QUESTIONS: Do you think DoorDash’s three-tiered commission plan offers a viable solution for restaurants, its contract workforce and itself? What challenges do you see potentially arising that may necessitate changes or cause potential problems in execution?

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14 Comments on "DoorDash tries tiered commission structure to deal with restaurants’ complaints"


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Ryan Mathews
BrainTrust
I think the commission plan is good for DoorDash, but not necessarily for either consumers or restaurants. If a restaurant opts for the Basic plan the consumer pays the highest fee putting more onus on them and making the total price position of the restaurant less attractive. The Plus plan is more attractive but is 66 percent more expensive than the Basic plan to the restaurant. The Premier plan is the most potentially competitive, but also the most expensive to restaurateurs. But the tiering structure is really a shell game. What is really at stake is consumer mindshare. In the beginning, Luigi’s Italian Restaurant was the draw and the fact that they delivered through DoorDash was a bonus. Today consumers go to DoorDash and pick “Italian” as an option and Luigi’s is just one of, say, 20 possible sources. If Pride of Italy is a Premier member, and Luigi’s is on a Basic plan, Pride’s lasagna is going to look like a better deal to the customer than Luigi’s. In other words, both Pride and… Read more »
Gene Detroyer
BrainTrust

Ryan, your Luigi’s example is perfect. As noted in several previous discussion by other RetailWire colleagues it was obvious that from the beginning that this would happen. The guys who first developed the idea are brilliant. They said, let’s be the Amazon of restaurants. Do people now say, “Let’s do Uber Easts for dinner”? Or, DoorDash? Or, Seamless? — instead of Luigi’s?

Jeff Sward
BrainTrust

I understand a restaurant having to lock in on a certain level of marketing, but why not let the customer choose some portion of the service/expense package? Why limit a restaurant to one radius in their package? How difficult would it be to simply charge more for larger radius deliveries? These commissions sound outrageously high, so additional finessing of the model won’t be surprising.

Gene Detroyer
BrainTrust

The entire structure of this business model depended on outrageously high commission. They set a trap and the restaurants walked into it.

Patricia Vekich Waldron
Staff

Very similar trap to supermarkets relying on Instacart for home delivery.

Xavier Lederer
BrainTrust

One could argue that DoorDash offers an inexpensive way to opportunistically expand a restaurant business, without any fixed cost: you don’t need to pay a driver, you don’t need to build a website, you don’t even need to pay a photographer to take pictures of your dishes. Especially with Covid, restaurants need all possible options to increase their revenue. The new lower tier makes it even easier to test it out.

Gene Detroyer
BrainTrust

That is exactly the pitch DoorDash and others make to the restaurants. But what is the reality of someone ordering from a restaurant they are not familiar with versus one they recognize?

Gene Detroyer
BrainTrust

I like what several local restaurants have done. While they still are listed on DoorDash, Seamless and the myriad of other deliverers, through RESY, they offer a 15 percent discount off the bill if you pick up. Sounds like a real win-win.

Suresh Chaganti
BrainTrust

The mistake DoorDash, GrubHub, and other delivery services make is not recognizing their core competency which is the last-mile delivery. If they pictured themselves as a last-mile delivery provider, then they would have sought expansion into other retail categories, and gotten more profitable and scalable. Uber has a much better strategy in combining multiple aspects of its business with the delivery. But then it is in its own category now. Restaurant delivery is incredibly hard, without equivalent perceived value. It is a structurally unattractive business.

If someone tries to do a DoorDash on Popeyes or a busy restaurant, they’d understand. Spend 45 minutes to an hour getting a $20 order, with drivers getting paid far less than minimum wage for that. No one in the value chain likes that – including the customer.

Steve Montgomery
BrainTrust

The winner in this tiered approach is DoorDash. All they have done is changed the formula to give them the same or possibly higher revenue by either lowering their cost or moving more of their revenue source from the restaurant to the customer.

Venky Ramesh
BrainTrust

I think the commissions are very high and that will impact restaurants more in today’s times due to the higher percentage of delivery orders (on a $30 order, if they made $15 on dine-ins, now they would make $9-$11.5). While restaurants can’t easily raise their prices I have seen some in my neighborhood start reducing the quantity of food on deliveries.

Doug Garnett
BrainTrust

Clearly, DoorDash is badly structured for its own long term survival. During the pandemic, restaurants haven’t had a choice but to pay those fees. Even with tiering, these don’t make sense AFTER the pandemic.

Craig Sundstrom
Guest

Wait, wait … they charge for delivery … OMG!

I’ll sum this up as reality meets the fantasy of “free” (everything) that still rules the online world. And the pandemic quickly blew-up the food service part of this world: we had an explosion of new users and new restaurants — including a great many quick serve/low cost providers — at the worst possible time to absorb extra costs.

So basically you have 1) people wanting to make living wages ($10-$15/hr plus expenses), 2) delivery times that in many cases make this cost $20-30, 3) people wanting to pay as little as possible for the service; Oh yeah, DoorDash has to make some money too … at some point. One of these pieces doesn’t fit.

Rachelle King
BrainTrust

DoorDash has offered a transparent path to their commissions and an attempt to suggest it’s fair, nothing more. The lowest rate is punitive to smaller restaurants that may rely on this service while the highest rate just takes more money out of their pockets.

In some cities like NYC where restaurant delivery is an everyday way of life, consumers actually know their delivery teams and restaurants managers and they advocate for them. While DoorDash may have attempted to address industry complaints with this new structure, they should also consider consumers who want to be treated fairly (excuse me, $4.99 delivery fee) and also want delivery teams and restaurant owners to be treated fairly. In the end, consumers will have the final say.

wpDiscuz
Braintrust
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