DoorDash offers lower-fee service to restaurants

Meghan McCarty Carino Apr 27, 2021
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Michael M. Santiago/Getty Images

DoorDash offers lower-fee service to restaurants

Meghan McCarty Carino Apr 27, 2021
Heard on:
Michael M. Santiago/Getty Images
HTML EMBED:
COPY

DoorDash is changing how it charges restaurants for deliveries, offering three tiers of service, with commission fees at 15%, 25% and 30% on orders. Before this, restaurants had no choice about what they paid. The change comes after a year of explosive growth for delivery apps and at an inflection point for the industry.

Restaurants have always had an uneasy partnership with third-party delivery apps, said Zhuoxin (Allen) Li, a professor of information systems at Boston College’s Carroll School of Management who studies on-demand platforms.

“Many restaurants find that they have to rely on these platforms, but many restaurants actually hate them,” he said, because the high fees the apps charge barely make it worthwhile for many small businesses. But during the pandemic, it seemed like they had no choice.

Those conditions are coming to an end though, said Trevor Boomstra, a director in the restaurants, hospitality and leisure practice at AlixPartners.

“The power balance between restaurants and delivery aggregators has changed,” he said, in part due to increasing regulatory pressure — many cities have capped the fees the apps can charge — and because restaurants are regaining some of their footing as the in-person economy reopens.

But some of the shift to eating at home will be permanent, says Alex Susskind, professor of food and beverage management Cornell University.

“Restaurants now realize that they have to offer delivery,” he said. “And so this is a way of kind of getting restaurants to commit and stick with them at a time where they may start to look for other options.”

Though it varies by region, DoorDash now has the biggest market share in the country. The industry has increasingly consolidated into a battle between a few major players, said R.J. Hottovy, food industry analyst and fund manager at Aaron Allen and Associates.

“Right now, we’re still very much in the land-grab phase for delivery companies,” he said. “It really is critical to get as many, not only restaurant operators, but as many customers coming to your website and using your platform.”

He said delivery apps could go the way of e-commerce and social media, with one big winner dominating the game. So it’s a critical time to make moves to be the last app standing … or driving.

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