DoorDash, Responding to Pressure, Changes Pricing for Restaurants

This week DoorDash rolled out a new pricing model for restaurants designed to give restaurants a range of services and pricing models. DoorDash COO Christopher Payne said this on the Pivot podcast earlier this week. “You never have to pay 30% again if you don’t want to.”

There is a lot more to the DoorDash pricing changes. And we’ll get into that further into this post. But it’s clear the new pricing structure is a response to months of intense pressure from a variety of quarters. It came from restaurant owners who said they were buckling under the weight of DoorDash’s high commissions. DoorDash is also feeling pressure from major metros, including Chicago, Los Angeles, and New York, imposing commission caps on DoorDash and other delivery apps. The metros are trying to provide relief to local restaurant operators squeezed from all sides during the pandemic.

Bristling at Regulation

While these commission caps (mostly at 15% or 20%) are generally positioned as temporary, pandemic-only measures, DoorDash has openly bristled at them. In an April 7 blog post, DoorDash contends the commission caps ignore the fixed costs involved in providing its service.

“In fact, commissions under price controls do not cover the cost of the delivery services DoorDash provides merchants. Dashers still deserve meaningful earnings for the deliveries they’re completing, credit cards still need to be processed, background checks and insurance policies must continue uninterrupted, questions and concerns need to be addressed and resolved by the support team, and more,” the company argues in the post.

And DoorDash said one unintended consequence of the caps is new fees on consumers.

“We realize this isn’t ideal, but with these regulations in place, these fees help us to continue providing convenient delivery for customers, meaningful earning opportunities for Dashers, and valuable services that help drive orders for merchants,” DoorDash said, in justifying the consumer fees.

As a result, DoorDash says order volumes are down in many of its markets. And it blames the commission caps.

New Options for Restaurants

Clearly, the confluence of events has created intense pressure on DoorDash to make changes to its model. Using polite corporate-speak, Payne acknowledged as much on Pivot.

“So today’s announcement essentially gives restaurants more choice over the prices that they pay. So there are three components to the announcement, instead of one package that’s 30% with everything bundled,” Payne said.

“The thing to remember is that obviously delivery is a cost-intensive service. Dashers need to be compensated. And so what we did is we bundled that for the small business, they basically had everything. The marketing program, Dashpass, our subscription program. We’ve now broken that apart.”

Here are the three elements of the new pricing program. The tradeoffs are for lower commissions, restaurants need to pass on costs to consumers and limits on their exposure on the DoorDash platform.

DoorDash Basic (15%)

Basic is the most cost-effective way for restaurants to offer delivery and pickup to customers on DoorDash.

“Essentially allows the restaurant to be on the platform to offer the service, but more of the fees for the order go to the consumer so it’ll be lower volume than the max marketing program, but a great choice for merchants that may want to drive more profitability, or frankly right now might not have enough staff or capacity,” Payne said.

DoorDash Plus (25%)

This tier includes restaurants in DashPass, offers an expanded delivery area, and reduced delivery fees for customers.

“Yu get inclusion in the DashPass, our subscription product for that. The way to think about that is you’re lowering consumer fees in exchange for more growth and promotion

DoorDash Premier (30%)

Premier helps restaurants maximize the number of new customers and the total volume they receive from DoorDash. It offers the lowest customer fees and the largest delivery area, in addition to the benefits of DashPass.

“The premier package includes DashPass But it also includes an expanded radius so you can increase your service area. It also comes with a growth guarantee.,” Payne explains. “If you don’t do 20 transactions on DoorDash in a month. All your sales that do occur below 20 are commission-free so that’s one part of the announcement you never have to pay 30% again care if you don’t want to.”

Another key element of the new plan is DoorDash is also reducing its pickup commission rate from 15% to 6%.

“I think this is a huge win for merchants because one of the things they’re concerned with is that one of the most profitable channels they have is people to walk up to the counter of that to-go business,” Payne said. “Now, essentially payment processing is included in that 6%. So for 3%, additional, you’re getting access to the 20 plus million monthly actives on DoorDash.”

Finally, DoorDash announced some price breaks on its Storefront product, which basically allows restaurants to turn their websites into an ordering platform. According to Payne, “40% of restaurants going into the pandemic didn’t have their own digital ordering platform and so this is a version of DoorDash that’s white-labeled that they can use.”

DoorDash has eliminated the one-time set-up fee for Storefront. It also killed the monthly software fees and per-order merchant delivery fees. Now restaurants will only pay a payment processing fee on all Storefront orders. Any U.S. restaurant can use Storefront, regardless of whether they otherwise work with DoorDash.

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