DoorDash (NYSE: DASH) has been accused of tacking on additional fees to service bills in some communities after at least 68 cities and towns have enacted laws that capped what the delivery service could charge local restaurants.
Those fees, DoorDash said, are necessary to ensure continued service for restaurants and payment for Dashers.
According to an NBC News report, DoorDash responded by adding new fees in 57 of the communities where the laws were passed. The NBC News report accelerated a conversation that has been rumbling through the market since last year when municipalities sought ways to calm nervous restaurant owners who claimed they were receiving less revenue for orders filled through DoorDash.
May Seto Wasem told NBC News that DoorDash and other delivery providers were a “necessary evil” to get through the pandemic, but her business, Grand Lake Kitchen in Oakland, California, was receiving significantly less per order when the order was placed through DoorDash. A $14 avocado toast, she said, was bringing just $11.90 in revenue to the restaurant but cost $19.40 for delivery before tip to the driver. That’s because there is a 9.25% county sales tax, a $2.10 DoorDash fee, a $2 Oakland fee and an additional $2.10 service fee.
In a Dec. 19, 2020, opinion letter published by The Denver Post, Kendra Black, a Denver city councilwoman, and Katie Lazor, executive director of Eat Denver, laid out the case for why Denver voted to implement caps on third-party delivery services.
“Eat Denver and the Denver City Council aimed to level the playing field for small, independent restaurants with temporary legislation that caps delivery commissions, prohibits these companies from listing restaurants without permission (an ongoing issue that has led to lawsuits against delivery companies), increases fee transparency to the consumer and protects drivers’ compensation,” the pair wrote.
Black and Lazor argued that DoorDash, which closed its initial public offering on Dec. 19 with a valuation of $39 billion, was “nickel-and-diming consumers with a $2 fee.” Most consumers, they argued, are unaware that companies like DoorDash, Uber Eats (NYSE: UBER) and GrubHub (NYSE: GRUB) are charging restaurants commissions as high as 35%. Those same restaurants, they said, are working on margins of just 4% to 9% pre-pandemic – margins that shrunk even further in the past year.
“We agree … that the market ultimately will sort this out. But in the critical meantime, until we make it through COVID-19, we’ll continue to do whatever we can to help small businesses,” they wrote.
DoorDash has started pushing back on the claims that it is simply adding fees to make more money. In a statement issued to Modern Shipper, a spokesperson said the company understands the challenges restaurants are facing and it is trying to support them as best as it can.
“Operating our platform, paying and insuring Dashers, and ensuring high-quality service can be expensive, which is why in many markets, where local governments have passed pricing regulations we have begun charging customers a small additional fee,” the spokesperson said. “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.”
In a November 2020 blog post, DoorDash lifted the veil to some extent on the fees it charges restaurants.
“For our platform to succeed, it has to work for all of our users — merchants, Dashers and customers,” the blog post reads. “The fact is: Delivery is cost-intensive. Many merchants didn’t offer delivery before partnering with DoorDash because hiring and paying drivers, purchasing insurance and providing customer support is costly, especially when order volume can ebb and flow throughout the day, week or year.”
The company said it offers restaurants three options for connecting with DoorDash: Storefront, DoorDash Drive and Marketplace.
Storefront allows the business to create a branded online store for pickup and delivery. Storefront is commission free, DoorDash said.
DoorDash Drive is for merchants that accept orders by phone or through their own app or website that interfaces with the DoorDash platform. There is a flat fee for DoorDash Drive.
Finally, there is Marketplace, which allows DoorDash to connect customers to the restaurant through DoorDash’s system. Marketplace is a commission-based system but gives the restaurant the flexibility to deliver with Dashers, their own delivery personnel or to accept customer pickup.
DoorDash said that commissions pay for Dasher pay, background checks, credit card processing fees, customer support, insurance, advertising and marketing, and the DoorDash app and website.
The blog addressed caps on fees.
“These efforts ultimately restrict restaurant choice, precisely when restaurants need the full range of options to help their businesses survive and thrive,” DoorDash wrote, adding that “because of the range of costs that we have to cover for delivery, when a government jurisdiction imposes price controls, it may cause us to increase the fees we charge to consumers. Increasing costs for customers could lead to fewer orders, which reduces business for restaurants and work opportunities for Dashers.”
The controversy is not the first to hit DoorDash. In September 2020, Lona’s Lil Eats, a St. Louis Asian fusion restaurant, filed suit in the United States District Court for the Northern District of California, where DoorDash is based, alleging DoorDash posted a Lona’s landing page on its app, even though the restaurant had no existing relationship with the delivery service. Lona’s further alleges that when a customer clicked the landing page, the customer was able to see a complete menu and proceed as if an order could be placed. In the end, though, the customer was shown one of two messages: that Lona’s was closed or that it was “too far away” for delivery, even when the customer was standing within 200 feet of the location, the suit alleges.
It its first earnings statement as a public company, announced in February, DoorDash reported 226% growth in revenue to $970 million in Q4 over 2019’s Q4 results, and 233% growth year-over-year in total orders to $273 million. Its Marketplace gross order volume (GOV) grew 227% year-over-year to $8.2 billion. DoorDash also reported a GAAP gross profit of $477 million, up 311% year-over-year from $116 million in Q4 2019, a GAAP net loss of $312 million, compared to $134 million in Q4 2019, and adjusted EBITDA of $94 million, compared to an adjusted EBITDA loss of $103 million in Q4 2019. Non-GAAP adjusted gross profit was $536 million. Earnings per share was $2.67, missing analysts’ expectations by $2, Seeking Alpha noted.