Back of House Staff | August 5, 2021, 10:49 AM CDT
Hungry people who use third party delivery services like Grubhub and DoorDash are willing to pay what’s come to be nicknamed the “laziness tax.” That’s the fee to use the app and summon a meal to your front door, and it ain’t exactly incidental. It can add 30% or more of the menu item’s original price, an amalgam of sales tax, delivery costs, driver tips, and other cryptic expenses (see UberEats’ infamous “small order fees”).
It’s no secret that these delivery services offer relatively low “commission fees” (here’s DoorDash claiming 15%) by raising prices in other ways, including — some customers suspect — the price of actual menu items.
Today the question of whether Grubhub and DoorDash jack up a restaurant’s menu prices shows up constantly on sleuthy restaurant forums, long-winded media exposés, and the delivery companies’ own FAQs. The answer? Sometimes, maybe, because yes, absolutely not. We’re going to try our best to explain how all of these answers are correct, what the delivery companies are doing to simplify their business models, and what frustrated local governments are doing to … help them.
Which came first, the $7 order of small fries or the 30% commission fee? As mentioned, Grubhub and DoorDash charge “service fees” that stack up quickly. If you check out Grubhub’s profit calculator you’ll see the company fees, written out under “projected monthly incremental revenue,” include a marketing fee of 20% and delivery fee of 10%.
Chains as big and wealthy as Chipotle have blamed higher menu prices on the need to offset third party delivery expenses. During an earnings call in early 2021, Chipotle CFO Jack Hartung said the company has seen only “modest resistance” to its 13% increase in delivery prices. Restaurant leaders aren’t ashamed to say they raise your delivery prices in order to survive, and consumers will generally still pay for the convenience.
In 2014, DoorDash launched. By 2016, people were protesting its business model. This was back when In-N-Out sued DoorDash for delivering meals without the restaurant's permission, a practice that allowed DoorDash to fully control the price of the menu items. In response to the lawsuit, DoorDash CEO Tony Xu was like sorrrrryyyy, “the company is working on a new version of its app that breaks out DoorDash's fees from meal prices.”
Whether or not that sentence makes any sense doesn’t matter, because going forward DoorDash ended up asking for consent to deliver food, and changing the way costs looked on the receipt so that “menu price” always matched what the restaurant consented to. Now the third party delivery giant even stipulates in its Terms of Service that merchants choose the menu item prices 100% of the time.
But that doesn't mean that the fine print is worry-free. See: the aforementioned “small order fee,” DoorDash’s “convenience fee,” GrubHub’s “operating costs in taxes and fees” and so on and so forth.
Like DoorDash, Grubhub spent its formative years testing boundaries. In July of 2020 the company (along with Postmates and its parent company, UberEats) was sued for not allowing restaurants that contracted with them to sell products at lower prices anywhere outside of the platform, including on those restaurants' own websites.
Put another way, for third party delivery services to become the primary means of restaurant survival, they’ve forced price inflation across the board. Does that make it Grubhub and DoorDash’s fault, though? Darwin only knows.
DoorDash and Grubhub can’t bully you into submission (verbally) nor can they sneak price upticks behind your back (anymore). The law is on your side. But DoorDash, for example, has introduced something called “Level Pickup Pricing,” which is basically the company offering to match your DoorDash pick-up prices with your in-store prices.
The company claims customers are “35% less likely to order again from restaurants that charge higher prices on DoorDash than on their in-store menu.” This not-so-subtle message to merchants is the company's way of suggesting they'll be better off not offering customers a discount for sidestepping the app.
I see where your head’s at: if we can track down a dollar amount that seems to be an extra, like, $5 for every $20 spent, then we can say for sure that “XYZ fee” is just “additional cost of menu item.” But it’s a waste of time to investigate, considering half of the fees you see are already informed by the price of the original meal total anyway, and a quarter of those fees are extremely vague. We’re back to square one.
For years local governments have been fighting to cap delivery fees at, on average, around 15% of the original order price — check out legislation working its way through New York City, San Francisco, and the state of Texas. The bill up for review in NYC, for example, is an amendment of an existing, COVID-inspired 15% cap that prohibits third-party food delivery services from charging restaurants more than 20% total per delivery unless certain conditions apply.
With moves like that, cities and states are stepping in with some consumer (and restaurant) protections. But DoorDash and Grubhub have responded with legal action of their own, suing San Francisco over the permanent cap on delivery fees. The companies contend that caps will hurt not only them, but restaurants, as well. Restaurant owners seem unconvinced by that argument. We’ll see what the court decides.
Perhaps my fourth grader cousin answered our question best in his essay on whether corporations are bad. His stoic conclusion: “Are corporations bad? Who can never be sure.”
[Photo by Robinson Greig on Unsplash]
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