DoorDash pushes back against fee delivery commissions with new charges

OAKLAND, Calif.—For nearly a decade, Grand Lake Kitchen, across from picturesque Lake Merritt, where locals head for leisurely walks, had become a popular breakfast and brunch destination. So many visitors ordered the $14 avocado toast and the $11 vegetarian sandwich called the Kamala Llama — a nod to Oakland’s favorite daughter — that in 2018 it opened a second location nearby.

But since the coronavirus pandemic hit and California restaurants closed to indoor dining, co-owner May Seto Wasem’s business has dropped by as much as 80 percent compared to 2019, when just one of her restaurants brought in revenue of $3.8 million. Wasem said that through the pandemic, DoorDash and other app-based delivery services became a “necessary evil” to survive. But she, like many other restaurateurs, has struggled to cover costs while also paying pricey delivery fees.

That’s because the $14 avocado toast that customers have been ordering through DoorDash brings in only about $11.90 to the restaurant. DoorDash takes $2.10, and it adds a $2 “Oakland Fee” and a $2.10 “Service Fee.” With a 9.25 percent county sales tax of $1.30, the delivery order totals $19.40, not including a tip that would go to the DoorDash driver. Before the pandemic, the same $14 avocado toast eaten at the restaurant cost $14 plus sales tax and a tip, all of which went to Grand Lake Kitchen staff members.

“We definitely get a lot of business through DoorDash and the other third-party apps. So we appreciate it,” Wasem said. “But we are definitely up against a wall with their commissions and other fees.”

Wasem is one of thousands of restaurant owners nationwide who have come to rely on such apps during the pandemic. In the absence of indoor customers, restaurants have relied on pickup and delivery options to try to stay afloat. While the apps offer convenient services — processing sales, picking up and delivering food to customers — they also impose large commissions, typically 20 percent to 30 percent of an order, on the restaurants, while also charging customers delivery fees.

With the rising dependence on food delivery through the pandemic, several dozen cities, counties and even states have pushed back by capping commissions at 15 percent of the total cost of orders — what DoorDash can charge restaurants for generating a sale and delivering food. In the most comprehensive look at commission delivery caps, NBC News has found 68 localities that have passed such caps. Last month, DoorDash said on a call with investors that it had counted 73 caps by the end of 2020. As of March 15, Uber said it was facing 78 caps nationwide.

DoorDash has not taken the pushback lightly. To recoup what it considers lost revenue, DoorDash has tacked on another flat surcharge of $1 to $2.50, which it often calls a “Regulatory Response Fee.” The money goes straight to DoorDash. Only when customers click a tiny button does an explanation pop up saying the city has “temporarily capped the fees that we may charge local restaurants.”

NBC News found that DoorDash added supplemental local fees in 57 of the 68 locations that have fee caps, far more than have previously been reported. The charges have been imposed in several large cities, including St. Louis, Denver, Philadelphia, Cleveland, Seattle, Chicago and Tucson, Arizona.

While Campbell Matthews, a spokeswoman for DoorDash, did respond to some questions by email, DoorDash declined to make an executive available for an interview.

The newer surcharges have befuddled the legislators who thought they had finally made progress to limit the cost of takeout food in the pandemic. Dan Kalb, the City Council member who wrote Oakland’s fee cap bill, was unaware that DoorDash had instituted a $2 “Oakland Fee” until NBC News brought it to his attention.

“I was not anticipating that there would be this extra fee. But I’m not sure that I can stop them from doing that,” said Kalb, who represents the northern part of the city. “It is concerning that the fee might be misinterpreted that the city of Oakland is charging something.”Perfect timing

DoorDash’s relationship with restaurants has not always been this fraught. When four Stanford University graduates started the company eight years ago to address their challenges getting takeout, they initially marketed DoorDash as a company that “enables delivery in areas where it was not available.”

“Our mission is to empower small business owners to offer delivery in an affordable and convenient way,” they said.

By 2019, DoorDash had become the country’s leading food delivery company, overtaking its rivals, including Grubhub and Uber Eats. In March 2020, as the pandemic began, DoorDash had a market share in meal delivery of 42 percent, the single highest of any company in this field, according to the research firm Second Measure. Today, DoorDash, Grubhub and Uber Eats represent nearly 90 percent of the meal delivery market. DoorDash is by far the largest, having taken 55 percent of sales in February nationwide.

Through the pandemic, DoorDash became a bridge between restaurant owners and hungry diners who could no longer frequent the more than 110,000 restaurants that the National Restaurant Association has identified as having permanently closed since the pandemic began.

“The pandemic put independent restaurants in an exceptionally vulnerable place,” said Katie Lazor, the executive director of Eat Denver, a professional organization for independent restaurant owners. “The pandemic gave these third-party delivery companies these incredible advantages — it was a total springboard for them to explode.”

Pleading poverty

The variables sound like good news for DoorDash’s bottom line. But DoorDash, more so than its rivals Uber Eats and Grubhub, has been doing everything it can not to lose its pandemic gains and to keep its investors happy, according to legislators and DoorDash earnings transcripts.

In the second quarter of 2020, DoorDash made its first profit ever, just $32 million, and it went public in December. But the company remains billions of dollars in debt, and it lost a combined $355 million in the third and fourth quarters of 2020.

In an earnings call last month, DoorDash executives told investors that the number of commission caps more than doubled from August, when there were 32, to December, when there were 73. Still more have been added since then. Localities that imposed caps are small cities like Pacific Grove, California, and larger cities like Oakland; some are entire states, like Oregon and Washington. Prabir Adarkar, the company’s chief financial officer, said the company made $36 million less in revenue during the last three months of 2020 because of the new limits.

Meanwhile, DoorDash is also starting to deliver non-restaurant goods, including products from large retailers like CVS, Michael’s and Macy’s, and even Covid-19 test kits.

DoorDash executives have argued that they have no financial choice but to fight back by adding fees in jurisdictions where there are caps.

“Operating our platform, paying and insuring Dashers, and ensuring high-quality service can be expensive, which is why in some markets, where local governments have passed pricing regulations, we have begun charging customers a small additional fee,” Matthews, the DoorDash spokeswoman, said by email.

DoorDash’s rivals seem divided about whether the new fees are necessary. Meghan Casserly, a spokeswoman for Uber, said the company has imposed similar “consumer-facing fees” in 25 jurisdictions; she declined to produce a full list. Grubhub spokesman Grant Klinzman said in an email that the company had not imposed any city-specific fees.Lobbying efforts

As the rush to implement caps appears not to have slowed, all three major food delivery companies have stepped up their lobbying efforts. Minneapolis, Indianapolis and Saratoga County, New York, are also considering such caps. Some large-state legislatures, including New York’s, Texas’ and California’s, are contemplating similar statewide measures to make such caps permanent.

“After the pandemic, we can’t let these exorbitant rates continue,” said California Assembly member Lorena Gonzalez of San Diego, who wrote a bill to cap commissions statewide. “The negotiating ability of a mom-and-pop restaurant is limited.”

That has led all three delivery companies to heavily lobby local governments not to cap such commissions at all, or at minimum to impose a time limit.

In a letter a Grubhub representative sent in May to St. Louis Alderwoman Christine Ingrassia, the company portrayed commission caps in dire terms.

Amy Healy, Grubhub’s head of public affairs, said the commission caps were “exactly the wrong thing to do.” She suggested that if such caps were to be instituted beyond an emergency health order, they could be subject to a legal challenge.

In Oakland, according to the city’s online lobbyist database, DoorDash now has a dedicated representative registered with the city for the first time. Other lobbyists for DoorDash are handling efforts for multiple cities. On March 15, Chad Horrell, a lobbyist for DoorDash, left nearly identical public comment voicemails for the city councils in Akron, Ohio, and Huntington Beach, California.

“We provide a service for restaurants just like credit card processing services or product distributors,” Horrell said in the audio message. “Commission caps are an attempt to pick winners and losers in the marketplace.”

Jurisdictions responded to the lobbying efforts in different ways. Huntington Beach rejected the commission cap proposal because lawmakers, by a 4-3 vote, agreed with DoorDash’s argument that it should not stand in the way of one private company’s doing business with another.

However, Akron passed its bill unanimously. James Hardy, Akron’s deputy mayor for integrated development, said restaurants were suffering too much without it.

“We are hearing from our independent restaurateurs that the fees are just astronomical,” Hardy said. “It was tough before the pandemic. But then you could make the argument that they have a choice, but now there’s no choice. There is no free market right now given the effects of the pandemic: You have to have a delivery service as part of your business model in order to survive.”

The high commissions that DoorDash and similar companies charge restaurants has drawn attention from lawmakers. In September, three members of Congress raised their concerns with the Federal Trade Commission and asked for an investigation. None of the lawmakers or the FTC would comment. In their letter, the lawmakers raised concerns about the viability of the commissions.

“As COVID-19 has showed, the fees necessary for the platforms to be profitable may be too high for restaurants and consumers to continue using the platforms’ services, casting doubt on the long-term validity of the platforms’ business models,” wrote Reps. Mary Gay Scanlon, D-Pa., Pramila Jayapal, D-Wash., and Jan Schakowsky, D-Ill.

Most restaurateurs have learned that they still cannot survive without DoorDash. In Oakland, Christopher Pastena, the owner of two restaurants, Calvera and Chop Bar, resisted using DoorDash for several months last year. But finally, in November, he changed his mind and gave in. Like Wasem and Tipu Barber, who owns Park Burger, also in Oakland, he has been reluctant to use their services.

“I don’t know that we want to get in bed with them long term,” Pastena said. “This is a one-night stand kind of thing.”

Barber said DoorDash drives 40 percent of his business. But Bay Area counties are starting to ease up on indoor dining restrictions. If he and other restaurant owners can persuade patrons to come back, he can dial back his reliance on DoorDash.

“There’s no long-term positive societal benefit that’s going to come out of these business models,” he said.

But for now, he acknowledged, “Without DoorDash I would be closing up.”

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