Spending more on DoorDash and UberEats? This fee may be why

ByCNN Business' Danielle Wiener-Bronner and Sara O'Brien, CNNWire
Sunday, January 24, 2021
Chicago officials set new rules for third-party food delivery apps amid COVID-19
Third party food delivery apps will now be required to list an itemized cost breakdown of each transaction for customers.

Late last year, some DoorDash customers started getting hit with a puzzling new fee on their order total just before checkout.

The extra roughly $1 to $2 charge was labeled by city. Some people got a "Denver" fee, others a "Chicago" one.

Across the country, people who ordered delivery through the service were charged more, seemingly just for living in those places, CNN reported.

RELATED: Chicago sets new rules for third-party food delivery apps amid COVID-19 pandemic

The actual reason for the new fees? In those cities, local governments have passed temporary caps that limit how much third-party delivery platforms can charge restaurants to help struggling business. To try to recoup those losses, DoorDash has put in new customer fees in cities that have enacted caps, including Chicago, Cleveland, Denver, Oakland, Philadelphia, Portland, Seattle, St. Louis, and a handful of others. (Customers can find the explanation when they click on the fee line before placing their orders).

DoorDash isn't alone in adding fees. Uber Eats has had a similar customer fee in place since the summer in Portland, where the cap is 10% per order.

And over the next few weeks, Uber Eats plans to add fees in over a dozen markets, including Chicago, Minneapolis, Boston, Washington and Oregon. The fees are $2 on average.

As restaurants struggle to make it through the pandemic, they're fighting back against high commissions charged by delivery platforms - either by looking for alternatives, or with the help of legislation. But someone has to pay those fees. Increasingly, it's the consumer.

Reckoning with high commission fees

Before the pandemic, many restaurants shied away from third-party delivery services, like DoorDash, Uber Eats or Grubhub. Those platforms can charge commission fees as high as 30% per order, which can leave restaurants in the red.

But now, with dining rooms completely closed or open with limited capacity, many restaurant operators feel they have to offer delivery or go out of business. With less money coming in, the pain of those high commission fees is even greater.

In an effort to help restaurants, a number of municipalities enacted commission fee caps. The temporary limits, usually around 15%, will expire eventually - in some cases after indoor dining has been fully reinstated for two or three months, in other cases on a specific date. Some cities that enacted temporary fee caps have already extended them.

Delivery services have taken varying approaches to the caps

DoorDash argues that the fees it gets from restaurants cover its own costs. If they can't get them from restaurants, they have to charge customers instead, according to the company.

"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," a DoorDash spokesperson told CNN Business in an emailed statement.

Uber echoed a similar sentiment.

"In order to maintain a reliable delivery marketplace we are instituting several temporary local fees in certain US markets," an Uber Eats spokesperson said. "Fees collected by Uber Eats from both merchants and consumers on transactions are what fund our services, including maintenance of the app, consumer support, safety, and - most importantly - pay for delivery people."

Unlike its competitors, Grubhub, which merged with Seamless in 2013, is not adding explicit fees in cities that have put commission caps in place, according to a company spokesperson. Instead, it's using its rivals' actions to try to lure people to its monthly subscription service, Grubhub+, which costs $9.99 per month. In December, it said it would offer three months free to people who join the service in Chicago and New York City.

The cost of higher fees

Some restaurant advocates are afraid that the higher fees will drive customers away. "We oppose any additional fees that could potentially dissuade diners from ordering in," said Sam Toia, president and CEO of the Illinois Restaurant Association.

There's good reason to be afraid.

"Consumers are really hesitant to incur any additional fees and costs" on delivery, said Jill Failla, senior foodservice analyst at Mintel. "Third-party companies need to be really aware of this barrier around consumer fees, and need to be really careful about what they're trying to pass on to the consumer."

That doesn't mean that they won't end up charging more for delivery, she said.

Though the pandemic has given them a boost with online ordering surging, many of these companies have struggled with profitability.

RELATED: Some restaurants ask customers to skip delivery apps like Grubhub, Uber Eats

For now, some restaurant operators are saying they haven't seen any slowdown in orders because of the new fees.

"I haven't seen a meaningful change in our third-party percentage sale," said Ruth Jones, chief financial officer at Maria Empanada, a small Colorado-based empanada chain.

The commission caps have been helpful, Jones said. But once they go away, restaurants will once again face those higher commission fees. When that happens, they might have to start charging customer fees themselves. "You're seeing a lot of restaurants add delivery fees for using the third parties," she said. "We have to continue to try to make money as a business, so we have to make choices that make the third party make sense."

That's especially the case in an environment where restaurants are struggling to survive.

"Restaurants recovery is going to require above average revenue and margin growth for some time, and unfortunately that will mean some higher prices for consumers," said David Henkes, senior principal at Technomic. "Ordering delivery has and will continue to get more expensive."

(The-CNN-Wire & 2021 Cable News Network, Inc., a Time Warner Company. All rights reserved.)

The video featured is from a previous report.