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DoorDash says delivery fee caps are hurting order volumes

The company has raised prices to offset the caps, which has depressed demand. It adds to concerns that delivery is getting too expensive.
DoorDash delivery bags
Photograph: Shutterstock

DoorDash said Wednesday that limits on the fees it charges restaurants are hurting order volumes because it has forced the company to raise prices for consumers.

In a blog post, the delivery provider reported that order volumes in March fell 7% in Philadelphia, 4% in St. Louis and 4% in Westchester County, N.Y., as a result of local limits on what delivery companies can charge restaurants. DoorDash has responded with additional fees for customers in those markets. 

"We have seen a tangible impact of the basic economic rule: When prices go up, demand goes down," DoorDash wrote.

The company said the declines are a direct result of price controls and not other factors like more people eating in restaurants.

DoorDash has been hampered by caps in at least 73 jurisdictions. Combined with the impact of added costs from Proposition 22 in California, they cost the company $36 million in Q4. 

Delivery fees, which can be as high as 30% or more, cover things like credit-card processing, marketing and driver pay. Fee caps mean DoorDash can't pay for all of those things, so it has added fees ranging from $1 to $2 in some markets.

Customers in St. Louis and Westchester County, which each have a 20% fee cap, pay an extra $1 per DoorDash order. In Philly, the cap is 15%, and customers pay an additional $1.50.

The caps are temporary, designed to expire sometime after the pandemic emergency is over, and have received widespread support from restaurants. There have been calls in some places to make them permanent.

DoorDash warned that if the caps continue, more places will feel the impact.

Shari's Cafe & Pies has seen a "major decline in DoorDash volume" in California, where DoorDash has raised prices to offset the costs of Prop 22, said Shari's COO John Iannucci during a session this week in Restaurant Business' Restaurant Community

The pie chain, which has an exclusive partnership with DoorDash, has heard from guests that delivery has gotten too expensive.

The results add to concerns that delivery could become too pricy for consumers too bear. Restaurants have recently started raising prices for delivery to help their margins, adding to the cost of an already expensive service.

"Customers over time are going to start looking at the free delivery that cost them $15 to get $12 worth of food when they start digging in to look at service fees and service charges," said Domino's CEO Rich Allison on the chain's fourth quarter earnings call, according to a transcript on The Motley Fool. "So we’re just not sure how all it plays out."

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