To offset mandated commission caps in certain cities, DoorDash is testing a workaround through its premium platform, DashPass.
Restaurants showcased on this subscription platform will be charged their “contractual” rates in some test markets where government officials have capped fees, including Washington D.C.
DoorDash, which raised its targeted IPO share price on Friday, said reverting to negotiated commission fees for merchants enrolled in DashPass is a test needed to ensure "the best possible service for our community."
"In select cities where lawmakers have imposed price regulations, DoorDash is considering various measures to offset their unintended consequences and continue providing the quality customers expect, the ability to pay Dashers, and the choice merchants deserve to help drive volume as dine-in remains limited," a company spokesperson told Nation's Restaurant News in an email statement. "In some cases, this means charging merchants enrolled in DashPass, a premium DoorDash marketing service, their contractual DashPass rate in order to continue offering this service."
The San Francisco-based delivery operator has about 5 million DashPass customers who pay a flat monthly fee of $9.99 for unlimited deliveries from eligible merchants. Restaurants benefit from being listed on DashPass because subscribers are frequent users.
Restaurants can opt out at any time of being on DashPass, DoorDash said.
When the pandemic first hit, many cities and states enacted stay at home orders and shut down on-premise dining. Delivery became a crucial revenue channel and lifeline for many restaurants, especially full service restaurants.
But with commission fees hovering around 30% to 35%, many restaurants complained that they were losing money from each delivery transaction.
Restaurant delivery companies argue that fees pay for a combination of fixed costs and tailored marketing that helps drive order volume. Reducing fees results in fewer orders for restaurants, higher prices for consumers and negatively impacts overall service, delivery operators maintain.
That didn’t stop a wave of city and state officials from enacting legislation that would temporarily cap commission rates during the pandemic.
Cities and counties that have implemented temporary caps include New York City, Denver, Chicago, Los Angeles, San Francisco, Washington D.C., Philadelphia and Clark County, which includes Las Vegas.
New York City’s cap will remain in place until restaurants can operate at 100% indoor capacity. In late November, Washington state joined New Jersey in capping third party delivery fees.
On Friday, DoorDash raised its IPO share price to $95 a share. That's up from a targeted price of $75 to $85 a share, set earlier in the week. The delivery company is the No. 1 player in the competive space with a 50% market share in the U.S.
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