Denver diners who order restaurant food via third-party delivery apps might notice an extra charge tacked on to their next dinner order. DoorDash recently implemented a $2 “Denver Fee” to make up for revenue lost in the pandemic as a result of the city’s imposed commission caps.
The fee follows Denver City Council’s decision in October to place a 15% cap on commissions that delivery companies such as DoorDash, Grubhub and Uber Eats can charge restaurants. Those commission fees — which vary by delivery company and from restaurant to restaurant — pay for drivers’ wages and background checks, credit card processing, customer support, insurance, advertising and the website platform itself, DoorDash attests.
Back when City Council was considering the 15% cap, delivery companies warned that any revenue lost from such legislation could ultimately get passed on to consumers. Historically, these companies have charged restaurants commissions as high as 35%.
But DoorDash is the first in Denver to pilot such a surcharge. A spokesperson for the company said measures like the “Denver Fee” are “necessary to offset (the) unintended consequences” of “imposed price regulations that limit our ability to work with restaurant partners.”
“In some cases, this means charging customers an additional fee when they order from restaurants in their city so that we can continue to offer them convenient delivery while ensuring that Dashers are active and earning and that merchants can access the services to help drive volume as dine-in remains limited,” the spokesperson said.
Throughout the pandemic, independent restaurants have been sounding an alarm over third-party delivery services and their predatory price structures. Restaurants’ relationships to the delivery companies are often fraught. On the one hand, restaurants rely on these services; on the other, their already tight profit margins are increasingly cut by the costs.
“The (delivery companies) kind of force our hand,” Eric Norbert, general manager of Aloy Modern Thai in downtown Denver, told The Denver Post. “And now they get to feast, the fact that we’re all reliant on them.”
On a recent weeknight, a single order from Aloy cost 30% more over DoorDash than it did on the restaurant’s own website. To draw customers back from these aggregate sites, Aloy offers a 10% discount to anyone ordering direct from the restaurant. They work with a bike courier to deliver around downtown and otherwise provide curbside pickup so you don’t have to park. As Norbert points out, his staff also receive tips this way; tips only go to the drivers when ordered via a third-party app.
Before the pandemic, Aloy relied on takeout and delivery for about 50% of its business, Norbert said.
“The good thing is that set us up right for when we entered this phase,” he explained. “But the issue is that we don’t have those dine-in customers anymore. So while volume has increased … the fees start to add up.”
Because of the increase in demand for delivery during various levels of shutdown, as of August, Aloy had already paid $80,000 more than in the previous year for third-party delivery commissions. And Norbert estimates a 10% profit drop for the business due to delivery. Compare that to average profit margins at 10% or less in the restaurant industry — “if you’re doing everything right” — and the cost for delivery becomes even harder to justify.
That’s why some companies are taking the leap and starting to do the delivering themselves.
Boulder-based Big Red F Restaurant Group last month launched WeDeliver, a free (for now) in-house delivery service that works across five restaurant brands with multiple locations around Denver and the Front Range. Each restaurant location has been able to employ up to eight drivers, chief operating officer Audrey Quistorff told The Denver Post.
“The role of delivery is huge for us to be able to keep our employees working through this,” she said. “With our dining rooms closed and our sales getting clobbered, this delivery platform allows for us to have our bussers, cooks, bartenders, servers, hosts — everyone — jumping into the delivery opportunities.”
To be able to offer delivery, Big Red F requires drivers to provide proof of insurance and sign a release waiver to work, Quistorff explained: “We’ve worked closely with our legal team and liability insurance carrier and certainly suggest everyone else wanting to do delivery service do the same.”
But the pilot is already paying off for the restaurants, their employees and customers, she says. Restaurants get to control their products and service from start to finish. And diners hopefully are able to tell a difference at the door.
“Our average guest tips generously on WeDeliver, usually 18-20%,” Quistorff said. “So the net is that we save the 15-35% cost of the third-party fee that gets tacked on to every delivery, we keep our own team members employed as drivers, and the tips directly benefit our hourly team members as we have a tip-share model where they keep and share all tips to achieve pay equity in front- and back-of-house.”
While Big Red F is busy building its delivery customer base, the company continues to work with third-party platforms like DoorDash, and encouraging customers to visit the restaurants’ websites directly when they can. One thing that could help them in this effort is direct-to-doorstep beer, liquor and wine in addition to the food.
“Maybe (diners) want to see what sorts of beers and wine and cocktail packages we have for curbside pickup, and then they see we have WeDeliver and realize they don’t have to come pick it up,” Quistorff said. “They might then order more frequently directly from us. We can also … deliver alcohol, which the third parties cannot do for us, so that’s also huge.”
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