Ask any given restaurant owner whether delivery apps like DoorDash (NYSE: DASH) help their bottom line or hurt it, and you'll probably get an answer along the lines of "It's complicated."
In the course of the pandemic, many restaurants had no choice but to switch gears and rely heavily on delivery in the absence of being able to welcome diners in at full capacity. That shift was especially brutal for higher-end establishments -- those that typically generate a lot of revenue from liquor sales and heavily marked-up entrees.
The problem, however, is that many restaurants don't have the capacity to keep up with increased delivery demand. As such, they typically have to turn to services like DoorDash -- even if it means losing a huge chunk of their profits to fees.
But now, DoorDash is adjusting its pricing model to better accommodate restaurants. And that could be a real game changer.
More options for restaurants
In late April, DoorDash announced that it's now offering a three-tiered pricing model for restaurants, with fees ranging from 15% to 30%. Here's how the service further breaks down:
- DoorDash Basic: This service only charges a 15% commission, which is a lower price point than what restaurants have historically needed to pay. However, customers incur higher fees to offset the cost savings for restaurants. These range from $2.99 to $4.99, depending on the area. Restaurants will also be limited to a more narrow delivery radius, but they can still opt into in-app marketing promotions.
- DoorDash Plus: This service charges a 25% commission, but restaurants receive access to DashPass premium membership customers. Restaurants that choose this tier also receive more visibility on the DoorDash app.
- DoorDash Premium: This service is the most expensive, charging a 30% commission. However, it comes with the lowest customer fees and the largest delivery radius. Premium membership also comes with a guarantee that any restaurant that receives fewer than 20 orders a month across all DoorDash platforms will receive a refund for the entire commission it pays during that time.
DoorDash insists that its two highest tiers give restaurants more visibility. But its more affordable tier is a good compromise for restaurants that aren't necessarily looking to source new customers, but rather, simply get orders out in a timely fashion to their existing customer base.
Will this new pricing model save restaurants from going under?
Many restaurants are barely hanging on in the wake of the coronavirus pandemic, and that's bad news for real estate investors. If restaurants shutter, commercial landlords will have vacancies to deal with, not to mention a loss of rental income. Furthermore, business closures can also impact nearby property values. Investors with income properties, for example, could get hurt if too many nearby eateries shutter.
If contracting with delivery apps like DoorDash becomes more affordable for restaurants, they'll be less likely to close down due to financial constraints. And as restaurants are increasingly allowed to welcome in more customers for in-person dining, they may also come to rely less heavily on delivery -- and lose less money to commissions. All told, there's reason to think things will soon turn around for restaurants after an exceedingly difficult year, and a more affordable pricing option from DoorDash is really the icing on the cake.