For years, commission fees charged by third-party food delivery providers have been a sticking point with many restaurant operators. However, large brands with significant buying power have been able to negotiate rates based on several factors, including location, volume, and the average distance for delivery.
Recently, DoorDash changed its tiered commission fee structure with McDonald’s. According to Business Insider, the new system increases the fees for units that make mistakes on their orders and are slow in service.
A Lower Base Commission Rate
The new contract between DoorDash and McDonald’s offers lower overall commission fees. Starting in 2023, commission rates on DashPass subscriber orders will be 14.1%, and commissions on non-subscriber orders will go down to 11.6%. This is a significant reduction from their previous fees of 15.5% for all orders.
Their agreement also incentivizes efficient units. For example, restaurant Dive reports that should a McDonald’s restaurant delay a DoorDash driver and take longer than seven minutes to get an order to them, the commission fees go up to 20.1% for DashPass subscriber orders and 17.6% for all other orders. Essentially, the higher commission fees charged to restaurants that make drivers wait will help recover some of the lost revenue associated with the lower base rates.
Additionally, restaurants that reach a certain number of customer refunds that occur when orders aren’t complete, such as forgetting the fries, will have to pay for the refunds themselves.
In an email to Restaurant Dive, DoorDash reported that any summary figure was misleading and that “Our platform’s quality-based incentives help reduce Dasher wait times to maximize their earnings and boost customer retention and revenue for our merchant partners.”
McDonald’s Digital Sales
Digital sales make up a large percentage of McDonald’s sales. According to McDonald’s CEO Chris Kempczinski, the company currently has about 40,000 restaurants in more than 100 countries. In the top six markets, sales through digital channels account for about $13 billion in year-to-date sales or over 20% of their overall sales as of their Q3 earnings call. These come through the app, kiosk, and delivery.
Kempczinski said this about their delivery business, “Over the past five years, our delivery footprint has grown from just 3,000 of our restaurants to more than 32,000 restaurants across 100 countries. As the needs of our customers who continue to change delivery has enabled us to increase our reach and gross sales around the world. We’re actively engaged in discussions with our largest delivery providers to support the extraordinary growth in our delivery business.”
When considering the amount in sales McDonald’s achieves through their delivery channels, it may well be worth paying what’s regarded as a penalty commission in light of the lowered base rates.
About 93% of McDonald’s locations are owned and operated by franchisees. While they appreciate the lower commission fees that a corporation with a large footprint can offer, they are also in a current labor crisis and struggling to hire enough workers like most in the restaurant industry. In these instances, some worry about being penalized for longer preparation times due to insufficient staffing levels.
Commission Fees for Restaurants with Smaller Footprints
In April 2021, DoorDash implemented a three-tiered commission fee structure for their partners. The commission fees were based on the type of marketing plan the restaurant received and their delivery area. The different plans applied 15%, 25%, or 30% fees.
At 15%, the DoorDash Basic, a restaurant receives the essential marketing tools such as a listing on their app and getting discovered in search. In addition, their Self-Delivery service enables restaurants to list their business on the DoorDash app at a lower cost and use their own delivery drivers. Several other delivery companies also set up options for lower fees, vying for the independent restaurant market share.
The move came after restaurant complaints of high fees and legislators threatening to apply temporary or permanent commission caps. Some of these regulations came to pass and have resulted in litigation.