A food delivery messenger was spotted in Manhattan.
Luis C. Ribeiro | New York Daily News | Tribune News Service | Getty Images
Food from your chosen restaurant will be delivered right to your doorstep — how much will it cost?
With the rise of delivery apps like Grubhub, third-party food delivery is becoming the norm for American consumers. DoorDash and Uber Eats has become a part of everyday dining, and it presents customers and restaurants with an increasingly complex equation that includes service charges, delivery fees and employee tips.
As cash-strapped Americans scour checkout screens and rack up higher-than-anticipated order totals, the service industry, which has struggled to protect (or even make) profits and shore up orders, is seeing frustration from both sides.
Compared to ordering directly from a restaurant’s site, consumers report checking third-party apps more often each year between 2022 and 2024. Technomic. Uber Eats, DoorDash and Grubhub have each promoted paid memberships to lower their fees, but food-service industry research firms argue that consumers still pay more on average for orders from third parties.
Costs are rising as more Americans loosen their purse strings amid rising inflation.
Zainab Batour, a San Francisco resident who orders delivery every week through Uber Eats or DoorDash, called the extra charge “outrageous.”
“It doesn’t seem like it was that high until about four years ago, but it seems to be increasing,” Batur said.
Research shows that the percentage of consumers choosing third-party delivery services over direct delivery from restaurants is on the rise, expected to grow from 15% in 2020 to 21% by 2024. Technomic Delivery & Takeout Consumer Trends Report 2024. The research firm found that better order tracking, access to deals and promotions, and the ability to discover new restaurants are keeping app customers coming back.
But the cost of the extra fees may be driving some customers away.
Among consumers who said they’ve ordered delivery less, 41% said high delivery fees were the reason, while 48% pointed to rising menu prices, according to the report. The premium that restaurants charge for menu items from third-party delivery services will increase from 2022 to 2023 and has nearly doubled since 2020, according to research firm Americas.com. Research Advisor Gordon Haskett.
Delivery intermediary companies are trying to keep fees low, but at the same time they are trying to stay in business.
Grubhub said in a statement that it aims to keep fees as low as possible while maintaining business. “Costs associated with the delivery business, including managing logistics and paying delivery partners, have increased, so we have adjusted our fees accordingly,” a Grubhub spokesperson said.
The company is owned by Amsterdam-based online food ordering and delivery company Just Eat Takeaway. That said The company is actively considering selling all or part of Grubhub.
DoorDash said it has lowered fees for consumers amid historic inflation over the past two years, while also seeing a record number of active users and increased ordering frequency last year.
The company, which went public in 2020, has yet to report an annual profit. The delivery service reported one quarterly profit. Net income: $23 million — The first three months of the COVID-19 lockdown in the United States, ending June 30, 2020
Meanwhile, mobility giant Uber It made nearly $1.9 billion last year.Part of that is due to a strong increase in delivery business: Uber’s delivery division, which includes Uber Eats and Uber Direct, reported adjusted EBITDA of $1.51 billion in 2023, an improvement of more than $955 million over 2022.
An Uber spokesman said Uber Eats users pay for a service that allows them to efficiently browse and order food for on-demand delivery.
“Uber Eats order fees help cover platform costs like paying our drivers, safety programs, 24/7 support, background checks, product development and ensuring your order gets delivered,” the spokesperson said in a statement.
Add up the fees
For diners, navigating the math across multiple platforms is becoming increasingly difficult.
For both Uber and DoorDashAccording to the companies’ websites, order totals may vary by region due to surcharges that are applied to offset local laws and regulations. For example, in California, Uber Eats customers pay the CA Driver Benefit Fee, which was put in place to cover mandated benefits for drivers. Proposition 22According to Uber.
An app-based delivery person waits outside a restaurant that offers app delivery on July 7, 2023, in New York City.
Spencer Pratt | Getty Images
Add-ons can be difficult even before regional differences come into play.
Uber charges a delivery fee that varies based on demand, location, and driver availability, according to its website. DoorDash charges a similar delivery fee, but says it is determined by several factors. Both apps say the fee is paid directly to the app, not the driver or restaurant, to cover delivery costs. Grubhub also charges a delivery fee on orders, which increases depending on the distance of the delivery, up to a maximum amount.
All three of these apps charge a separate service fee, but the math isn’t all that simple.
Grubhub and DoorDash say the fees are meant to cover the costs of running their platforms, while Uber says all but 10 cents of its service fee goes directly to delivery drivers, who then have to pay Uber an undisclosed amount for a range of support services.
DoorDash and Uber both say the price can vary depending on the subtotal of the order.
With all these variations, plus possible discounts and promotions, many customers don’t know the total cost of their order until they’ve made their selections and completed the checkout.
“You see an item that says $15, you go to checkout and it’s like $25 in total, but in your mind you’ve already committed to buying it or you’re looking forward to it,” said app user Batoul. “It creates an extra friction to cancel the order.”
Uber and Grubhub both said their fees are clearly disclosed before checkout, and DoorDash said the total fee that applies is always visible in the cart.
Considering economics
For restaurants, part of the value of third-party delivery services is the potential for more exposure and customers, said Shell Santana, an assistant professor of marketing at Bentley University.
More than 1 million merchants have partnered with Uber Eats and more than 375,000 with Grubhub, according to the companies. DoorDash said it expects more than 100,000 new merchants to join its marketplace in 2023, bringing roughly $50 billion in sales to the business. Uber said Uber Eats merchants in the U.S. and Canada generated more than $15 billion in sales through the app last year.
Uber Eats and DoorDash offer tiered fee structures for restaurants to list on their respective marketplaces, with fees ranging from 15% to 30% of the total order amount, according to their respective websites. Restaurants that join the Grubhub Marketplace pay a 5% to 10% “marketing fee” per order, as well as an order fulfillment fee and a 10% delivery fee, according to their websites.
“We Deliver,” “Doordash,” “Grubhub” and “Uber Eats” signs are hanging on restaurant doors in New York City.
Lindsay Nicholson | UCG | Universal Images Group | Getty Images
All three platforms say they offer restaurants a variety of pricing plans to choose from based on the price and level of marketing support they want, including commission-free online ordering services.
Tony Scardino, owner of Illinois-based Professor Pizza, said his two Chicago locations use multiple third-party delivery services, including Grubhub, DoorDash and Uber Eats. He said he’s used the services for nearly four years and called the apps’ prices “exploitative” and “too expensive.”
But he says it can be worth it for smaller businesses to use a delivery service instead of paying for their own delivery. All of this adds up to what he calls a “tricky balance.”
“I struggle with whether I should even be on the show in the first place,” Scardino said, “but the audience for the show is so overwhelming that it’s hard not to.”
This cost could force restaurants to raise menu prices.
A study of menu price premiums at 25 restaurants that are popular with third-party delivery services found that the average price was 20% higher than dining in. Research Advisor Gordon Haskett.
“Restaurants are essentially saying, ‘We’re not going to pay DoorDash or Uber or Grubhub fees. If consumers value the convenience and want to use that service, they’re welcome to pay the fee,'” Empower Delivery CEO Meredith Sandland said.
Empower Delivery aims to take on major delivery services by connecting restaurants with a pool of delivery workers, which it claims will be less costly for business. Website.
Phyllis Engelbert, a restaurant owner in Ann Arbor, Michigan, has resisted DoorDash and other third-party delivery services even before the pandemic. She said her Detroit Street Filling Station relies on dine-in ordering and limited delivery options that come with a $7 flat fee.
Even if they lead to increased sales, Engelbert said he’s not convinced third-party delivery apps would improve his company’s bottom line or benefit its employees.
“It feels like another way that corporations can come in and take away some of the fruits of our labor,” Engelbart said.
Put your savings to good use
As more restaurant owners pass on delivery app costs to consumers, third-party services are all beefing up their monthly membership options to help ease the pressure.
All three major services offer free shipping on all orders with a premium membership. Grubhub+, Dash Pass and UberOne According to their respective websites, it costs $9.99 per month.
Grubhub has inked a deal with Amazon whereby the e-commerce giant will offer U.S. Prime members a one-year membership to its food delivery service. Photo by Gabby Jones/Bloomberg via Getty Images
Gabby Jones | Bloomberg | Getty Images
In May, Grubhub is Amazon DoorDash is adding Grubhub+ to its Prime membership. 1 year free membership For DoorDash Rewards users master CardUber Member Benefits surely Capital One Limited time offer available to credit card members only.
Additionally, universities offer incentives for students. Dash Pass and UberOne At half price, Grubhub+ According to the websites of each partner university, the course is free for students of the partner universities.
According to Steve Tadelis, an economics professor at the University of California, Berkeley, the benefits of subscriptions are two-fold: lowering the total cost of an order means more customers check out more frequently, and curated lists of power users allow services to tailor future discounts to their most loyal customers.
The subscription will include free shipping, but service fees (which vary by region) still apply, and the company says that for DashPass members, the service fees will be reduced.
At this point, the only remaining cost is the tip for the delivery driver.
When consumers are surprised by the total bill, tipping can be “the only thing left” to control their budget, Empower’s Sandland said.
Batoul said she always tips, but isn’t comfortable with it when other fees are taken into account. She said she doesn’t know if the service charge or other fees actually make it to the driver, so she needs to tip to ensure the driver gets paid.
“It pisses me off because I think the service fee should go to the people who are providing services to us,” she said, “but it doesn’t seem to be the case.”
