Food delivery fees are rising, hurting everyone

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.

Technomic said consumers are reporting a higher annual growth in total checks on third-party apps between 2022 and 2024 compared to ordering directly through a restaurant’s site. 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.

According to Technomic’s 2024 Delivery & Takeout Consumer Trends Report, 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. The research firm cites better order tracking features, access to deals and promotions, and the ability to discover new restaurants as reasons app customers keep returning.

But the cost of the extra fees may be driving some customers away.

Of consumers who said they’ve stopped ordering delivery, 41% said high delivery fees were the reason, while 48% pointed to rising menu prices, according to the report. A study by Gordon Haskett Research Advisors found that the premium restaurants charge for menu items from third-party delivery services will increase from 2022 to 2023 and has nearly doubled since 2020.

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 a subsidiary of Amsterdam-based online food ordering and delivery company Just Eat Takeaway, which has said it 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 quarter of profit (net income of $23 million) in the three months ended June 30, 2020, at the beginning of COVID-19 lockdowns in the United States.

Meanwhile, mobility giant Uber made nearly $1.9 billion in profits last year, thanks in part to a strong increase in its 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.

For diners, navigating the math across multiple platforms is becoming increasingly difficult.

According to their respective websites, Uber and DoorDash apply surcharges to offset local laws and regulations, so order totals may vary by location. In California, for example, Uber Eats customers pay the CA Driver Benefit Fee, which was implemented to cover mandatory driver benefits pursuant to Proposition 22, Uber said.

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 easy.

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.

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.

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.

Gordon Haskett Research Advisors looked at menu price premiums at 25 popular restaurants that use third-party delivery services and found that the average cost was 20% higher than dining in.

“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.

According to the company’s website, Empower Delivery aims to compete with major delivery services by connecting restaurants with a pool of delivery workers at what it claims are low costs.

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.

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.

The three major services, Grubhub+, DashPass and Uber One, offer free delivery on all orders to premium members who pay $9.99 per month, according to their respective websites.

In May, Grubhub Amazon The e-commerce giant is including Grubhub+ in its Prime membership, and DoorDash is offering a free one-year membership to DoorDash Rewards members. master CardUber offers special benefits to certain members Capital One Limited time offer available to credit card members only.

Each company also offers special offers for students, including half-price DashPass and Uber One, and free Grubhub+ for students at partner universities, according to their websites.

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.”