DoorDash is pushing restaurants to keep their delivery and in-store prices the same, saying that inflated prices in the app are hurting sales and angering customers.
The company has been informing operators that excessive markups will hurt their placement in the app, while those that maintain consistent prices across channels will get a boost.
Raising prices on third-party delivery menus has become a common practice as restaurants look to protect their margins on the costly service. Restaurants can pay up to 30% in commissions on delivery orders, which can severely cut into their profits on those orders.
A study last year by Credit Suisse found that limited-service brands raised prices by an average of 20% on delivery apps. For many, this has made third-party delivery margin-neutral or even profitable.
But those higher prices appear to be turning off consumers, who for a long time have shown a surprising willingness to pay a premium in exchange for the convenience of delivery. According to DoorDash, however, “significant discrepancies” in menu pricing can result in up to 37% fewer sales, a 78% reduction in reorder rates and an increase in negative reviews.
“Why do you let this merchant price gouge?” one customer wrote to DoorDash, according to a document the company emailed to operators that was shared with Restaurant Business. “The hamburger is $19.99 on the menu but it is $24.99 on DoorDash. This is a very excessive price markup.”
DoorDash is testing tags that indicate when a restaurant's prices match those on the regular menu.
On the other hand, DoorDash said, restaurants that keep prices lower can expect better sales. An operator that knocked inflation down from 35% to 20% saw sales rise 9% after two weeks and order volume increase 19%, according to the document.
That could be in part because restaurants with price parity will now get priority in the DoorDash app, while those that gouge will become harder to find. According to the document, that reduced visibility can cause a restaurant’s sales to fall by up to 40%.
“Stores are much better off reducing prices than being subject to prioritization updates on the homepage,” the document said.
Read more: How do delivery app algorithms actually work?
The company is also testing ways to let customers know when a restaurant’s prices are consistent across channels. A banner on the DoorDash listing for Ann Sather, a Chicago breakfast concept, reads: “Menu Matches In-Store Prices: Get the same prices you would in-store on DoorDash.” The company said it's trying these in-app labels with select restaurants.
“We understand that there may be many reasons why restaurants choose to raise their prices,” a DoorDash spokesperson said in an email. “But in our mission to improve the customer and merchant experience, we encourage restaurants to set DoorDash prices that more closely reflect in-store menu prices.”
Delivery sales have shown signs of slowing recently as consumers start to feel the pinch of inflation. McDonald’s, which has been bullish on the service over the past year, said earlier this week that sales slowed in the first quarter. Chipotle and Domino’s have also reported delivery declines.
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