DoorDash Inc. (NYSE: DASH) seems to be looking at cutting losses from slow order preparations. The mobile delivery service is reportedly planning next year to increase its commission rates with McDonald’s (NYSE: MCD) restaurants that keep its delivery drivers waiting.
The fast-food giant partnered with food delivery apps DoorDash and UberEats in November 2021 to strengthen its delivery business amidst the pandemic. However, the details of the deal weren’t made public.
The pertinent documents reviewed by The Wall Street Journal gave light to the current terms of the two firms. DoorDash charges McDonald’s 15.5% commission whether orders come from DashPass subscribers or not. According to the documents, the delivery app agreed to lower the base commission rate to 11.6% for orders from non-subscribers and 14.1% from DashPass subscribers.
However, DoorDash negotiated to impose a tiered commission scheme based on the length of time their drivers have to wait for the orders to be prepared. For more than four minutes, the rate starts to climb. This can reach up to 17.6% for orders from non-DashPass subscribers and 20.1% for orders from DashPass subscribers should the wait time reach more than seven minutes.
The food delivery app plans to implement this scheme in 2023. But on top of this, it also negotiated that the McDonald’s store covers the refund for restaurant mistakes.
Restaurants like McDonald’s have been facing challenges to their labour and operations as the world reels in from the pandemic. Some franchisees of the fast-food company said they “welcomed the lower base commission rates but are concerned about the delivery companies influencing their operations amid challenging staffing and rising costs.” Franchise-owned stores still contribute the biggest 56.4% slice of McDonald’s revenue as of Q4 2021.
There’s been a surge of reports on McDonald’s orders made through DoorDash due to long wait times or order mistakes. For its part, the fast-food restaurant said it is focused on making mutually beneficial deals with food delivery partners.
“Delivery is one of the largest growth engines of the McDonald’s business globally, and it’s our goal to provide world-class customer experiences,” the company said to The Wall Street Journal.
In a similar fashion, Uber Technologies’ (NYSE: UBER) UberEats lowered its commission rates on McDonald’s to 14% from 15% for non-Eats Pass subscribers and charges 16% commission for orders from Eats Pass subscribers. However, it doesn’t have a sliding commission scheme tied to wait times.
DoorDash Inc. last traded at $95.01 on the TSX.
Information for this briefing was found via The Wall Street Journal and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.