Jul 23, 2019

DoorDash's "tips" model is under fire

Illustration: Aïda Amer/Axios

DoorDash is getting renewed heat over its pay model for delivery workers, whereby customer tips can be included in guaranteed minimum earnings. Critics argue this is consumer deception, although it's fairly similar to the "tipped wages" earned by waiters in certain states.

Why it matters: It's a reputational mess for DoorDash, as the "unicorn" tries to prove that its business model can work beyond billions of dollars in venture capital subsidies.

Until 2017, DoorDash paid its “Dashers” a flat $6 fee per order, plus any tips from the customer. Then it switched to its current model.

How it works: For each delivery a Dasher accepts, the company displays a “minimum guaranteed” amount he is sure to earn, which the company says is calculated based “the estimated time and effort required to complete that delivery."

  • For example, imagine a Dasher is guaranteed $7.00 to deliver a burrito.
  • No matter what, DoorDash will contribute at least $1 to the Dasher for this burrito delivery.
    • This is similar to how restaurants in most states pay their waitstaff a base wage below the full minimum wage, no matter how much they also earn in tips.
  • The burrito recipient tips $3. This leaves a gap of $3 to reach the $7 guaranteed minimum, once DoorDash's $1 contribution is included. In this case, DoorDash provides the extra.
    • Waitstaff generally is guaranteed to make at least minimum wage, all in. So if it's a very slow night with few tips, restaurants must make up the difference.
  • If the burrito customer tips $10, the Dasher would get $11 in total, with DoorDash only kicking in its $1.

DoorDash isn’t doing itself any favors by referring to these payments as "tips," but that's primarily because many people haven't really thought too deeply about what tips really are. In this case, they are often in lieu of payments DoorDash would otherwise make to Dashers. At a restaurant, it's in lieu of wages that the restaurant would otherwise make to its waiters.

  • DoorDash says that 15% of orders receive no tips. It also says that it contributes more than the customers to the minimum guaranteed amount on 65% of orders.
  • It’s unclear for what portion of orders Dashers earn more than that guaranteed minimum.
  • The company claims that, on average, it contributes about the same to Dasher fees as it did under the old $6 model, and that average Dasher earnings are $17.50 per hour.
    • Amazon also uses this tipped wages model for its Flex delivery workers, and grocery delivery service Instacart utilized it until recently.

Despite all the money being thrown at food delivery, profitability can be elusive.

  • DoorDash and other on-demand delivery companies are shifting the true costs of delivery labor to the customer without explicitly increasing the fees — devising elaborate ways to make their math edge closer to profitability.

Go deeper

The appeal of price opacity

Illustration: Aïda Amer/Axios

DoorDash dominated more of the news cycle than it should have this week, after an NYT article brought broad awareness to its idiosyncratic policy on tips. The company would give its "dashers" a guaranteed minimum fee for delivering food; that minimum included any tips. The result was that most tips ended up going to DoorDash rather than to the delivery workers.

Driving the news: After defending the policy as recently as last month, DoorDash CEO Tony Xu backtracked on Tuesday, tweeting, "Going forward, we’re changing our model - the new model will ensure that Dashers’ earnings will increase by the exact amount a customer tips on every order."

Go deeperArrowJul 28, 2019

GrubHub CEO talks competition and controversy after Q2 earnings

Photo: GrubHub

After his company posted mixed quarterly earnings results Tuesday, GrubHub CEO Matt Maloney didn't shy away from accusing competitors of tricking customers with hidden delivery fees in an interview with Axios.

Why it matters: A recent controversy over the driver pay policies of some companies like DoorDash highlighted the exact challenge food delivery companies face: building a sustainable business despite high delivery costs.

Go deeperArrowJul 31, 2019

Domino's Pizza dishes tech with its pies

Photo: Scott Olson/Getty Images

Domino's Pizza has shunned delivery app giants Uber Eats, DoorDash and GrubHub, and the pizza chain's CEO confirmed the company has no plans of collaborating with them any time soon.

Why it matters: While its No. 1 competitor, Yum Brands' Pizza Hut, has partnered with and taken a stake in the to-go dining app GrubHub, Domino's has banked on its technological investments in delivery and user operations to beat out competition, the Wall Street Journal (subscription) reports.

Go deeperArrowAug 3, 2019