Uber Eats rolled out its new fees structure this week, and most people are confused about what the new fees mean. Instead of a booking fee for each order, Uber is now splitting up its fee into a delivery and service fee, and adding a small order fee of $2 when your order total is less than $10. Here’s what it actually means.
From the homepage of the app, you can see the delivery fees. Ranging from 49 cents to $3.99 in New York, at a glance it looks more appealing and affordable than the previous fees of $2.49 to $6.49. But once you start adding items to your cart and reach the order page, you can scroll to see an additional service fee that’s 15 percent of your order total. The new delivery fee plus service fee add up to roughly what the old booking fee used to be — plus or minus a few dollars or cents. So to casual customers, at a glance, the low delivery fees from the homepage can be misleading.
Since Uber Eats doesn’t keep a comparison of its old booking fees up on the app, customers are understandably confused about whether prices have gone up or not. And the results can vary. Some customers on Reddit complained about the markup after a small order of an $8.99 chicken kadai led to a total order cost of $16.99 after fees. Others noticed that their total order costs had gone down by a few cents or a dollar. A San Francisco-based Uber Eats customer who requested anonymity tells The Verge, “With the service fee, delivery fee, taxes, and tip that’s quite a lot of money to pay for the convenience.” He adds that he isn’t sure whether he’ll quit the service yet: “In an effort of fairness, I’ll need to try a few orders to make a decision.”
UBER EATS DIDN’T CHARGE SERVICE FEES BUT IT WAS ONLY A MATTER OF TIME BEFORE THEY GOT IN LINE
At a McDonald’s in Brooklyn, if I ordered a Big Mac meal ($11.70) last week prior to the fee change, my total cost would include $1.04 for tax, plus a $4.99 booking fee, for a total of $17.73. After the fee change, the same order costs $11.70, $1.04 in taxes, a service fee of $1.75 and a delivery fee of $2.49 for a total of $16.98. So I’ve saved 75 cents. Not bad.
Well, what about the small order fee? If I decide to test my luck and order a 10-piece McNugget meal for $9.69 before the fee change, the tax is $0.86, the booking fee is $4.99, and my total is $15.54. This week, after adding all the fees up, including a $2 small order fee, a $1.45 service fee, and a $2.49 delivery fee, my total is $16.49, and I’ve lost 95 cents.
Uber won’t say what percentage of its orders are small orders. But it’s certainly impacted the business enough that it’s no longer sustainable to allow customers to order a side of nuggets and nothing else. Uber calls it a “business decision” to start charging small order fees. When I ask Uber what sorts of small orders it often sees, it says that anecdotally, customers sometimes order McDonald’s with one item at a time. McDonald’s and Uber Eats have been partners since 2016, expanding to 5,000 locations in 2017.
Harry Campbell, a former Uber driver who runs The Rideshare Guy blog and podcast, says, “Uber has always subsidized Uber Eats orders and relative to other operators like DoorDash and Postmates, they didn’t charge things like service fees and small cart fees but it was only a matter of time before they got in line.”
Uber Eats is an increasingly important part of the ride-hail company’s overall business model. Food delivery is the largest growing segment of Uber’s business, outgrowing Uber’s own ride-hailing service in 19 European cities as of December 2017 and claiming more market share than Grubhub in 15 US cities as of last April. Uber is widely expected to go public in April, trailing behind rival Lyft.
“It looks like with the IPO looming that they’re more focused than ever on charging customers what it actually costs to get these items delivered,” Campbell says. “We’ve seen a number of changes to the fee structure on Uber Eats over the past year which tells me they’re experimenting and trying to figure out the best way to get profitable on this service.”
There certainly have been a lot of price changes. Last year, Uber changed its fee structure in August to a sliding scale that could offer even lower prices. The reality was even better: customers mostly saw free delivery, with low fees only showing up for distant restaurants. For over two months, Uber Eats customers enjoyed the cheaper prices and drivers saw larger order volume. More sales meant more drivers logged in to bring orders, which in turn meant speedier service to customers.
But in early October, customers started noticing an uptick in prices that couldn’t be explained. Instead of booking fees maxing out at $4.49, they could now reach $6.49. When asked for clarification, Uber referred to its August announcement.
This time, Uber gave customers a few days’ notice about the new fees and was more straightforward. It denies that customers’ unhappiness last year with the quiet fee shift had anything to do with its decision to be more transparent this time around.
Uber declines to respond to direct questions about revenues earned from its altered fee structure, largely because it claimed not to know the answer. The company suggests checking back in a few months, when it could get a clearer picture from all the data. Are the fees now permanent? A spokesperson would only say that Uber is constantly experimenting.
The new fees don’t affect “busy area” fees that appear when Uber says there aren’t enough delivery workers in the area. Busy area fees, which are analogous to surge pricing in its ride-hailing business, tend to pop up for various restaurants on the Uber Eats app when there’s inclement weather or if you try ordering food at 4AM and there are only a few restaurants open. And the new fees also don’t benefit Uber drivers’ pay.
Compounding the confusion, drivers don’t receive a cut of the delivery fee. Uber pays drivers a per-mile rate based on how far they’ve driven, regardless of what the passenger is paying. Drivers get a fixed fee for pickup at the restaurant, a fixed drop-off fee for each location, and a rate based on distance traveled. Meanwhile, the customer pays Uber an assortment of fees. Restaurants pay Uber a service fee and then Uber makes whatever is leftover after paying the driver.
What that adds up to is actually very little for the driver, says Campbell. He says that “based off surveys we’ve run in the past, Uber Eats pays the lowest of the major food/delivery services (Postmates, DoorDash, Caviar, Amazon Flex).”
“But since it’s so easy to sign up as a driver for Eats — if you’re already an Uber driver, it’s one button away — a lot of drivers still do it when it’s slow,” he says.
Drivers are unaffected by the recently announced changes, but if you’re managing to save a dollar on your orders going forward, you might as well add it to the driver’s tip. One customer, who goes by Cole Jessip, and who’s located in Houston, tells The Verge, “If [the fees] total more than $5 it would make more sense for me to just bring lunch to work. I’d rather pay less of a fee, and give the difference to the driver.”
See original article here.