DoorDash: sticky prices, menu costs, and discounts

There’s an old joke about economists encountering the operation of the real world: “sure, it works in practice, but how does it work in theory?” A classic example is the question of “sticky” prices. Why don’t businesses adjust the price of their goods minute-by-minute to calibrate the amount they have in stock with the price they’re able to sell the last unit at? Why do employers agree on a wage when hiring employees, rather than deciding on a day-by-day basis how much they’re willing to pay for one day’s labor? In other words, what makes prices and wages “sticky?”

If these questions sound insane to you, congratulations: you’ve never met an economist. One theory economists came up with to explain the observed world of sticky prices is that of “menu costs.” The term comes from the extremely literal observation that since it costs money to print new menus, restaurants don’t update their prices until they expect the increased revenue from the updated menu prices exceeds the cost of redesigning and reprinting their menus.

Online ordering platforms have, theoretically, dramatically lowered if not eliminated these menu costs. It’s technically trivial to adjust the price of any menu item by an arbitrary amount an arbitrary number of times; they’re just numbers in a database, not dozens of giant pages of laminated card paper like you find at your local Greek diner.

But this is a misunderstanding brought on by the term itself. “Menu” costs don’t just consist of how much you pay your printer to print new menus. You also have to pay someone to spend time thinking about how much to charge for each item on the new menu. Then you have to pay someone to spend time designing the PDF of the new menu to ship off to the printer. When the menus come in, you have to pay someone to pull the old menus out of their plastic sheaths and replace them with new ones.

Online ordering platforms are great at eliminating the “printing” portion of menu costs, but don’t do anything about the rest of the equation — menu costs are alive and well, and as long as they are, prices are going to be “sticky.”

Prices are higher on app-based ordering platforms

This principle is exposed in an interesting way on app-based ordering platforms. For this post I’ll be using two real-world examples, although you’ll find identical examples at any restaurant in your own area.

In Washington, DC, the London Curry House on U Street NW charges its regular menu prices when ordering pickup in person (obviously), over the phone, or through the Toast online ordering platform. Meanwhile, the exact same items — each item on the entire menu, from garlic naan to ajwaini salmon tikka — costs exactly $1 more when ordering them through DoorDash.

In Portland, Oregon, the Tuk-Tuk Thai restaurant took a slightly more confusing approach. The prices on its regular menu match up to those on its order.online menu, but when ordering mains through DoorDash you’re required to select a “protein” that costs at least $2 extra — including “vegetable” — ingredients that would be free when ordering in person, over the phone, or through their own online ordering system. For appetizers like spring rolls and salad rolls where that isn’t plausible, they simply charge $0.50 more.

Discounts really can, but don’t necessarily, save you money

This is, obviously, fine. There’s no law that says restaurants or anyone else has to charge the same price through every order channel, so if restaurants want to charge more when you order through channels where they get a smaller cut of the revenue, they’re obviously free to do so. The reason it matters is that DoorDash and similar services offer periodic discounts for using them, and knowing that prices vary between ordering channels helps to decide when an offer is worth using.

A typical DoorDash discount is along the lines of “$5 off orders of $30 or more.” As the two example stores above show, whether this is a good deal or not depends on precisely how many dishes you’re ordering: at the London Curry House, you save money compared to ordering through their Toast portal when you order 4 or fewer dishes. At Tuk-Tuk, the discount is lost entirely and you go into the red after ordering 3 main dishes, or 2 mains and 2 sides.

I received another type of DoorDash discount offer “as a thanks for dashing during dinner” (this is just flavor text their marketing team came up with, don’t take it seriously). That offer was for 30% off pickup orders, up to $10. That offer would be maximized on an order of $33, similar to the $30 threshold above, but with a value high enough to easily overcome the higher prices charged through DoorDash compared to other order channels (although nowhere close to $10 in value).

The lesson here is simple: when choosing how to order, check a restaurant’s regular menu prices, the prices charged on their preferred online ordering system, and the prices charged through app-based ordering systems. Coupons and discounts really can save you money off even app-inflated prices, but you won’t know unless you check, and DoorDash is counting on you not checking.