Dive Brief:

• Deliveroo will start charging a service fee in February for every customer, including for those who are signed up for its unlimited free delivery subscription service, according to This is Money. 
• The company is overhauling its delivery fee model to a dynamic pricing structure, which bases consumers' service fees on their distance. A new minimum spend will also be introduced, allowing customers to not pay a delivery fee if they meet the minimum spend set by the restaurant.
• A company spokesperson said the new pricing structure will make delivery fees lower for the vast majority of its customers. 

Dive Insight:

Despite the spokesperson’s optimism, heavy users of Deliveroo’s subscription service, Deliveroo Plus, are expecting higher costs. Deliveroo Plus was introduced in late 2017, offering unlimited free deliveries for a little over $10 a month. But that subscription rate was increased to about $15 just last year, on top of the $0.64 charge per delivery expected through the new model. 

Uber Eats also uses this type of pricing structure, but it does not offer a subscription service. This is where Deliveroo seems to have a disconnect with its new approach. Adding service fees on top of a monthly fee could have some users looking elsewhere, especially since the company noted in previous news reports that Deliveroo Plus saved users about $30 per month. 

Perhaps the biggest benefit with a subscription model is in the generation of loyalty members, those who would choose to order from the Deliveroo platform because their Plus subscription ultimately saves them money at the end of the month. In the U.S., DoorDash's DashPass subscription service DashPass, which launched in August 2018, has grown to 1.5 million active members, for example. 

But where do these incentives go for Plus members who are now being charged for every delivery, particularly members who may already be turned off by a 44% increase in subscription costs year over year? It's no wonder some Plus members are now threatening to boycott the company because of this announcement. 

Deliveroo may be onto something that could eventually turn positive by charging fees based on distance, particularly as it ramps up its ghost delivery footprint, which means more locations are becoming closer to customers. At the end of 2019, Deliveroo reached a footprint of 2,000 virtual restaurants across the U.K., working with 1,200 restaurant partners. This was an increase of 150% from the year prior. But why the company chose to hang onto its subscription service during this transition is a puzzle. 

Deliveroo, like many other delivery companies, has yet to generate a profit, and this new pricing structure may be an attempt to find a money-making solution, and could provide a preview of what U.S.-based providers might need to do to boost their own bottom lines. Despite this lack of profit, the company's revenues have increased and it has attracted plenty of investors, including a $575 million fund led by Amazon last year. However, that deal is currently under investigation, as the Competition and Markets Authority raises concerns that it could hurt competition and overcharge customers.