DoorDash-Olo costume draws attention to delivery
Restaurant aggregator and delivery service DoorDash pursues a supplier of digital control solutions Olo for allegedly overload the business with millions of dollars over several years, the Financial Times Report Wednesday (March 31).
“Olo was charging DoorDash fees that were higher than those charged to providers of comparable delivery platforms,” says a memorandum that DoorDash filed in the New York Supreme Court on Tuesday, March 30. “For over three years, Olo has overcharged DoorDash – inflating his own income by raising from DoorDash tens of millions of dollars more than DoorDash would have had to pay if Olo had honored his MFN agreement.”
For his part, Olo said in his S-1 SEC filing in advance the company’s March 16 initial public offering (IPO) that DoorDash “seeks damages in excess of $ 7.0 million” and that Olo “believes[s] this lawsuit is without merit and we plan to defend ourselves vigorously in it.
Olo added in a statement to PYMNTS: “As Olo has already stated, DoorDash’s allegations are without merit. Despite all of DoorDash’s contentious rhetoric, the evidence speaks for itself. Olo will not comment further on the pending litigation. Olo looks forward to continuing to work with DoorDash for the benefit of the restaurant industry. “
DoorDash says it discovered suspected underpayment after its acquisition Caviar, a former competitor, in November 2019. Examining Caviar’s transactions with Olo for similar services, DoorDash alleges that he noticed that Caviar was being charged millions of dollars less for comparable services.
This legal battle is being fought amid a larger discussion within the restaurant industry and its partners about how to make the delivery economy work. Restaurants find it difficult to pay fees, which can be as high as 15%, while the delivery services are fighting the already narrow profit margins of the business model, especially as local lawmakers impose fees and new regulations.
Now, this lawsuit draws attention to the limitations of these ongoing conversations, which tend to focus largely on the labor cost associated with the delivery business without taking into account additional costs, such than those paid to technology providers like Olo. Rather than the delivery economy being a permanent negotiation between consumers, restaurants and delivery services, it is in fact a much more complex network of these companies, consumers and providers of technological and logistics solutions.
In the legal file, DoorDash notes that his business “accounts for nearly 20% of Olo’s revenue,” accusing Olo of inflating fees to increase its valuation before going public. The dossier states: “You would think that a company like Olo would be sure to deal squarely with its biggest business partner. But Olo did the exact opposite to keep his windfall income on his books for his IPO.
DoorDash accuses the company of violating a commitment to charge DoorDash its lowest fees. The delivery service alleges: “When DoorDash approached Olo with evidence of his misconduct and requested an out-of-court resolution, Olo doubled down, taking the absurd position that the [clauses of the pledge] simply disappeared … and, in essence, that DoorDash never got the lowest fees despite Olo’s promise.
This legal dispute takes place in the midst of a year of major changes for both companies. In addition to going public with a valuation north of $ 4.6 billion, Olo also redesigned its technology suite in response to the events of March 2020, which, as company CEO Noah Glass said in an interview, CEO of PYMNTS ‘Tearing up the Roadmap’ moment. Meanwhile, DoorDash had its own IPO in December, and was faced with both exorbitant sales and significant losses while deploying a wide range of new technologies. Amidst all of these changes, both companies are very well known to the public, and the results of these lawsuits can have major consequences for both company shareholders and restaurant partners.
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