Restaurant aggregator and delivery service DoorDash is suing digital ordering solutions provider Olo for allegedly overcharging the company by millions of dollars over several years, the Financial Times reported on Wednesday (March 31).
“Olo had been charging DoorDash fees that were greater than it was charging comparable delivery platform providers,” states a memorandum that DoorDash filed with New York’s Supreme Court on Tuesday (March 30). “For more than three years, Olo has overcharged DoorDash — inflating its own revenues by collecting from DoorDash tens of millions of dollars more than what DoorDash should have paid had Olo honored its MFN bargain.”
For its part, Olo stated in its S-1 SEC filing in advance of the company’s March 16 initial public offering (IPO) that DoorDash “seeks damages in excess of $7.0 million” and that Olo “believe[s] this lawsuit is without merit, and we plan to vigorously defend against it.”
Olo added in a statement to PYMNTS, “As Olo has already set forth, DoorDash’s allegations are baseless. Despite all of DoorDash’s litigation rhetoric, the evidence speaks for itself. Olo will not comment further on ongoing litigation. Olo looks forward to continuing to work with DoorDash for the benefit of the restaurant industry.”
DoorDash says it uncovered the alleged under-payment after it acquired Caviar, a former competitor, in November 2019. Reviewing Caviar’s transactions with Olo for similar services, DoorDash alleges, it noticed that Caviar was being charged millions of dollars less for comparable services.
This legal battle is being waged amid a larger conversation in the restaurant industry and its partners over how to make the economics of delivery work. Restaurants struggle to afford fees, which can run as high as 15 percent, while the delivery services struggle against the business model’s already narrow profit margins, especially as local lawmakers impose fees and new regulations.
Now, this lawsuit calls attention to the limits of these ongoing conversations, which tend to focus largely on the labor cost associated with the delivery business without taking into account additional fees, such as those paid to technology providers like Olo. Rather than the economics of delivery being an ongoing negotiation between consumers, restaurants, and delivery services, it is actually a far more complex web of these businesses, consumers, and technological and logistical solutions providers.
In the legal filing, DoorDash notes that its business “accounts for almost 20% of Olo’s revenue,” charging Olo with inflating the charges to drive up its valuation before going public. The filing states, “One would think a business such as Olo would be sure to deal squarely with its biggest business partner. But Olo did just the opposite to keep its windfall revenues on its books for its IPO.”
DoorDash accuses the company of violating a pledge to charge DoorDash its lowest fees. The delivery service alleges, “When DoorDash approached Olo with the evidence of its breaches and sought an amicable resolution, Olo doubled down, taking the absurd position that the [clauses of the pledge] simply disappeared … and, essentially, that DoorDash never had any right to the lowest fees despite Olo’s pledge.”
This legal dispute is being waged amid a year of major changes for both businesses. In addition to going public with a valuation north of $4.6 billion, Olo has also been reimagining its suite of technologies in response to the events of March 2020, which, as the company’s CEO Noah Glass told PYMNTS CEO Karen Webster in an interview, was a “tear up the roadmap” moment. Meanwhile, DoorDash had its own IPO in December, and has been facing both sky-high sales and severe losses while rolling out a wide range of new technologies. Amid all these changes, both companies are very much in the public eye, and the results of these legal proceedings may have major consequences for both companies’ shareholders and restaurant partners alike.
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