How did the cost of food delivery get so high?

How did the cost of food delivery get so high?

Food delivery apps have recently added new fees in response to minimum pay rules in New York City and Seattle. | Getty Images/iStockphoto

As delivery discourse rages, don’t forget the middlemen: apps like UberEats, DoorDash, and Grubhub.

No one is happy about the delivery apps. Not the customers, who feel gouged by an avalanche of fees. Not restaurants, who feel gut-punched by the commission apps take from them. Certainly not delivery workers, who have long been rewarded with a pittance for doing a job that, in a city like New York, has a higher injury rate than that of construction workers.

Amid this dogpile of disgruntlement, the merry-go-round of debating the value of food delivery keeps spinning. After all, some people, especially those with disabilities, rely on such services — but then, it is difficult work, and everyone ought to tip well. Another faction argues that this isn’t fair, because it’s already so unaffordable. The delivery apps themselves recede somewhat into the background, as if their existence is a given. They’re merely fulfilling a demand in the market, naturally taking a cut for themselves — two plus two equals four. Our desire to consume is seen as the problem, the having-cake-and-eating-it-too mentality of expecting affordable convenience.

But we should give credit where it’s due. Delivery apps have expended a lot of effort (and money) making the case that we — restaurants, workers, and consumers — desperately need them. Unhappy about the state of things now? You’ll really be pulling your hair out if you try to force the apps to change. In New York City and Seattle, new minimum pay laws for delivery workers recently went into effect. Immediately, additional “regulatory” fees were charged to customers, and restaurants and delivery workers complained that orders dropped, with Uber claiming in a blog post that they had dipped by 30 percent. Neither city’s minimum wage laws have forced delivery apps to tack on new fees, but both DoorDash and Uber Eats have introduced them nonetheless. The message is clear: If you try to mediate how the apps operate, things will just get worse.

An Uber spokesperson told Vox that there were “consequences to bad regulations and we made these consequences clear in repeated testimony that both cities chose to disregard.” A DoorDash spokesperson wrote that its platform “has to work for everyone who uses it — Dashers, merchants, and customers alike — which is why we’ve opposed these extreme new rules.” They continued that the new laws “require platforms like DoorDash to pay well above the local minimum wages, not including additional pay for mileage and tips. Just as we warned, the increased costs created by these regulations have led to an alarming drop in work for Dashers and lost revenue for small businesses.” Grubhub did not reply to a request for comment.

Some headlines have already declared app-delivery regulations a failure; the Seattle City Council is considering gutting the law while the ink is still drying. At the crisis point of consumers fed up with the cost of food delivery, companies like DoorDash, Uber Eats, and Grubhub — the three biggest in the US — are insisting on their irreplaceable value to the restaurants, consumers, and workers who have long complained about them.

Kimberly Wolfe, a delivery app driver in Seattle who fought for the wage law with an advocacy group called Working Washington, isn’t buying it. “These guys are doing what I call a corporate tantrum,” she tells Vox. “They’re just cutting off their nose to spite their face.”

What apps take from restaurants and customers

To be sure, delivery apps are convenient. For this ease of use, customers are painfully up-charged. Menu prices are almost always more expensive than ordering directly from restaurants. Then there are the line-item fees that appear on the receipt. There’s the delivery fee, but also the frustratingly generic “service fee” that could cover anything from keeping the apps’ servers up to paying their drivers. DoorDash charges a 15 percent service fee that starts at a $3 minimum. Uber Eats charges an unspecified service fee that depends on basket size. Browsing Grubhub in Seattle, I loaded a sample $62 food order and was levied a $14 service fee. Then add the taxes and tip. For the privilege of having a meal delivered to your home — something pizza and Chinese restaurants have done for at least half a century — you might find yourself paying nearly double the cost of just the food.

For restaurants, there’s a price as well. For the privilege of being found in the apps’ centralized hubs, apps can swipe as much as 30 percent of an order’s subtotal from restaurants, even collecting a commission on pickup orders. That’s if diners choose them over the influx of ghost kitchens and promoted partners.

Much attention has been paid to the fact that delivery apps aren’t profitable, or were on a long road to becoming profitable — but that’s in large part because they chose to invest aggressively in growth over being in the black at the end of the year. Last year, DoorDash’s profit margin was nearly 49 percent. Even after deducting a bunch of its biggest expenses, including driver pay, Uber’s delivery segment pocketed $1.5 billion, an increase of 173 percent from 2022.

Out of $8.6 billion in revenue in 2023, DoorDash spent almost $2 billion on sales and marketing, and another billion on R&D. It also spent $750 million last year buying back its own stock, a move often used by corporations to boost stock value. Uber has also long poured money into sales and marketing, which includes things like promotions and discounts, as well as R&D, in order to grow. This year, the company is preparing to shell out a cool $7 billion on stock buybacks.

What (little) apps provide to delivery workers

While customers find themselves paying $9-plus service fees on a delivery order, the worker handing you the food might only get a few dollars, all while paying for their own vehicle and fuel.

Wolfe recalls how paltry some of the payouts were before the Seattle wage law, when she would see $2 to $3 for an order before tips. In May 2022, Working Washington aggregated data from over 400 delivery jobs in the Seattle area and found that restaurant delivery workers were making on average $8.71 per hour after deducting basic expenses such as gas, which was far below the city’s 2022 minimum hourly wage of $17.27. During a Working Washington protest at City Hall in 2022, paper bags with receipts showing how much a worker had made on a delivery order were put on display.

“There were quite a few that were negative,” says Wolfe. “Once you figured expenses and all that, you were basically paying them to deliver.”

A 2022 study from NYC’s Department of Consumer and Worker Protection (DCWP) found that, after expenses, food delivery workers in the city were making an average of $11.12 per hour — again, sub-minimum wages. Crucially, customer tips made up about half of a delivery driver’s total earnings before expenses. (Data from Solo, which makes software for app-based gig workers, shows that tips make up a similar proportion of pay in Seattle.) A more recent report on the adopted minimum pay projected that drivers’ annual earnings after expenses (and accounting for the common practice of working for multiple apps) would rise from $11,970 in 2021 to $32,500 by 2025. Yet this calculation relies on a key assumption: that customers would keep tipping about the same amount as before the wage law.

It’s hard to imagine that tipping rates in Seattle and NYC would stay the same given that the apps have added friction to the process. On both DoorDash and Uber Eats in these two cities, the tipping prompt now comes up after delivery, not at checkout, when diners are less likely to engage with the app. On GrubHub, the option to tip at checkout is still available, but many NYC-area restaurants on the platform now show lower default tipping options that max out at 12 percent. (Of course, a customer can still input a custom amount.)

It has also likely gone down because deliveries have gone down. Some workers in NYC report that the apps are now locking them out, restricting the number of hours they work. Justice for App Workers, a coalition of rideshare and delivery workers, held a rally in front of New York’s city hall on March 27 to demand that the city address the lockouts. Food delivery workers are saying that they’re “unable to work for hours and days on end,” according to a statement released by the group. Bimal Ghale, a delivery worker in New York who is part of the Justice for App Workers group, told Vox through an interpreter that he used to work five to six hours at a time. “After the minimum wage started, I would be on the apps and after two hours it would lock me out,” he says. “The apps claim the area isn’t busy.” But Ghale is still delivering in the same neighborhoods he did before the new pay law, and the DCWP has also stated that orders have “remained steady.”

An Uber spokesperson said that the city had known workers’ access to apps would become limited due to the new hourly pay rule. “Since the rule went into effect, nearly 6,000 couriers have lost access to the platform, nearly 20,000 people are on the waitlist to work on the app,” the spokesperson said.

Since last December, when the pay rule went into effect in NYC, at least 500 complaints have been lodged with the DCWP alleging that apps aren’t following it. A DCWP spokesperson told Vox that the department was monitoring compliance.

In Seattle, DoorDash has slapped a $4.99 regulatory fee on all orders, and in NYC it charges an extra $1.99. It’s unclear how these meaningfully differ from the catchall service fee, a portion of which can also cover worker pay — except that the labeling points the finger at the law for higher prices. DoorDash’s regulatory response fees are meant to cover the costs of new regulations. The DCWP estimates that if apps passed on only half of their labor costs to consumers, instead of all of it, they would still pocket $232 million a year in revenue. It’s not a given that the apps have to charge us more to pay their workers better.

Apps cry that their hands are tied

Not long after the pay law went into effect, DoorDash published a blog claiming that Seattle businesses had already lost over $1 million in revenue and that workers were making less because orders on the platform had dropped. Grubhub’s write-up on the law’s adverse effects claims that tips are down 26 percent, with no mention of the fact that many of its Seattle-area merchants now show a lower range of tipping options — a tactic the company has used before.

None of these tactics are new. Just look at what happened in California after the passage of a ballot initiative called Proposition 22 a few years ago, which allowed app-based gig work companies like Uber and DoorDash to classify their workers as independent contractors, saving them a lot of money. In exchange, they agreed to pay 120 percent of the minimum wage for every hour of trip time — as in, time spent logged on the app, waiting for a ride or for an order to appear, would not count. App companies spent hundreds of millions of dollars backing Prop 22, even threatening to pull out of California if it failed to pass. They also warned that, without Prop 22, prices would go up for customers. A month after the successful vote, delivery apps announced fee increases anyway.

The math doesn’t add up. On the one hand, delivery apps play up the fact that they’re just intermediaries helping facilitate the sale or delivery of a product — they’re not employers, who would be on the hook for far greater payroll taxes and other employment costs than what apps currently pay. On the other hand, they command a steep price from restaurants and customers for matchmaking, of which the workers only see a narrow slice. The apps don’t make the food taste better, or deliver faster, and it’s obviously not cheaper. So who, exactly, benefits from their existence? What do they really add to the tangle of relationships we call the economy? If app companies leave cities like Seattle and New York to avoid having to pay higher labor costs, who would lose?

Wolfe doesn’t seem worried. Her thinking is that if they can’t run a competent business, perhaps they shouldn’t be in business. “Don’t let the door hit you,” she says. “Because you want capitalism — baby, that’s capitalism.”

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