What looked like a delivery boom now seems more like a delivery bust in disguise. chrisecrowley writes
A new study shows that 2020 was more of a bust for third-party platforms.
Growth Probably Isn’t As Big As It SeemsLast year, the major delivery platforms experienced major growth: UberEats reported its restaurant base grew by 75 percent, while DoorDash increased revenue by 241 percent during 2020. However, according to a new study published by Daniel Minh McCarthy and Elliot Shin Oblander, an assistant professor of marketing at Emory and a Ph.D. student at Columbia Business School, respectively, the gains the industry experienced last year can be attributed mostly to a “substitution away from dine-in behavior.” And, contrary to what reps from delivery companies have argued about user growth, they’re mostly splitting, not increasing, customers with restaurants, with users signing up for multiple services instead of unique customers.
According to McCarthy and Oblander — who looked at credit-card, geolocation, and restaurant data collected from Earnest Research, YipitData, and SafeGraph — the pandemic created an estimated $19.3 billion in revenue for delivery companies. This accounted for roughly 70 percent of growth, as The Wall Street Journal noted. While sales did grow by 122 percent last year, if the pandemic hadn’t kept people from dining in restaurants, the number would have been just 38 percent. Furthermore, McCarthy and Oblander write, the growth in the past year represented a U-turn: Pre-pandemic, customer acquisition was falling, as was order frequency, and growth was stalling.
It stands to reason, then, that as diners are allowed to return to restaurants without restrictions, “sales may drop sharply” on the delivery platforms. McCarthy and Oblander believe the growth experienced by the platforms in 2020 is not going to last. “We just kind of imagine it would be what we just saw last year but in reverse,” McCarthy says. headtopics.com
Still, the authors offer the caveat that delivery companies may benefit from some behavioral changes, including an increase in both long-term remote work and consumers who have gotten used to ordering delivery. “I think that there’s a segment of people who had never tried delivery before that now have been exposed, so you kind of pulled forward some of that demand,” McCarthy says, before cautioning that “delivery is not going to be viewed as some sort of patriotic service to the country or something when we return to business as usual.”
Regulators Are Eyeing the Services’ Most Controversial TacticFor years, restaurant owners have complained about the apps listing their businesses without consent, creating fake websites that appear to be run by the businesses, and other practices critics have called predatory. Doing something about these practices may feel like a hopeless task, as just four companies, Civil Eats reported last year, control nearly the entire market.
There may be some momentum nationwide to tackle these practices, which are now illegal in California as of January and may soon be illegal in Illinois, where State Senator Melinda Bush introduced the Fair Food Delivery Act, which would make these practices illegal and fine companies $1,000 per violation per day. It would also allow restaurants to recover damages. The bill passed through the state senate and is awaiting a vote in the house, while similar bills have been introduced in Rhode Island and New York.
Listing businesses without consent has been critical to the platforms’ expansion, and these practices are one way the companies drive up sales. GrubHub alone made 23,000 websites that appeared to be operated by restaurant owners and listed alternative phone numbers that were created by GrubHub. Any time a call is made to one of those numbers, even if it’s just to ask a question about dine-in service, GrubHub gets a commission. headtopics.com
Local Governments Are Looking at Other Ways to Empower Delivery WorkersEliminating fake websites and app listings isn’t the only local legislation being considered: Last week, New York City councilmembers Carlina Rivera, Justin Brannan, and Brad Lander introduced four bills aimed at addressing concerns facing delivery workers. If made law, the initiatives would require food-delivery services to allow workers to set limits on distances and routes, require businesses to provide delivery couriers with insulated food-delivery bags, require food-service establishments to provide access to toilets for food-delivery workers, and establish a minimum per-trip payment.
City Councilmember Carlos Menchaca told news website The City that the legislative package followed months of conversations with Los Deliveristas Unidos, a group of largely Indigenious Mexican and Central American delivery workers. During the pandemic, Los Deliveristas Unidos organized to bring attention to their working conditions and demand better pay and treatment, including the use of bathrooms and safe waiting areas.
There could be more changes in store. In April, New York City Councilmember Mark Gjonaj floated the idea of making the city’s delivery-fee cap permanent (it’s currently set at 20 percent, down from fees as high as 30 percent), and in Chicago, an alderman has introduced a bill to extend the city’s expired delivery-fee cap at least through the fall. DoorDash already seems to be trying to circumvent this and recently announced a new fee structure that offers options including a 15 percent fee. Since the caps were first floated, Big Delivery’s representatives have argued they are, in fact, bad for restaurants. GrubHub CEO Matt Maloney described them as “ineffective at best and actually harmful at worse,” claiming they lead to a loss in orders. More recently, DoorDash CEO Tony Xu described them to Bloomberg TV as “bad policy.” DoorDash claims the caps cost it $36 million in business during the fourth quarter alone.
Despite the claims from Big Delivery, restaurateurs say that the fee caps were necessary and that companies like DoorDash were charging exorbitant fees. Even if apps lead to more orders, this can still be a bum deal for restaurateurs and their employees. “Even at 20 percent, it still makes it tough for the restaurants to make money. I’ve talked to a few restaurants that are on platforms, and it just seems like their volume might go up, but their profits are around the same,” says John Nguyen, who, with Nhu Ton, owns Com Tam Ninh Kieu and Bánh Vietnamese Shop House. “So their employees are kind of overworked, and the restaurant really isn’t seeing a huge profit margin there.” headtopics.com
Restaurateurs Are Actively Looking for Alternative SolutionsOver the past year, a string of smaller delivery companies has launched, ones marketing themselves as more socially conscious and/or better business partners for restaurateurs. Some are focused on specific communities, like Black and Mobile, an online delivery service specifically for Black-owned restaurants. One restaurateur who was in the process of opening a business when the restaurant shutdown happened told Grub Street that they refused to use platforms like GrubHub — even though there was no outdoor or indoor dining at the time. “They basically make it impossible for you to make money,” she said. “It’s always been like this. I don’t want to be involved in that system with those services.”
Meanwhile, restaurateurs who had once found it necessary to use an established delivery platform now want to avoid getting involved at all. Nguyen says that while he and Ton used UberEats for their first restaurant, Com Tam Ninh Kieu, they elected to forgo a major delivery partner at their newer establishment, Bánh, instead using the courier service Relay (which itself has been the subject of complaints and lawsuits from workers). The idea, Nguyen explains, is to help the restaurant establish its own identity in consumers’ minds. “It’s an online food court,” he says. “I knew that if I started off on UberEats or any of the other platforms, it was going to be nearly impossible for me to get off of it. Once people know you from UberEats and from GrubHub, from DoorDash, those are the only places they’re going to go to for your restaurant.”
Customers Have Proven They Want to Order Directly From OperatorsDuring the pandemic, an entire ecosystem of digital pop-ups — informal businesses that are largely operated through social-media platforms like Instagram — have proliferated. Out-of-work cooks, servers, bakers, bartenders, and other professionals turned to the pop-ups when they found themselves out of work. Pop-ups allowed people to do their own thing and cook food or make drinks they love or are passionate about. During one stretch of last year, I found myself mostly ordering from pop-ups, getting Montreal-style bagels, Vietnamese chicken rice, Korean tripe stew, and more.Read more: New York Magazine »
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