Why food delivery apps are some of the few benefiting from the Coronavirus.
Over the last couple of years, there has been a growth in reliance on food delivery apps. This is due to how as people get busier with their everyday lives, they tend to prioritize convenience. With the current global pandemic, food delivery apps have been a vital part of most peoples’ quarantine agenda. It's also the primary way that restaurants continue to generate sales amidst the mandatory restaurant and bar shutdowns put in place by the government. As a result, the digital food delivery sector is amongst the few businesses flourishing in the current crisis. The total number of users for food delivery apps has also increased by 9.8% in 2020, (1) showing the increased popularity of such apps.
In addition to the companies benefiting, food delivery also acts as a source of income for many individuals. With over 14.7% of the US population currently being unemployed (2), food delivery acts as a viable source of income. Although many questions the safety involved with doing such a job, delivery apps have publicly committed to ensuring the safety of their drivers. This involves the option of ‘contact-free delivery’ which limits handling in transferring the food thus reducing the risk of the virus spreading. Several other mandatory safety measures are being implemented by restaurants as well. Many delivery apps are also working to provide restaurants with CDC issued guidelines in order to ensure that the food tampers safely.
How delivery apps are accommodating for the suffering restaurant industry
GrubHub announced in early March that they would offer “deferred commission fees” (3) on products from independent restaurants (not including any big chains) that normally make up roughly 80% of their sales revenue. They have also taken the initiative to use its “Donate the Change'' program to assist drivers and restaurants negatively impacted by the Coronavirus. UberEats, additionally, has announced that it will be waiving its delivery fee when individuals order from an independent restaurant. UberEats has also declared the option for restaurants to receive daily payments instead of their conventional weekly payments to reduce the financial burden on restaurant owners. Additionally, they have committed to assisting drivers and delivery men who currently can’t work due to exposure to the coronavirus. Postmates has also set up its “Postmates Fleet Relief Fund” which aims to cover COVID-19 related medical expenses for its employees, and are also looking into omitting commission fees for new restaurants that join the app during this period.
However, there remains growing backlash against delivery apps, as many claims that they are exploiting the current pandemic to their economic benefit. GrubHub faced severe criticism when it announced that they made a whopping $363 million in sales revenue from January to March (4) and continue to charge extremely high delivery fees especially when restaurants are struggling to stay open. This is a claim that has been made by restaurant owners for years now. Because these delivery apps are aware of how much business they bring to restaurants, they charge extremely high fees and are able to get away with it. This complaint has been amplified in the current economic condition. Many claim that because people primarily rely on delivery apps to ensure convenience and safety (as they don't have to leave their homes and expose themselves to any risks), those delivery apps have utilized this to their advantage by increasing food delivery fees. This is shown by the 16.3% increase in delivery fees between March 12 to March 18, compared to the first week of February- caused by the surge in demand for home delivery. (5)
The Future of Home Delivery
Home delivery was a concept that is up and coming within the United States. Previously its demand was limited by time constraints and how expensive food delivery was considered, however with the current pandemic there has been a significant rise in demand for delivery services. Nevertheless, the narrative that dominates mainstream media is the idea that these delivery services take far too heavy of a cut from the earnings of local restaurants. However, what many people tend to forget is that delivery services are extremely cost heavy, and most delivery apps make significant losses before they can even come near to making a profit. Businesses like Gruhub and UberEats first have to hire drivers, pay insurance for the car and employees, and cover fuel expenses for each pickup and delivery of an item. As a result, the gains food delivery companies make on each delivery relative to their expenses tend to be rather small. Restaurants, along with such delivery apps, also incur significant expenses from providing food to their customers. Thus for a relatively small increase in price, the consumer receives the far greater benefit of both safety and convenience. The current benefits of home delivery seem to be unequally divided amongst the customer, the aggregator, and the restaurant. For this to be a sustainable service, in the long run, the benefits of home delivery must be adequately distributed amongst all three stakeholders. In the future this exchange between the stakeholders will be successful if the customer, who is the biggest beneficiary of convenience and safety, takes a bigger share of the cost associated with it, thereby ensuring an equitable distribution of profits.
References:
1. Askinasi, Rachel. “Here's How Delivery Services like Grubhub, Postmates, and Uber Eats Are Adapting to the Coronavirus Restrictions and Safety Precautions.” Insider, Insider, 17 Apr. 2020, www.insider.com/food-delivery-services-grubhub-postmates-uber-eats-reacting-adapting-coronavirus-2020-3.
2. “Coronavirus: Pandemic Sends US Jobless Rate to 14.7%.” BBC News, BBC, 8 May 2020, www.bbc.com/news/business-52591262.
3. Liffreing, Ilyse. “Postmates and Uber Eats Use DoorDash Tipping Fallout as an Opportunity to Build Trust with Customers.” Ad Age, 25 July 2019, adage.com/article/digital/postmates-and-uber-eats-use-doordash-tipping-fallout-opportunity-build-trust-customers/2186231.
4. Askinasi, Rachel. “Here's How Delivery Services like Grubhub, Postmates, and Uber Eats Are Adapting to the Coronavirus Restrictions and Safety Precautions.” Insider, Insider, 17 Apr. 2020, www.insider.com/food-delivery-services-grubhub-postmates-uber-eats-reacting-adapting-coronavirus-2020-3.
5. Wong, Venessa. “Struggling Restaurants Paid Record Fees To Grubhub During The Pandemic.” BuzzFeed News, BuzzFeed News, 7 May 2020, www.buzzfeednews.com/article/venessawong/coronavirus-grubhub-food-delivery-fees.
6. Bandoim, Lana. “How Food Delivery Apps Are Responding To The Coronavirus.” Forbes, Forbes Magazine, 21 Mar. 2020, www.forbes.com/sites/lanabandoim/2020/03/20/how-food-delivery-apps-are-responding-to-the-coronavirus/#32d7468955dc
