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Because of the coronavirus pandemic, food delivery apps have become more important for both business owners and their customers as more people order takeout and groceries in order to safely shelter in place. The rise in business, however, seems to not be benefiting those who put in the work to provide these services.
According to Market Watch, DoorDash, Uber Eats, Grubhub, and Postmates raked in roughly $5.5 billion in combined revenue from April through September, more than twice as much as their combined $2.5 billion in revenue during the same period last year.
However, it’s unclear how long the surge in deliveries will last, and what it means to the financial success of food-delivery apps in the long run. While the companies are seeing a surge in business, their costs reportedly remain too high to make any sustained profit. And the other stakeholders involved, like the restaurants, drivers and cities, are looking to either cap the fees the companies are allowed to charge or to get their fair share of the companies’ revenues.
Even if a specific restaurant doesn’t want to work with the delivery apps, because of the pandemic, their options are limited. Reported by Market Watch, the owner of The Glass Jar restaurant group in Santa Cruz, Calif. said he intentionally avoided working with food-delivery apps before the COVID-19 pandemic because the costs to his business just seemed too high. But when his county issued shelter-in-place orders and they were effectively shut down, he realized it was the only way to keep the business open.
But restaurant owners’ dependency on food delivery apps may not go away any time soon. A Cowen & Co. survey of 2,500 consumers quoted by Market Watch showed that in July, 52% said they would avoid restaurants and bars even after they fully reopen, and a recent rise in COVID-19 cases nationwide means many restaurants are again facing onsite-dining restrictions. According to restaurant-reservation platform OpenTable, the number of seated diners in the U.S. decreased an average of 52% the week of Nov. 19-23.
According to Edison Trends, that is likely to only benefit DoorDash, the country’s industry leader with 50% market share, and the next biggest players: a combined Uber Eats and Postmates, then Grubhub.
And yet, it’s unclear whether the demand and new offerings will translate into profit — despite huge changes in the industry and the country’s landscape, the companies are all largely unprofitable. For example, DoorDash turned a $23 million profit in its second quarter, but it still lost $149 million through the first nine months of this year. Uber reported that its delivery business lost an adjusted $183 million in the third quarter.
Some of the key issues that will affect the companies’ financial health include pushback from restaurateurs like Davis, who decided to come aboard as a last resort because delivery commissions cut into their profit; dissatisfied couriers; and cities that have capped the commissions apps can collect from struggling restaurants during the pandemic.
Many couriers who deliver food and other goods for these companies are independent contractors with low pay and little or no benefits. In California, gig companies successfully passed Prop. 22 this month, which will ensure they evade complying with AB5 and reclassify their workers as employees — and they’re looking to do the same thing elsewhere.