DoorDash And Uber Fee Hikes Will Test Business Model – And Restaurants’ Patience
Six weeks after securing passage of the Proposition 22 ballot measure that overturned a California law requiring part-time workers to be reclassified as employees, two of its biggest backers have rolled out new fees to offset expenses related to additional worker benefits. As the fees continue to add to the restaurant bill, the increases also beg the question as to how much the consumer will bear before they decide curbside pickup is a better option.
The fees have come from several companies, most notably Uber and DoorDash. They have announced plans to start tacking on additional charges in California to cover the cost of the concessionary wage and benefit programs the companies promised in lieu of adding hundreds of thousands of Golden State workers to their payrolls.
Uber said it will add surcharges of up to $1.50 for California riders and $2 for Golden State deliveries, although in some cities, these charges will at least initially be lower. DoorDash said it will also start adding fees, but didn’t specify how much they’d be.
Lyft and Instacart, which were also big backers of the $200 million “Protect App-Based Drivers and Services” coalition that fought for Prop 22, have yet to comment on their plans for adding fees.
But restaurants have certainly commented. “The fees are outrageous,” said Nick Sanford, owner of Toss ‘n Fire Pizza locations in Syracuse, New York. “We basically keep Grubhub and third parties on to keep our employees working. We don’t make money on that at all.”
And while consumers haven’t shown any signs of cutting back, most likely due to local governments capping delivery fees, the fee structure at this point is worth a look. California’s Berkeleyside recently broke down the fees based on a local restaurant called Berkeley Smoke, which is struggling with delivery fees and customers’ questions about them. According to Berkeleyside, suppose a customer’s order total at the restaurant totals $44. Apply the local sales tax and the new total is $48.07. At this point, there’s no difference in the price of the meal for in-house diners. For customers who hire a third-party delivery app, add a service fee (around $4.30) and a delivery fee (roughly $3.99) for a total of $56.36. Customers using DoorDash also have the option to leave a tip for the courier – say, $9, for a new total of $65.36. Of that $65.36 paid by the customer, $44 will go to Smoke, $4.07 will go to taxes, $8.29 goes to DoorDash and the entirety of the tip, $9, goes to the courier.
Costs vs. Benefits
The fees have been implemented partially to cover for new subsidies that the firms’ part-time California workers can apply toward healthcare plans. The actual amounts will depend on a number of variables, including workers’ mileage, hours and earnings. At the same time, companies will guarantee drivers a base wage of $16.80, or 120 percent of California’s soon-to-be $14 per hour minimum wage.
Even as the new California benefits and the fees to cover them roll out, gig economy companies are facing scrutiny in other states that are mulling adopting similar workers’ rights rules, including Illinois, Massachusetts and New York.
Labor organizer Nicole Moore of Rideshare Drivers United told Bloomberg that she felt voters had been duped, and that gig companies had “written their own labor law, and through deceptive advertising, they were able to get the electorate to approve it. Now, both drivers and consumers are paying the price.” But during the Prop 22 campaign, Uber CEO Dara Khosrowshahi called the debate over whether to make gig workers full-fledged employees or independent contractors a “false choice.”
“I’m proposing that gig economy companies be required to establish benefits funds that give workers cash they can use for the benefits they want, like health insurance or paid time off,” Khosrowshahi wrote in August in a New York Times opinion piece. “Independent workers in any state that passes this law could take money out for every hour of work they put in. All gig companies would be required to participate so that workers can build up benefits even if they switch between apps.”
Khosrowshahi wrote that if all 50 states had such laws in place, Uber would have contributed $655 million to such benefits funds in 2019.
Meanwhile, some local jurisdictions, like Albany, New York, have taken separate measures to protect local businesses, particularly restaurants, from third-party delivery fees that can run as high as 30 percent. Ahead of voter or legislative approval, Albany County Executive Dan McCoy signed an emergency order on Monday (Dec. 14) that capped third-party food delivery fees at 15 percent.
A Wild Year
Such fights are coming amid a wild year for Uber, Lyft, DoorDash and other gig economy companies. While COVID-19 has all but killed the ridesharing business, it’s also fueled record growth on the delivery side. Although new vaccines could eventually temper that, online and mobile ordering seem unlikely to fade this winter as customers seek to dine in the comfort of their homes.
PYMNTS’ research found that the shift to digital ordering is strongest in more populous areas. Some 25.8 percent of U.S. consumers living in large cities have shifted to ordering online from sit-down restaurants, and 16.3 percent are doing the same from QSR chains.
As much as the increasingly high delivery fees erode already thin restaurant profit margins, business owners say the services have been a lifeline.
A recent PYMNTS survey revealed that more than one-third of eatery operators said they would have shuttered during the COVID-19 crisis had it not been for these partnerships. Additionally, nearly 28 percent said they expected to close their dining rooms and exclusively offer delivery and pick-up service.
In fact, the latest edition of PYMNTS’ November Order to Eat Tracker showed just how tenuous the food business remains.
In a recent survey of 400 restaurants, only 29 percent of those operating at a reduced capacity said they could stay open indefinitely. Nearly half said they would last less than a year, and 28 percent said they could stay in business for six months.