A Deal On Delivery?
NY Dem Aims To Take A Bite From Delivery App Profits
- The DoorDash app is shown on a smartphone on Feb. 27, 2020, in New York. DoorDash is capping a year of explosive growth with an initial public offering, hoping to keep the momentum going even if demand for food delivery eases in a post-pandemic world. AP photos
- In this Feb. 20, 2018, file photo shows the Uber Eats app on an iPhone in Chicago. Uber is testing restaurant food deliveries by drone. The company’s Uber Eats unit began the tests in San Diego with McDonald’s and plans to expand to other restaurants later this year.
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The DoorDash app is shown on a smartphone on Feb. 27, 2020, in New York. DoorDash is capping a year of explosive growth with an initial public offering, hoping to keep the momentum going even if demand for food delivery eases in a post-pandemic world. AP photos
An Albany Democrat wants to save those who order food delivered by third-party companies some money on their orders.
Assemblywoman Patricia Fahy, D-Albany, recently introduced A.11158 to cap the fees third-party delivery services may charge to restaurants for delivery services.
Fahy proposes a cap of 15% of the purchase price for delivery fees from companies like Uber Eats, DoorDash, Postmates or GrubHub. She said delivery fees can range from 20% to 40% of an order’s cost.
“During the COVID-19 pandemic, third-party food delivery services have become a critical component of the business model for many New York restaurants,” Fahy wrote in her legislative justification. “While this relationship has been beneficial for many restaurants, the fees charged by these third-party delivery services have significantly cut into the profits margin of these already-struggling businesses.”
Uber’s food delivery business brought in more money during the third quarter than its signature rides business, showing just how much consumer behavior has changed — and how far the company has adapted — since the pandemic struck.
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In this Feb. 20, 2018, file photo shows the Uber Eats app on an iPhone in Chicago. Uber is testing restaurant food deliveries by drone. The company’s Uber Eats unit began the tests in San Diego with McDonald’s and plans to expand to other restaurants later this year.
Uber’s Eats business generated $1.45 billion in revenue, up 125% from a year ago as restaurants relied on Uber for delivery and the trend of people ordering in instead of dining out during the pandemic.
Uber also expanded its grocery delivery service, which is now operating in 10 countries outside the U.S. It also launched a prescription drug delivery pilot program in Dallas and Seattle.
At the same time, DoorDash Inc. is planning to sell its stock to the public, capitalizing on the growing trend of consumers embracing app-based deliveries as much of the world stays home during the pandemic.
“Technology has changed consumer behavior and driven a wave of demand for convenience,” the company said in its prospectus. “Recent events have further accelerated these trends, pulling the future of e-commerce forward for businesses large and small.”
DoorDash says it has captured 50% of the food delivery market in the U.S., followed by Uber Eats, Grubhub and Postmates. But the food delivery market is “fragmented and intensely competitive,” and its competitors have made acquisitions or strategic agreements to work together, the company warned. “In addition, certain of our competitors have recently acquired kitchens to enable them to produce and deliver food directly to consumers,” the company said.
With the novel coronavirus surging across most of the U.S. and other parts of the world, Ives sees even more growth for DoorDash and its main competitors next year. It’s possible that DoorDash will start making money in 2021, he said.
“The gold mine of growth is this COVID pandemic,” said Wedbush analyst Daniel Ives to the Associated Press. “You’ve seen growth rates two or three times the best case scenarios given it’s the core artery for consumers not just in the U.S., but worldwide, to get their food.”
While the food delivery companies are growing, the restaurant industry is struggling. A New York Restaurant Association study released in September showed 63.6% of respondents said they are likely or somewhat likely to close by the end of 2020 without financial relief. An August survey found 89.7% of the state’s restaurant owners said it was very or somewhat unlikely their business would be profitable through early 2021.
“With 90% of restaurants in New York City unable to pay full rent in September, and the economic picture not looking much better for these businesses statewide, New York must follow these lead of cities like New York City, Denver and Tucson to balance this relationship,” Fahy wrote.
The Associated Press contributed to this report.