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Benchmark co-founder Andy Ratchleff was a seed investor in DoorDash. Softbank invested $7.6 billion in Uber and nearly a billion dollars in DoorDash, and last year, the Saudi-backed Japanese venture capital firm ordered DoorDash and UberEats to conduct merger talks. Pending its acquisition by the Dutch delivery app Just Eat Takeaway, Grubhub’s third-largest shareholder is large fund manager BlackRock, which also holds a significant minority stake in Postmates pending its own acquisition by Uber.
But the most compelling evidence of the harmful type of competition involved in the delivery app “wars” is the effect this multibillion dollar influx of funds into restaurant delivery apps has had on the commissions restaurants pay for presence on the platforms and the wages couriers make for delivering the food. The former, which were arguably high when Grubhub was a dominant player in most markets in 2014, are substantially higher now; while the latter, in spite of a 20% growth in the food delivery sales over the past 5 years, fell by some estimates dramatically short of minimum wage.
Food delivery apps are match-making institutions whose appeal is based on their ability to provide customers to restaurants and restaurants to delivery drivers and customers. The key mechanisms to dominating a city are featuring a broad enough range of restaurants while maintaining a large enough pool of drivers that consumers know they can probably order what they want, when they want it using the app, which then, theoretically, encourages more restaurants to sign up because the app is what all the customers use.
Instead of competing for restaurant partners to grow its marketplaces, DoorDash and Postmates used deceptive practices and industrial scale menu plagiarism to simulate the appearance of official partnerships, filling its marketplaces with the offerings of restaurants whose owners had no idea the apps even existed. When orders came through, call center employees hired by the apps would order the food manually and couriers would pick it up under strict orders to not identify themselves. When the restaurants caught on, invariably because the deception had resulted in angry phone calls from customers — most frequently because the menu listed on the platform was out of date and the dishes ordered were no longer available, or because the chef had prepared the food for trip up an elevator and not a 45 minute bike ride — the restaurant management would contact the offending app attempting to get their menu removed from or updated on the platform, and a salesperson would claim to be powerless to do anything about it unless they signed on to an official partnership.
These practices are deceptive, predatory and in many cases reliant on intellectual property theft, as a Santa Fe restaurant owner detailed in a recent open letter to a delivery app CEO:
“If we don’t sign up for this ‘partnership’ you pirate our menus off our website and take orders from customers anyway. The pre-charged payment cards sometimes don’t work and everything we made languishes, unpaid for. We field angry calls from customers who think it’s our fault they didn’t get the food they ordered. When my manager called customer service to tell you how unfair it is that we are paying for your mistakes, he was told ‘Well, none of this would happen if you would just sign up with us.’ Which sounds a lot like what the mob boss says after they burn down your house.
The contracts the app salespeople induced restaurants to sign in most cases included anti-competitive “No Price Competition Clauses,” requiring restaurants to keep prices the same across all food delivery apps and in-person dining. These clauses had two consequences. First, they triggered a shift in customer behavior toward relying on delivery services in lieu of showing up in-person. Second, by ensuring price uniformity across all apps the clauses indirectly absolved the apps from competing with one another, either for users or restaurant partnerships, on the basis of price; if consumers could be sure prices would be the same regardless of which platform they ordered from, there was little incentive to offer restaurants lower commissions in the hope they would do more business over the platform, and at the same time price uniformity made it easier to sway customers with the use of special delivery discounts, rebates, loyalty clubs and other promotions—for which the delivery apps could then in turn charge restaurants additional fees.
Similarly, instead of competing to hire drivers and bike couriers to deliver their orders, DoorDash, Postmates and Grubhub blanketed each market they entered with recruiters pitching the jobs as supplemental income sources, with the intention of misclassifying their workers as “independent contractors,” exploiting a loophole in labor law that allows corporations avoid the legal responsibilities of hiring employees simply by calling those workers contractors. Aided by referral bonus programs and promises of $2,000 weeks,, the apps flooded their systems with so-called “gig workers,” depressing wages, then gradually pared and professionalized its amateur workforce by assigning regular schedules, penalizing workers who refused jobs that took them too far or paid too little and using extreme micromanagement and surveillance technology to exert increasing control over their “independent” staffers.
But as their drivers began to resemble a traditional workforce, the delivery apps continued to misclassify them as contractors, invoking an oft-cited industry claim that 80% of app-based drivers “work only part-time” despite the Bureau of Labor Statistics estimates that roughly 73% of so-called “gig” workers do the job full-time. (The industry figures, a former lobbyist for multiple app companies told the American Economic Liberties Project, are misleading because they only count workers as “full time” if they work full time for a single app, despite surveys suggesting that more than 80% of app drivers work for multiple apps.)
Misclassification enables the delivery apps to pay rates far below minimum wage, once mileage and additional payroll taxes are deducted. One analysis found that DoorDash drivers took home an average of $1.75 an hour after taxes and mileage were factored in; the same study found that drivers actually lost money on fully a third of jobs. Frustrating matters, the apps conceal much relevant information—the ultimate location of a given job they are asked to accept, for example—from drivers, chronically tweak their formulas for remunerating couriers, usurp tips to apply them to guaranteed minimums, and levy fees and adjust policies in ways that keep workers constantly struggling to stay afloat. DoorDash even uses its workers to extract additional fees, charging workers who elect to receive their earnings at the end of each shift $1.99 for the privilege, and more recently charging “Dashers” shipping fees as high as $43 for “free” hand sanitizer and gloves to protect themselves and customers during the pandemic.
The apps, especially DoorDash, have deliberately flouted laws passed to protect their workers.
Making matters more difficult for both workers and restaurants, the delivery apps have established regional monopolies that effectively suppress competition especially in the realm of wages. DoorDash maintains a 65% market share in San Francisco, diminishing the competition for courier labor in a pattern that repeats itself throughout most of the biggest metropolitan markets, half of which are more than 50% controlled by a single one of the four dominant players. (American Economics Liberties Project)
