One way to figure out how long someone’s lived in San Francisco is to bring up app-based food delivery. To folks who arrived here after their popularity (say, in the early 2010s), it’s a service that’s always been here and is too ubiquitous to fail. But folks who have lived here longer than that have seen enough to know that every SF boom has a bust, and that there are certain signs — like inhospitable courts, merger talks between multiple troubled companies, or a struggle to rustle up funding — that suggest that some of those businesses are approaching their final innings.
A lot has happened since Eater SF wondered if local restaurant owners, frustrated with the 15-30 percent cut that delivery companies take of every order, might band together and remove themselves from the platforms of Postmates, Caviar, DoorDash, and Uber Eats (all based in SF), as well as Chicago-based GrubHub (which bought SF-based service Eat24, then shut it down). Most notably, the apps have prompted legal threats from people like Pim Techamuanvivit, whose upscale Thai restaurant Kin Khao was the victim of (depending on who you believe) a GrubHub “glitch,” or market confusion between her Michelin-starred business and a so-called ghost kitchen that operates out of a trailer, or these delivery companies’ admitted strategy of adding restaurants to their apps without permission.
The nonconsensual listing of restaurants — which Grubhub spokesperson Katie Norris tells Eater SF is necessary if the platform is to remain competitive — is problematic enough that legislators in Rhode Island and California have proposed laws banning the practice. They’ve also raised the ire of powerful lobbying groups like the California Restaurant Association, which has accused “technology giants” of “aggressively entering the foodservice space.”
Losing the support of the folks making the food these apps are supposed to deliver is arguably strike one for these platforms (unless they can replace all known dining quantities with food prepared in industrial-zone warehouses, perhaps). Then there are the delivery people, themselves, who, with the advent of a California law called AB5, must now be classified as employees in all CA markets. It’s a rule that will cost these companies a lot of money, as it’s far costlier to hire a worker, provide them with benefits, and pay employment taxes than it is to enlist contractors (who shoulder their own burdens when it comes to taxes and things like health care).
It’s also a law that SF-based Uber and Postmates have (thus far, unsuccessfully) attempted to block, with U.S. District Judge Dolly M. Gee saying last week that “the balance of equities and the public interest weigh in favor of permitting the state to enforce this legislation.”
A couple days later, Judge William Alsup had even harsher words for SF-based DoorDash, which ended up in his courtroom after some 6,000 DoorDash delivery workers said that the company had improperly claimed they were contractors when they should have been classified as employees. As part of their contract with those workers, DoorDash required them to agree to an individual arbitration process in the case of a dispute, a stipulation typically made to prevent class-action suits. DoorDash allegedly failed to uphold its end of the arbitration agreement for those workers, prompting Alsup to say “this hypocrisy will not be blessed, at least by this order.”
Those workforce problems could be perceived as strike two, but then there’s funding. That situation, too, is looking grim, if a recent report from the Wall Street Journal is to be believed. Saying that the industry has “generated rapid growth but spotty profits,” the paper says that DoorDash, Postmates, and Uber Eats (which, side note, lost $461 million in the fourth quarter of 2019 and is expected to keep losing money on every order through 2024) have discussed mergers between their businesses in an effort to remain afloat, though so far, no deals have been made. Postmates and DoorDash are also reportedly mulling public offerings in an effort to “shore up their finances,” and DoorDash is said to be hustling to solicit more money from private investors. Meanwhile, GrubHub, which has been a public company since 2014, saw its share prices drop by 39 percent in the past year — a reduction that suggests that an IPO might not cure all ills.
“By midyear, I believe there will be more clarity in our industry,” GrubHub CEO Matt Maloney rather ominously tells the WSJ, which reports that “food delivery, always an expensive undertaking, has gotten harder in the US. Companies that began with largely separate strongholds now overlap in many markets. Customer loyalty has dropped, as companies have pumped out deals to try their services, industry metrics show.”
This seeming inability to make a profit, combined with increasing impatience from funders and shareholders, might be the third strike in the delivery app ballgame. After all, as GrubHub’s Maloney says, investors — like those that keep all these profit-poor companies going — “are looking for more profits. The longer these unprofitable models execute, the more money they are draining, and the less runway they have.”