When was the last time you wanted delivery
and you actually called a restaurant to place your order? It's probably been a while, and it's
thanks to apps like Grubhub, UberEats, and DoorDash. So if a few apps have totally changed the delivery marketplace,
they must be making bank right? Their revenue is in the hundreds
of billions. Investors have poured billions into them. But none of these apps
have ever been profitable. They have a few problems
a complex business model, low margins. But their biggest problem is that they've never really figured out
how to pay their labor. And they've been experimenting a lot
with that. So much
that governments have had to intervene. So all of these problems raised the question
can these apps, in their current form exist for much longer? So yeah, I've been reading up
on financial statements and legislation, but there was no way I was going
to make a video about food delivery without actually delivering some food. Oh, So chaotic. Derek, I'm doing my best. I'm really jealous of your lunch. Are my tires flat? No. Making an app for people to order food
delivery might seem pretty simple, but in reality, all the pieces that the apps
are trying to balance are pretty complex. These apps work within a four sided
marketplace of the apps, restaurants, deliveries, and finally, the customers and the apps control
each aspect of the marketplace. Historically, they just took a loss and made sure everyone else got paid
while they focused on growth. Here's how one order broke down in 2019. As best as we can figure out, because
they don't release the stuff publicly. When a driver got paid from DoorDash,
49.4% came from the base pay, which is the flat amount they're
guaranteed when accepting an order. 12.3% came from bonuses and 38.4% came from the customer
to pay for Uber Eats, drivers got 71.7% from base pay, 7.5% from bonuses and 20.9%
from the customer tip. The apps have a few levers they can pull
to get closer to profitability. They can charge the restaurants more, but restaurants already have such thin margins that they might not
want to keep selling on the apps. And some restaurants are already
inflating their menu prices on the apps to make up for the costs. They could charge customers more,
but people are already fed up with how much the apps cost,
and they could pay themselves less, but they're already not making a profit,
so that seems unlikely. So that leaves just one
side of the marketplace, the deliverers. All right. I just got to my first order. it's somewhere right over here. Does that work? Now I have to take a picture. Beautiful. Thank you so much. Derek, I'm doing my best with your lunch. I'm so sorry. It says we're supposed to deliver
within three minutes, which is never going to happen. No wonder, like,
your DoorDash order is always late. This is why it's incredible
that it's ever been on time. And I'm earning $5.75 for this. Just so we're all aware. All right. We just got to Derek's. We are currently 11 minutes late. Hi, I have a DoorDash order for Derek. Thank you. The reason that the apps are able
to get so creative with how they pay their employees is that they're not
actually classified as employees. Legally, they're contractors. Gig workers, 51% of their income on every delivery on
average is coming from the customer. That is Ryan Green. He's the CEO of Grid Wise, a companion app for gig workers that collects data
so they can maximize their earnings. The consumers are being relied on to actually front the pay
for the gig worker more than ever before. The apps wanted to lower cost
by paying workers less, but they didn't want to lose workers,
so they started encouraging customers to tip more so the workers wouldn't
see as much of a drop in pay. Here's how the pay breaks down before and after the changes for DoorDash
based pay decreased to 48.2%. Customer tips increased to make up
51.8% of drivers total pay. Uber Eats had an even bigger
jump in customer tips, jumping almost 30%. So now drivers are getting pay. That's
highly variable and dependent on tips, but how does that compare to
what the apps promised? We see how, like Uber, Grubhub,
continuously recruit and have a strong marketing campaign
to sell the perception that look, these are easy, accessible jobs. That's Ligia Guallpa. She's the executive director of the Workers Justice Project, which advocates for the city's gig workers,
domestic workers and construction workers. What these companies failed to inform
and communicate to workers is that these are jobs that do not offer
the flexibility that they promised. With the companies
advertised to potential deliverers. Is being able to work on your own time
at your own pace. But Ligia says in practice,
that's not how it works. Companies is incentivizing workers
to drive faster, to do more deliveries, to work more hours. Another piece of these labor issues,
especially in New York, is that many of these workers are working illegally as they wait
to obtain a work permit in the US. One of those immigrants
working on an illegally rented Uber Eats account is Mayco Milano an immigrant
from Venezuela who's been delivering food in New York City
since he arrived almost a year ago. Renting the account
means he actually earns even less money because he has to pay
the person who actually owns the account. A woman named Jessica. Mayco is hardly alone. He told us that he started working in food
delivery because his friends told him it's the only job you can work
without having a work permit. And the apps are aware of this,
a senior policy manager at Uber told The New York Times. Uber supports open access to work,
but we have processes in place to help prevent and take action
on fraudulent behavior on Uber's platform, and will take additional steps
if warranted. So these apps already weren't profitable. They have a s*#t show of labor issues
with figuring out pay, trying to live up to promises, dealing
with workers renting out accounts. And then the government showed up. More on that later. Got another order. It's time to go. I have a DoorDash order for John. Thanks. This one was an easier pickup
than the last one for sure. All right, we're supposed to deliver
within six minutes. It says take a seven minutes to get there. We are doing pretty good on time here. All right,
John is rich. If John doesn't tip. Thank you John! I'm sorry for everything I said
about maybe you weren't going to tip. You did. Thank you. Late last year, New York City
became the first place in the country to implement
a minimum wage for delivery drivers. But that's not per hour. Its per active hour, which,
according to DoorDash, is from when I accept an order to when
that order is dropped off. So all this time that I'm biking
back to the order hot spot or waiting around for an order, I'm
not actually being paid. Even though I am doing something
that is crucial to the job so the don't have to pay
this wage up front. But if at the end of a pay period, my
earnings during those active hours isn't at least that minimum, then the companies
adjust my pay and make up the difference. Despite this asterisk
and how hours are counted, the new law has benefited
delivery drivers. We have seen how workers are making
anything between 20 to 50% more. The apps claimed that the law would force them to serve less areas
and affect customers and restaurants. So they fought the minimum wage
hard in court and appealed it. And once it was in place,
the made big changes in response. We're seeing companies who are retaliating, making it harder
for workers to receive tips. Here's the easiest way
to see what the apps have done in response to the new minimum wage. I'm placing identical orders,
but one is in New York City and one is in Oklahoma,
where DoorDash hasn't changed anything. We're using DoorDash
because it's biggest delivery app, and Oklahoma
because my sister lives there and I just needed somewhere
to send this food. Ignoring the difference in meal price, which is just cost of living,
there's a lot that the app has changed. It explicitly says that they removed
the option to pre-tip in response to the new law. While over here
we have a tip automatically selected and messaging
that says why tips are important. New York
also has this regulatory response fee, which is just passing the cost of the new
law onto you. The customers. Now that a dasher has been assigned,
I can tip on the New York order, but I don't normally reopen the app after I've ordered,
so I don't know that I would see this. Also, this little ad tip
button is so small and once I do click it, the auto options are lower than
the Oklahoma ones relative to order cost. It also only lets me tip once per order,
whereas the Oklahoma order. I can add more of a tip later
if I want to. It's a tale as old as time. A well-intentioned new government
rule causes businesses to change their practices, which creates
a whole mess of new issues and questions. This while also brings up the matter of
independent contractors versus employees. Delivery workers here are still classified as independent contractors,
just with extra minimum pay guarantees, but the idea of reclassification
as employees and guaranteeing a minimum wage
is spreading throughout the gig economy. Wisconsin, Minnesota, Massachusetts
and California have all recently considered laws around the classification
of gig workers, as employees, and several other states have considered or implemented extra protections
and minimum pay for gig workers. There's even a new federal law around gig worker classification that
businesses are fighting hard. For the apps. All of this just means more hurdles to profitability
and continuing day to day operations. So realistically,
where do the apps go from here? The more that you can batch orders,
then you're able to actually make the economics work more favorably. Even exploring batching across category, picking up a food delivery order
and then maybe an e-commerce order and batching those together
and delivering them out. Ryan also says that the big growth
and money this year will be in the grocery delivery space, because those orders
are much easier logistically. DoorDash is investing heavily in grocery
delivery now, so everyone's coming in and Instacart
and coming to Walmart Spark. The apps have another idea. Almost all of them have launched
subscription services, which is the favorite tactic
among almost all companies looking to make their income
a little more predictable. And of course, they're trying to cut out
the piece that's making this also hard. The labor DoorDash is trying
drone delivery on a small scale for now. Uber Eats just started
using self-driving cars to deliver, and Walmart is expanding its drone
reach for grocery delivery. We just got an $8 order guaranteed. No tip. All right,
we're going to seventh Street Burger. This sucks because I'm so hungry. Thank you. Danielle, your lunch is coming. It's so close. It's a three minute bite. Oh no. It's because there's two pickups. Now we have to go get Levain. Danielle, you need dessert. All right. Fine. We'll go to Levain. Danielle. Danielle, I'm here. Done. Finished. All right. I'm headed back to the office
now. That was a crazy hard day. This job is so fast paced. You're running around, you're
trying to find the order at a restaurant, then you're at someone's apartment. You're trying to figure out where
the elevator is, how to get upstairs. You know, you're talking to the doorman,
you're navigating office. It's a lot of work. I'm definitely rethinking. Every time I made the DoorDash driver
come up instead of going to meet them downstairs,
which would be much more helpful. I'm rethinking every time. I didn't tip as much
because the order was late, because that is realistically
out of their control a lot of the time. Also, I definitely
did not make the minimum wage today, so DoorDash is going to have to adjust
my pay later. The food delivery industry is still relatively young,
but it's in a very tough spot right now. They've still never been profitable,
and have there ever present labor issues, and now they have to figure out
how to work with these laws, requiring them to change their business
practices and pay their labor more. Whatever the path forward is
for these apps, they have a long way
to go to become profitable. That is, unless they can replace their
entire labor with robots fast enough.
