✦ Weekend Brief—Food delivery is getting spicy 

Good morning, Quartz members!

Companies like DoorDash, Grubhub, and UberEats got popular with a simple premise: Use our app to order any kind of food you want, and get it delivered for a low price. Who could argue with that?

But during the pandemic, those same companies found themselves at the center of a firestorm. Suddenly everyone wanted food delivered, but restaurants—which had tolerated the delivery platforms—lost most of their revenue overnight, and high unemployment put a spotlight on the low-paying hustle of gig work. Now, regulators across the US are setting their sights on the industry: In the past week alone, delivery companies have clashed with San Francisco and New York City over how much they charge in fees and how little data they share with restaurants.

“Pre-pandemic, the food delivery companies really enjoyed a very light kind of regulatory enforcement or oversight,” says Tom White, an analyst at DA Davidson, a financial firm. “But now, the horse has left the stable, so to speak.”

The scrutiny isn’t entirely new; it adds to longstanding debates around gig workers’ treatment. A California labor law that gave such workers new benefits—but also codified their status as non-employees—was recently declared unconstitutional by the state’s Supreme Court. Just this week, the Seattle City Council discussed a proposal to guarantee a minimum wage for delivery workers.

During an earnings call in May, Uber CEO Dara Khosrowshahi brushed off the regulatory threat, citing the company’s experience with such battles. “[W]e already have relationships with local governments and local regulators to begin with,” he said. “So we welcome the dialogue.”

But unlike ride-hailing, where opposition was made up of independent contractors with varying priorities and preferences, “the restaurant industry is entirely different,” says White. They’re “well organized, [they] have trade associations that have resources at their disposal, and [they have] relationships with politicians.”

Some delivery companies are already adding tiered pricing models for restaurants—meaning costs are likely to get passed on to customers—but many are also filing lawsuits. That’s because at some point added costs will overcome these apps’ convenience and value for users. With caps on fees, minimum-wage demands, and razor-thin margins, there aren’t many places for delivery companies to maneuver.

The backstory

• Food delivery is big business. The global market surged from $243 billion  in 2019 to $323 billion in 2020, according to data from Euromonitor.
• It’s very hard to turn a profit. In a typical transaction, the delivery company makes money by charging fees to the customer and taking a cut of the bill from the restaurant, then paying the delivery person.
• That challenge is global. Many countries have their own large delivery companies—India’s Zomato just completed a successful IPO—but profitability struggles and complaints about the business model are universal.

Fighting 🔥 with 🔥

“More than anything, this speaks to the power of constituents that have a voice. [Restaurants] are a powerful lobby, and there are great case studies on how they have suffered. These restaurant delivery companies have made enemies of restaurants.” —Sucharita Kodali, an analyst at market research company Forrester

What to watch for next

1. More fee fights. Other cities may follow New York and San Francisco in making permanent a pandemic-era cap on delivery fees, which can reach as high as 30% per order.
2. More fights over data. A series of bills, which delivery companies are challenging, may force them to share customer contact info with restaurants and more detailed fee breakdowns with customers.
3. Industry consolidation. Food delivery companies are already attracting antitrust scrutiny. The US Federal Trade Commission is reportedly investigating two deals Uber made earlier this year.
4. Diversification. To hedge their bets and get closer to profitability, delivery  companies are expanding into categories including household items and alcohol.
5. Better tech for everyone. Delivery companies will be looking for ways to speed up deliveries and reduce labor costs, while restaurants are themselves getting increasingly tech-savvy.

The dankest delivery

Cannabis is now legal in 19 US states plus Washington DC, and Uber’s CEO has already said he’d like to get into the delivery game once federal regulation passes. Last year, California-based marijuana delivery app Eaze said a cannabis order was placed every eight seconds. But a look at Eaze’s own finances suggests there are kinks in that model, too: The company faced a cash crunch in 2020 and decided to start selling its own supply.

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Thanks for reading! And don’t hesitate to reach out with comments, questions, or topics you want to know more about.

Best wishes for a delicious weekend,

Michelle Cheng, reporter (gets Milk Bar cookies delivered)

Kira Bindrim, executive editor (gets gummy candy delivered)