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Daily news and analysis about the food tech revolution

Prop 22

DoorDash to Pay $2.5M to Settle Lawsuit Over Former Tipping Policies

DoorDash will pay a $2.5 million settlement to the Washington, D.C. attorney general’s office over a lawsuit filed in 2019 about the delivery service’s controversial tipping policies. Attorney General Karl Racine announced yesterday that DoorDash has agreed to the settlement “to resolve allegations that it mislead D.C. consumers and used tips left for workers to boost the company’s bottom line.”

Racine filed the suit in November of 2019, not long after DoorDash changed its much-maligned tipping policy where it used workers’ tips to contribute to their base pay. The lawsuit alleged that “the only thing the consumer’s tip changed was DoorDash’s share of the worker’s pay.” Most of the buying public, meanwhile, had no idea their tip money was going towards, well, not tips. Racine sought to recover millions in that tip money.

Which he has. According to the press release from the attorney general’s office, DoorDash will pay $1.5 million in relief to delivery workers in D.C., $750,000 to the District, and donate $250,000 to District charities. DoorDash will also “be required to maintain a payment model that ensures all tips go to workers without lowering their base pay” and provide transparency around its payment policies.

“Today’s settlement rights a wrong that deceived D.C. consumers and deprived workers of monies that they should have been paid,” said AG Racine.

Color me cynical, but it doesn’t feel like as much of a victory as it might have even few months ago. It’s great workers are getting some of those tips back that were originally put towards their base pay. But $2.5 million ain’t a lot of dough when you consider that DoorDash (along with other gig economy companies) bankrolled Prop 22 for $200 million, the most expensive ballot measure in California’s history. It passed, meaning DoorDash drivers will remain independent contractors and the company is not on the hook to give its workers minimum wage, paid sick leave, and health care. 

In other words, the Prop 22 saga showed us that gig economy companies will pay hundreds of millions to effectively not take care of the folks on whose backs these businesses are built. DoorDash may have changed its tipping policy, but I doubt a $2.5 million settlement will motivate the company to further alter its approach to handling its workforce anytime soon. 

The settlement also comes just a couple weeks after DoorDash filed for its IPO. In that filing, DoorDash said that if it fails “to cost-effectively attract and retain Dashers,” the company’s business, operations, and financials could be “adversely affected.” Having an open lawsuit about a worker-treatment issue would have been counterproductive to that point, so the timing of the settlement isn’t likely coincidental. DoorDash said in its filing that it has over 1 million Dashers across all its markets. Attracting and retaining them is a key part of the company’s growth strategy — so long as it doesn’t chomp away at DoorDash’s profitability.

Lyft vs. DoorDash

We knew a DoorDash IPO was on the way, and it arrived this past week packaged with news that the company turned a profit in Q2 and has enough cash stockpiled to float along for quite some time. Throw on top of that DoorDash’s recent win on Prop 22 and its popularity among U.S. consumers, and it seems as if the company and its controversial business model for restaurant delivery are are unstoppable.

Or are they? The other big news this week came from rideshare service Lyft. Cofounder and president John Zimmer said on the company’s earnings call this week that Lyft had spoken with restaurants about many issues plaguing third-party delivery, including the sky-high commission fees companies like DoorDash charge per transaction. 

“These businesses want to partner, someone to help them move their goods from point A to point B, but one that does not step in between them and their customers,” he said. In other words, restaurants need someone to deliver the actual food but not necessarily own the order and payment process or the customer relationships (and data). Lyft more or less said it’s aiming to create that delivery model.

Even just one year ago, making this model a successful play for restaurants on a widespread basis would have been a long shot. The technical logistics of delivery are complex. A sophisticated mobile order app a la Starbucks would cost a restaurant tens if not hundreds of thousands of dollars to make. Apps have to allow users to browse a menu and order meals, and they have to be secure around processing payments and storing customer data. With a few exceptions, using a third-party delivery platform for this piece of the delivery stack has historically been the easiest and most cost-effective path for restaurants.

In the early days of the pandemic, restaurants had to either accept this situation and use a third-party delivery platform’s entire stack or risk going under. (A lot of them went under anyway.) But over the last few months, a number of different options have surfaced that allow restaurants to power their own digital storefronts and only rely on delivery services for the last mile. ChowNow, Toast, Lunchbox, . . . the list gets longer each month. Each of these services offers the ability to power a branded storefront through which the restaurant maintains the direct relationship with the customer but doesn’t have to go out and build a mobile order app from the ground up. Most of these services also partner with the major delivery platforms, who still handle the last mile. Restaurants would still have to pay a small commission fee for the actual delivery, but it’s drastically lower than the 30 percent it can reach to when using the full stack.

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Lyft’s comments at its earnings call this week suggest the company is ready to capitalize on this trend. Imagine a restaurant using a system like ChowNow’s to power its mobile ordering and payments. The restaurant controls the branding, menus, prices, and customer relationship. Integration with Lyft’s software would mean once an order is placed, a Lyft driver would retrieve the food and drop it with the customer. Lyft is also well-established across the U.S. and claims to have more than 1 million available drivers, so its existing user base could make it additionally attractive to restaurants and their customers.

The question is whether this approach could differentiate Lyft enough to make much of a difference. After all, restaurants nowadays can approach a similar delivery model by processing orders through a company like ChowNow then letting an established delivery player like DoorDash handle the last mile. Lyft would have to offer ultra-competitive rates on commission fees and an extremely wide delivery radius to make itself stand out.

Zimmer said on this week’s call that it was still “early days” for this concept, though Lyft already has a partnership with Grubhub for a separate initiative. But between the pandemic, Prop 22, DoorDash’s insane growth numbers, and all sorts of other controversies, the need for a new delivery system gets more urgent for restaurants each week. This one might be a viable option. 

Driving Towards a New Kind of QSR

Meanwhile, over in QSR realm, big-name brands appear to be ditching the dining room en masse for the long term. If you had any lingering doubts about that, look to the last few month’s developments in the space:

  • Wendy’s struck a deal with Reef to kickstart its ghost kitchen strategy. The brand is also considering drive-thru-only store formats
  • Chipotle announced plans for a new store format that is essentially a ghost kitchen with a pickup area. This follows the brand’s efforts to double-down on its drive-thru strategy.
  • McDonald’s unveiled a new store design that consists of a kitchen facility surrounded by drive-thru lanes and a few parking spaces for curbside pickup.
  • Restaurant Brands International, which owns Burger King, Popeye’s, and Tim Horton’s, will modernize its drive-thrus to encourage more digital orders and off-premises meals.
  • Burger King also has a new store design that features a kitchen hanging over drive-thru lanes and a conveyor belt that delivers the food to customers.

The credo behind all of these developments is the same: make it faster, more efficient, and as free of human-to-human contact among strangers as possible. As companies look to speed up wait times and pandemic-proof themselves, we can expect the modernization of the drive-thru — and the death of the QSR dining room — to continue.

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Restaurant Tech ‘Round the Web

NY Gov. Andrew Cuomo announced new restrictions for bars and restaurants that went into effect on Friday. All establishments licensed by the State Liquor Authority must close dining areas at 10 p.m. Only curbside pickup will be allowed after 10 p.m. Cuomo also said that if these measures don’t slow the spread of COVID-19, NY will consider reducing indoor dining capacity.

Third-party delivery service Caviar announced this week it has expanded to three new markets. The Grubhub-owned service is now available in Austin, Texas; San Diego, California; and Miami, Florida, according to a press release sent to The Spoon. 

Dunkin’s line of holiday swag is back. This time it includes bedding, which may or may not be a sign that the world really is going to hell.

 

Prop 22’s Success Has Unsettling Implications for Third-Party Delivery’s Power

One certainty we woke up to yesterday is that California had passed Prop. 22, the controversial ballot measure aimed at keeping California gig workers independent contractors.

The success of the measure means that app-based companies like Uber, Lyft, DoorDash, and Instacart will be exempt from California’s AB 5 law, which requires businesses to classify gig workers as employees. And while tech companies’ Prop 22 victory is limited to California, it could have wide-reaching effects on how companies do business in other states and how they treat their workers.

Quick recap: Prop 22 was created in the wake of California’s Assembly Bill 5, which went into effect on Jan. 1 of this year. Under AB 5, employers must classify independent contractors as employees based on certain criteria, putting those companies on the hook to pay minimum wage, paid sick leave, health insurance, and other benefits. While AB 5 included some exemptions, Uber, Lyft, DoorDash, and other app-based businesses were not among them.

Hence the fight. In the lead-up to Election Day, proponents of Prop. 22 — which was basically bankrolled by the aforementioned tech companies — argued that having to classify drivers as employees would reduce jobs, limit drivers’ ability to work for multiple companies and ultimately raise costs for consumers. Uber and other app-based businesses spent roughly $200 million on the ballot-measure, making it the most expensive in California history.

By contrast, Prop. 22 opponents spent less than $20 million. They have argued that Prop. 22 exploits workers and undermines job stability.

Had Prop. 22 been voted down, companies like Uber, DoorDash, Instacart, and others would have had to shift their business models, which have been essentially built on the backs of gig workers, or make good on their threats to leave certain states. Instead, Prop 22 passed, and now there’s concern of a ripple effect on laws in other states and on labor standards in general for delivery jobs. Contract workers save companies money, since employers aren’t having to shell out for benefits, so it’s an obviously attractive option for companies. But as EaterSF pointed out yesterday, there is concern that Prop 22 could “usher in a whole new era of businesses taking their labor disputes to voters, instead of resolving them with local or state agencies.”

In California, other industries may also see the successful passing of Prop. 22 as motivation to push for their own exemptions from AB 5. That would mean fewer protections for workers across more industries, and lower standards for labor and worker protections in general.

Speaking of those worker protections: As a concession, Prop 22 will grant some benefits, including a minimum earnings guarantee when a driver is engaged in a delivery or ride (not while they are waiting for a gig). However, Prop. 22 offers no protections to workers in terms of sick leave, unemployment, workers comp or the ability to unionize. 

This lack of protections was a major grief back in March, when the COVID-19 pandemic came Stateside. As one gig worker said at the time, “staying home won’t pay the bills,” even if making deliveries meant potentially spreading the virus or working while sick. That’s no less a catch-22 for gig workers now, with COVID-19 cases breaking record highs as we speak and many expecting the situation to worsen as we get closer to winter. 

Early in the pandemic, DoorDash, Grubhub, and Postmates set up financial assistance funds for workers diagnosed or quarantined because of COVID-19. However, those were short-term measures, and there is no guarantee these companies will offer a similar option if the situation around the pandemic worsens.

Looking ahead, does Prop. 22’s success this week embolden these third-party delivery services to continue their dominance over the future of food delivery? Will the deep pockets of Uber, DoorDash and others get to set the terms for what the delivery market becomes? After all, these companies haven’t exactly been beacons of trustworthy behavior. Do their policies get to become the long-term norm simply because they have more money to fight with?

Consider the commission fees restaurants must pay delivery services in order to use their platforms. These fees can reach as high as 30 percent per transaction and have been an ongoing source of grief since before the pandemic, eating into restaurants’ practically nonexistent margins. Right now, multiple cities across the U.S. have imposed mandatory caps on these fees for the duration of the pandemic. But those emergency measures won’t stay in place forever. And even were fee caps signed into law, it’s not unreasonable to assume delivery services would eventually fight them, via another ballot measure or some other means.

There are many other controversies involving third-party delivery, among them: listing restaurants on delivery platforms without their consent, worker tipping policies, bogus fees, and menu pricing. 

Above all else, Prop. 22’s success shows us that Uber, DoorDash, and the rest of them are willing to spend hundreds of millions of dollars to keep their existing business model — and therefore chances of profitability — intact. That Prop. 22 passed also shows that figuratively kicking and screaming, if accompanied by millions, can get you your own way. Given the untrustworthy history of these tech companies, that point doesn’t bode other areas of delivery that regulators and restaurant industry advocates are working to change.