Tech Check is a regular column on restaurant technology by Senior Editor Joe Guszkowski. It's also a newsletter.
If you read this column regularly, you know that the restaurant delivery business is on a bit of a tear right now. The latest piece of evidence: Data from Black Box Intelligence showing that food delivery traffic at fast-food restaurants jumped nearly 15% in the third quarter, even as traffic declined overall.
It’s no surprise then that DoorDash stock has more than doubled in price over the past calendar year, and Uber is not far behind, up 83%.
Consumers just can't get enough delivery, apparently. And if I were a betting man, I’d be doubling down on the service for the foreseeable future. Because while things might be good for delivery now, there are a few percolating developments that could add even more fuel to the fire if they break the right way.
Here’s a look.
Automated delivery
Don’t look now, but self-driving cars might actually be happening.
Waymo, the Alphabet-owned autonomous driving company, seems to be on the brink of blowing up.
Last month, the company’s co-CEO said that Waymo’s robotaxi service is now doing 100,000 rides a week in the four markets where it operates (San Francisco, Phoenix, Austin and Los Angeles). That’s up from a reported 50,000 in May.
That news came shortly after Alphabet announced it was pouring $5 billion into the business. Now Elon Musk is getting in on the action with plans for a Tesla robotaxi service.
This has some obvious implications for food delivery. If self-driving cars can be used to reliably hitch a ride, they should be able to do the same for food. This should eventually help lower the costs of delivery, making it more accessible for more people.
Uber Eats is already partnering with Waymo in Phoenix. It’s one of a host of autonomous delivery partnerships the company is testing, both on the road and on the sidewalk. It has also teamed up with Avride, Serve Robotics, Motional, Cartken and Nuro in other markets.
The company declined my request for more information on how those tests are going. But Uber is clearly thinking ahead on this trend, as it makes sense for both sides of its business.
Grubhub has also quietly staked out some ground on this front. It now powers automated delivery on 20 college campuses and added a dozen this school year alone.
New York City’s fee cap
The nation’s biggest restaurant market also has some of the strictest rules for third-party delivery providers. Currently, they’re not allowed to charge restaurants more than 23% of the order total to use their services.
This has put a damper on delivery’s growth in New York, especially for Grubhub, which has long been the market leader in the city. Parent company Just Eat Takeaway said this week that the Big Apple’s fee cap is preventing it from investing as much in Grubhub as it would like.
But that yoke could soon be lifted. The New York City Council is considering a bill that would ease the fee cap significantly. Under Int 762, the apps would be able to collect total commissions of up to 43% of the order total—15% for delivery, 25% for marketing and 3% for credit card processing.
The bill has the endorsement of 28 of the Council’s 51 members, giving it enough support to pass. It is still making its way through the hearing process.
Consolidation
The food delivery industry is already much more compact than it was even five years ago, with players like Postmates and Caviar having been swallowed by bigger fish. But further consolidation remains likely as joining forces presents a direct path to scale and growth.
In the U.S., there are still some big dominos left to fall. Grubhub is for sale, for instance, and Lyft has signaled it would be open to an offer. Rumors have swirled about Uber buying Instacart. And Amazon looms as a 10,000-pound gorilla in the room. The ecommerce giant owned a 7% stake in Grubhub as of May.
There’s also the possibility of overseas delivery firms getting involved in the U.S. or vice-versa. In any event, I’d expect to see more movement on this front as interest rates go down.
Now that I’ve laid out the long-term bull case for restaurant delivery, here’s one thing that could go wrong.
Labor regulation
Delivery companies scored a huge win in July when the California Supreme Court voted to uphold Proposition 22, a law that allows them to continue treating couriers as contractors rather than costly full-time employees.
But in other places, aggressive labor laws have become an obstacle for delivery growth.
In Seattle, third-party delivery companies are now required to pay couriers a minimum hourly wage of somewhere in the neighborhood of $26.40. Delivery companies responded by raising their fees by $5. The steep increase has caused demand to plummet.
Data published yesterday by DoorDash shows that from February through June, Seattle customers placed 900,000 fewer orders than they would have had the law not been enacted. That has led to longer wait times and fewer trips for couriers, blunting many of the intended benefits of the law.
The results have been so stark that the city is considering an amendment, though those talks are in limbo.
New York, by the way, also has a mandated delivery wage, of nearly $20 an hour. The jury is out on whether that has had a significant impact on demand. But the regulations on both coasts raise the possibility that it could happen elsewhere.