Technology

DoorDash says courier wage hike is hurting sales in NYC

The company, which responded to the raise with a $2 fee, estimated that customers have placed 200,000 fewer orders since December.
Delivery apps must pay couriers a minimum of $17.96 per hour in New York. | Photo: Shutterstock

UPDATE: This story has been updated to include a comment from New York's Department of Consumer and Workforce Protection.

A recent wage hike for delivery workers in New York City is costing restaurants, according to third-party delivery provider DoorDash.

The company, which added a $2 fee for customers to help offset some of the raise, said higher prices have led to 200,000 fewer orders and $3.5 million in lost revenue for businesses since it went into effect Dec. 4.

 

The city argued that DoorDash's estimates "have no basis in reality." 

"The number of deliveries in NYC has remained steady since the Minimum Pay Rate took effect, and there is no evidence that restaurants are losing money," said Michael Lanza, a spokesperson for the city's Department of Consumer and Workforce Protection, in an email.

Lanza added that the pay rate is working as intended because couriers are earning better wages.

Under the new rule, restaurant delivery providers like DoorDash, Uber Eats and Grubhub can choose to pay couriers either $17.96 per hour they are logged into a delivery app or $29.93 per hour spent actively delivering. The city estimated that couriers were previously earning an average of $11 per hour, with tips. 

All three apps sued the city to block the rule, but their effort failed in court. They have responded by raising fees for customers, among other changes.

The DoorDash data is the first broad-based evidence that the wage hike could be hurting delivery demand in the Big Apple. But it is not necessarily a surprise. The city itself predicted that demand could fall as a result of the new pay standard, and many observers were concerned that the mounting fees would drive some customers away.

“While there’s a lot of uncertainty around these new pay rules, it has become clear that they aren’t working right now,” DoorDash wrote in a blog post Friday.

DoorDash said it found a similar trend in Seattle, which in January implemented a minimum courier pay standard of approximately $26.40 an hour. The company said customers placed 30,000 fewer orders in the first month, which equated to more than $1 million in lost revenue for businesses. DoorDash responded to the Seattle wage hike with a $5 fee for customers.

DoorDash also announced that beginning Monday, it’s shifting from the $29.93 “Alternative” payment method to the $17.96 “Standard” method in New York, calling the former model “unsustainable.” 

“The Alternative Method that we have used since the rules went into effect requires platforms to pay nearly twice the minimum wage for time spent on deliveries,” DoorDash wrote.

Because it will now have to pay couriers for all the time they’re logged into the DoorDash app, the company will limit how many of them can be online at one time. It’s rolling out a scheduling system called Dasher Rewards that will give top-performing couriers early access to choose when they want to work. They’ll also qualify for “priority access to get on the road immediately” and have the opportunity to earn bonus rewards.

Uber Eats and Grubhub, which both use the Standard method, have implemented similar rules designed to match courier supply with customer demand and thus limit downtime.

The scheduling systems effectively erase one of the biggest appeals of gig work, which is the flexibility to work whenever one pleases. Uber said “thousands” of couriers have left Uber Eats as a result.

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