Food delivery in New York City looks a lot different today than it did three months ago.
Couriers for companies like DoorDash, Uber Eats and Grubhub can now earn as much as 172% more per hour, thanks to a new minimum pay rate that went into effect in December. But many are no longer able to work as often as they want, erasing one of the key draws of the job.
To help offset the higher wages, meanwhile, the delivery companies have begun charging customers more. In an effort to soften the blow of that increase, they have also downplayed tipping, a move that has angered some couriers.
As for restaurants, many say it’s still too early to tell what the impacts of the new rule will be for them. But there are concerns that the mounting costs of delivery, along with other side effects of the law, could take a big bite out of demand in the Big Apple.
“Our concern is that the higher we drive costs for delivery on the consumer side, there could be decreased demand for the restaurant industry,” said Melissa Fleischut, president and CEO of the New York State Restaurant Association.
Indeed, despite the rule’s stated intentions—to help the city’s approximately 65,000 delivery workers earn a living wage—no one seems entirely satisfied with how it’s working so far. The upheaval could test the economics of delivery in a city where many restaurants have come to depend on it.
“On the surface, it seems good to pay drivers more money. But I think that there will definitely be some negative tradeoffs,” said Harry Campbell, founder of The Rideshare Guy, a media outlet focused on gig workers. “My guess is, I don’t think the tradeoffs are going to be worth it.”
The new pay standard for couriers was unveiled by New York’s Department of Consumer and Worker Protection (DCWP) last June. It was the result of an order by the City Council to study New York’s gig work industry and come up with an appropriate hourly wage.
Previously, couriers’ base pay varied depending on the time, distance and the desirability of a given order, plus tips. The study concluded that couriers were making an average of $11 an hour with tips under that model—well below the city’s then-hourly minimum of $15.
Under the new rate, companies can choose to pay couriers either $17.95 for every hour they’re logged on to a delivery app, or $29.93 for every hour they spend actively delivering an order. The first option amounts to an hourly increase of 63% compared to the former average; the second represents a 172% jump. And couriers are in for another raise in just a few months: On April 1, the hourly minimum will increase to $19.56 to adjust for inflation. It will be scaled up again on April 1, 2025.
New York is one of the only places in the country to guarantee a minimum wage for gig workers, who are considered independent contractors and therefore not subject to regular wage laws. A similar rule went into effect in Seattle this year, and California’s Proposition 22 set a pay floor for gig workers in November 2020.
Delivery apps were quick to attack New York’s rule when it came down last summer. In lawsuits filed in July, they argued that the massive jump in pay was untenable and would ultimately hurt consumers, restaurants and the couriers themselves.
But in September, a judge struck down those lawsuits, allowing the rule to stand. It went into effect Dec. 4.
Since then, delivery apps have reconfigured their business models in New York City to manage the higher costs.
Two of the apps—DoorDash and Uber Eats—have begun charging customers an additional $2 fee at checkout. That’s on top of a delivery fee, a service fee and tax. On DoorDash, the total for a Big Mac meal from McDonald’s in Brooklyn went from $19.28 before the fee to $21.28 after—a roughly 10% increase. And that’s before tip.
Grubhub, also known as Seamless in New York City, said it “modestly increased” its existing service fee for customers in response to the new pay standard, but is not charging a separate fee.
The apps had warned all along that they would have to raise their prices to help offset the wage hike. The city itself even estimated that the cost of delivery would rise by an average of more than $5. But the sudden increase will likely still come as a shock to consumers who have been watching inflation skyrocket for over a year.
“There’s these cyclical effects where we’re just trying to balance it across the platform to make sure the entire thing still works in New York City,” said DoorDash spokesperson Eli Scheinholtz. “It was a very ill-conceived policy, and the end result was a pretty extreme minimum pay rate that’s going to affect everyone who uses the platform.”
In an attempt to ease the cost for consumers, both DoorDash and Uber Eats have changed the way they handle tips. DoorDash now only asks customers to tip after the customer has paid, while Uber Eats doesn’t prompt them until the order has been delivered. Previously, customers were asked to add a tip before checking out. Grubhub still asks customers to tip at checkout, but it lowered the suggested amounts to 0% or 10%, from 10% or 25%.
A Grubhub spokesperson said that while customers are now tipping less on average, couriers are still earning double what they were a year ago. But couriers have nonetheless accused the apps of penalizing them by limiting their tips.
Because one of the two payment methods requires apps to pay couriers for every hour they are logged onto the app, even if they aren’t actively delivering, Uber Eats and Grubhub are also limiting the number of couriers who can be online at once. Uber Eats rolled out a new feature called Planner that allows couriers to reserve times to deliver, with priority given to top performers. Grubhub also said it gives preference to its best couriers, “concentrating delivery opportunities in the hands of fewer delivery workers with higher earning potential.”
The change is designed to match driver supply with delivery demand so the apps aren’t paying couriers for idle time. But it effectively negates one of the most appealing parts of gig work, which is the ability to log on or off as often as one pleases.
“What we’re really seeing is couriers paying for the cost of the standard with a loss of flexibility,” said Uber spokesperson Josh Gold. He added that “thousands” of couriers have left Uber Eats as a result, and nearly 2,000 have signed an Uber petition asking the city to change the pay rule.
DoorDash is using the other payment method, which requires it to pay a higher rate ($29.93), but only for the time when a courier is actively delivering an order. The app has not put any limits on when couriers can log on, Scheinholtz said.
One thing the apps have less control over is how much they charge restaurants for their services. That’s because New York limits commissions to 23% of the order total—15% for delivery, 5% for other services like marketing and 3% for credit card processing. DoorDash is raising rates for restaurants, but only within the limits set by the cap, Scheinholtz confirmed. Uber Eats and Grubhub said they haven’t increased charges for restaurants because of the cap.
The delivery companies have sued the city over the fee cap, and that litigation is still making its way through the courts. The City Council, meanwhile, is considering an amendment that would increase the allowable total to 30%. If that succeeds, it would give delivery companies another lever to help pay for courier wages.
While the apps have been aggressive in attempting to control their costs in New York, there is only so much they can realistically do. On an earnings call this month, DoorDash executives admitted that the company has had to absorb some of the expenses of the wage hike itself. That contributed to lower-than-expected profits in DoorDash’s most recent quarter and a 10% drop in its stock price.
So, what does all of this mean for restaurants? After all, delivery has become an important part of their business since the pandemic, and the new courier wage has significantly altered how the delivery ecosystem operates.
Most restaurants contacted by Restaurant Business either declined to comment or said they had no feel yet for how courier pay is affecting their business, if at all.
“We haven’t really seen a significant decrease in deliveries yet,” said Howie Jeon, owner of Yumpling in Queens. “If anything, I think we’ll have to wait and see if this will really hit hard for us or for other restaurants.”
Still, some observers are not optimistic given how drastic the change is.
“We’re talking about basically a doubling [in pay],” said Campbell of The Rideshare Guy. He predicted that there will be “a lot less demand” for delivery once the dust settles.
His prediction is backed up by the city’s own research, which found that delivery orders would decline by nearly 18% under the new pay rate as consumers shift to cheaper options.
That scenario appears to be playing out in Seattle, where the law now requires apps to pay delivery people at least $26.40 an hour. The apps have responded with an additional $5 fee for customers, and restaurants and delivery drivers have complained of a drop in orders as a result.
Data published Tuesday by DoorDash showed that during the two weeks after Seattle’s new pay rule went into effect on Jan. 13, customers placed 30,000 fewer DoorDash orders—an “unprecedented drop,” the company said—and drivers waited an average of 3 times longer between deliveries.
Back in New York, at least one operator has seen an immediate impact since the city’s rule went into effect. In an editorial for the New York Daily News, Mario Pesce, owner of the two-unit Panineria, said there has been a “significant drop” in his restaurants’ delivery orders, which make up 70% of Panineria’s sales.
He attributed some of that drop to the added fee scaring customers away. But he also argued that couriers are in less of a hurry now because they’re being paid per hour rather than per order, which has had a negative impact on speed and food quality.
“There is simply no incentive for delivery workers to pick up larger orders anymore, so many now sit at our restaurant for long periods of time before they are picked up,” Pesce wrote.
The editorial notes that Pesce is a member of DashRoots, an advocacy group created by DoorDash.
It’s likely true that some New York couriers aren’t pedaling as hard to get orders delivered, Campbell said. Under the previous pay model, their goal was to do as many deliveries as they could. “If they’re on a bike and they see a yellow light, they run it,” he said. With guaranteed hourly pay and less emphasis on tips, “You could see less hustle to get these orders delivered.”
And there could be more changes coming for restaurants. Gold, the Uber spokesperson, said the higher prices for consumers could prompt Uber Eats and other apps to prune “inefficient” restaurants from their marketplaces to make sure customers get the best experience possible.
“What you’ll start to see is delivery apps, including Uber Eats, start to be more selective with merchants,” he said.
And then there is the matter of the fee cap, which, if loosened or lifted, would allow apps to charge restaurants beyond the current ceiling of 23%.
“[Restaurants have] always felt that commissions of 25% to 30% of the order just makes it really impossible to make money off delivery,” said Fleischut of the state’s restaurant association. “Yet the apps are so hard to give up.”