The Hidden Cost Behind the Food Delivery Industry
- Piece of Cake Staff
- 4 days ago
- 5 min read
Written by Brendan Gieseke
Exceeding over $300 billion in market value, the food delivery industry is a rapidly growing sector within the overall category of food products. Dominated by companies like Uber Eats, DoorDash, and GrubHub, it’s a new type of culture and technology that has changed many people’s lives for better and for worse. But are there implications that come with our over-reliance on catering apps? Or is there no harm in having a membership or a couple of these apps installed on your phone? To explore this question, it’s first important to investigate the history of the food delivery industry.
Historical Beginning of the Food Delivery Industry
According to Thistle’s timeline of the food delivery industry, the food industry has evolved significantly within just the past century. Initially, before the 1950s, most of the food delivery options weren’t too popularized and convenient. While some places in the world, such as India, began by delivering homemade lunches to workers so they wouldn’t have to go home, the first restaurant-delivery service, as we know it today, is commonly traced back to the Los Angeles Cafe Kin-Chu, which prided itself on being the first Chinese restaurant to make "real" Chinese food that was also deliverable. It was a unique phenomenon for 1922 and took advantage of the new invention of telephones and the relative ease with which families could simply pick up the phone, dial a number, and receive steaming food within a foreseeable future.
But the most significant rise in the food delivery service industry wasn’t visible until the 1950s, when the invention of the television and its mainstream appeal to American households created a wider appeal for delivery services. Captivated by the luminous lights, audio, and newly created television programs, it was hard for family members to leave the house to buy food or cook a meal; conveniently, they had food delivery services! While advancements such as delivery speed would improve throughout the next 50 years through the growing acquisition of cars for delivery drivers, the next biggest boom in the food delivery industry's relevance is pointed towards the invention of the internet.
With the internet, it became even easier for households and people alike to find their favorite meals, search the internet for new places to try, and even more easily make a phone call. This made the industry become mainstream and an even more convenient way for office workers, single households, and families alike to feed their hunger. But the final and most recent surges of the industry can be pointed towards multiple factors occurring at once, rather than just one invention’s wakening like previous times. Along with the popularization of smartphones, the COVID-19 lockdowns, and an ever-growing introduction to the gig economy, food delivery apps have become even more unavoidable and ingrained within the culture of today’s quarter of the 21st century.
Who’s Benefiting?
As economics can teach us, changes in an economy should consider all stakeholders. In the case of our food delivery industry, one of the bigger beneficiaries of the industry can be seen as the small businesses that receive more online visibility, rather than solely needing to rely on foot traffic, ambiance, social media trends, etc. Foods that are easy to transport are even more of a profit-driver, and they can even get bonus points and more profit if their products are comfort foods or cheap. While it might be hard or impossible to cater to desirable features of restaurants such as presentation, service, and even the ability to transport some foods (soups could be harder, for example), it’s clear that there are positive benefits that can be derived from the boom. From McKinsey’s research, sales have even gone up by 300% in some cases, which supposedly indicates positive profit growth.
With the increased need for delivery drivers also comes more opportunity for work. The convenience? It doesn’t have to be a full-time job. It can be a side gig and appealing to many people who simply want to make some extra cash. All in all, the rise of the food industry seems to be benefiting the economy and seems like a positive addition to the food industry. But when something seems too good to be true, there’s a slight catch for many of the stakeholders.
The Hidden Cost
Among the obvious beneficiaries of the surge in food delivery apps are the companies themselves. And, despite the assumed correlation that more food sales should create more revenue for the smaller companies, this turns out not to be the case. According to the same company that determined the increase in sales, restaurants actually only earn around 55% of the total price a customer sees on their screen. The other 45% goes to the apps’ processing fees, taxes, and the delivery fees. For restaurants that might rely on apps for publicity or any sales in general, it creates a difficult situation: is it better to be making some money even if much of it is being taken by the delivery app, or is it better to quit taking orders from the app despite the eradication of any revenue?
It’s a tough spot for small restaurants to be in, especially in cities like New York City, where cutthroat costs cause nearly 80% of all restaurants to close within the first five years of opening. Let’s not forget to mention, though, that there would also be a clear loss of tips for the waitstaff who might rely on in-person spending at the physical restaurant. What seems positive from the surface turns into a hellish nightmare for some of the most needy restaurants in America.
But it's not just an atrocity for the restaurant businesses but also for the very delivery drivers who are an essential pillar to keeping the service alive. Without the delivery component of the industry, what even is it? And without the guarantees for working benefits like healthcare, retirement benefits, and overtime pay for the delivery workers, the industry becomes even more skeptical in terms of workers' rights and how it might actually be using its ‘gig-based’ model to avoid paying workers a fair piece of the pie and keep prices low enough to keep demand high (referencing the Law of Demand). In 2020, even the New York Times reported low hourly rates of pay as low as $1.45 per hour. And, don’t forget, the workers themselves are expected to pay for costs like gasoline. Moreover, the app platforms’ frequent usage of algorithmic gig-matching can cause drivers who might receive low rankings despite doing nothing wrong to infrequently receive orders and thus lose pay.
The Need for Consumer Action
The apparent positives that come with the food delivery industry become more and more questionable, but ultimately require thoughtful consideration from consumers, too. What seems like efficient convenience can be argued as a form of laziness and a cost-ineffective luxury. While treating oneself should naturally be a positive experience, the reality requires the ability to carve out an understanding of who is truly paying the costs of an apparent positive. As an alternative, I urge frequent delivery app users to go out for dinner instead. Take friends with you! Or order takeout or pickup through the restaurant's phone numbers rather than through a delivery app. If you can make time too, it’s always a great option to cook for yourself!
While there is no perfect solution to solving a paradox between a need for delivery and the costs that come from it, little steps to support local businesses or putting pressure on bigger corporations always promise potential for driving change. Make decisions that change the culture!
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