With mandated increases in delivery drivers’ pay, New York City is likely to see off-premise restaurant customers shift to pickup to avoid steeper fees.
Uber, DoorDash and Grubhub lost their attempt Thursday (Sept. 28) to challenge a law that raises food delivery drivers’ minimum pay to $17.96 in the city, with the New York State Supreme Court ruling in favor of the increase.
“Today, New York City has reaffirmed its commitment to ensuring restaurant delivery workers earn a dignified pay,” NYC Department of Consumer and Worker Protection (DCWP) Commissioner Vilda Vera Mayuga said in a statement. “… Delivery workers, like all workers, deserve fair pay for their labor and to be able to support themselves and their loved ones.”
DoorDash called the ruling a “deeply disappointing outcome for delivery workers, merchants and customers,” according to Bloomberg. Uber said the law would result in thousands of lost jobs and make existing couriers’ jobs harder, and a Grubhub spokesperson said the company is “evaluating [its] next legal steps,” per NBC News.
With the wage increase adding to food delivery services’ existing economic challenges, aggregators will likely increase the cost of food delivery for consumers in the city. After all, DoorDash, the United States’ leading restaurant aggregator saw a net loss of $172 million in the second quarter, the most recent period on record, despite its popularity.
Grubhub, for its part, which is disproportionately popular with consumers in the region, has been facing economic challenges for some time now. Its parent company, Just Eat Takeaway.com, has been looking for a buyer for the aggregator for years.
Uber Eats seems to be doing somewhat better, growing its adjusted earnings quarter over quarter, according to a presentation that Uber shared with analysts in August. The mobility and delivery company’s delivery business grew its adjusted earnings by more than 230% between Q2 2022 and Q2 2023, reaching $329 million. Still, the wage increase to $18 per hour could change the delivery service’s unit economics.
The move will likely shift the city’s digital restaurant customers toward pickup channels, given that even before this change, consumers were already chafing at the cost of delivery.
For instance, PYMNTS Intelligence from the report “Connected Dining: Rising Costs Push Consumers Toward Pickup,” which drew from a survey of more than 2,100 U.S. consumers, found that 58% of takeout customers said they pick up restaurant meals to save on delivery fees, and 48% said inflation has made them more likely to choose pickup over delivery.
Many consumers have already been shifting to pickup in recent months as menu prices have crept upward, with major restaurant chains such as Applebee’s and Domino’s Pizza noting this trend on recent earnings calls.
In addition to the service and delivery fees (and at times other added costs) that these aggregators charge, consumers also feel the budgetary strain of the expectation to tip, although it is unclear as of yet whether increased wages will shift tipping norms. The same Connected Dining study found that 54% of consumers who order from restaurants for off-premise consumption said they would be more inclined to order delivery for their next meal if the delivery person were not allowed to take tips.
Overall, research from the study revealed, about 4 in 10 restaurant orders are placed for pickup, and 1 in 10 for delivery (although these shares are likely higher in urban areas, where online ordering is more popular). With this increase, New York City will likely see the pickup share grow, gaining occasions from delivery.