The disruptors and the bureaucrats
Plus: the future of fast grocery delivery
When it passed in 2020, California’s Proposition 22 was a massive win for third-party delivery behemoths who based their business models on the availability of contract labor; the gig economy. The ballot measure was funded by companies like Uber and DoorDash as a rebuttal to Assembly Bill (AB) 5, a law that would have required gig economy companies to classify contracted labor like drivers and couriers as employees instead. Prop 22 was structured in a way that makes it very, very hard to be undone — that is, unless the entire law is deemed unconstitutional.
That’s what happened when an Alameda County Superior Court judge struck it down last year, pulling apart details of the measure that protected the tech companies, the judge said. These arguments are complex and steeped in legalese, but the crux of it refers to workers’ comp regulations protected by the California state constitution. And, it appears, this one element might be able to invalidate the entire measure. A workers’ comp lawyer quoted by Bloomberg Law said they wouldn’t be surprised if it took years to determine Prop 22’s ultimate fate.
Still, the fight proceeds, as Prop 22 stands. On Tuesday, an appeals court in San Francisco heard oral arguments in a battle that could determine how gig economy companies work in California. It’s also seen — as many California labor cases are — as a proving ground for ideas that could be adopted in states across the country. It’s why big companies and opponents alike are pouring so much time, energy, and cash into efforts to shape whatever final ruling is to come. (The fight over worker classification is likely to make its way to the California Supreme Court, the LA Times notes.)
Meanwhile in New York City, gig economy companies are pushing for legislation of a different kind.
Delivery platforms are pushing for a bill to amend the city’s fee cap, which was made permanent. Grubhub and DoorDash are lobbying in support of recently introduced legislation that would cap basic delivery services at 15 percent commission but allow the platforms to charge more for additional services like marketing.
Currently, New York is the only major city where a hard-fee cap — 15 percent — is permanently in place. (The apps are also able to charge restaurants an additional 5 percent listing commission and credit-card processing fee.) This argument is familiar; earlier this year, the city of San Francisco modified its fee cap to account for core delivery services only. Similar to the New York legislation, the tech companies can charge more for more services. I’d argue those services are what actually make the delivery apps work, which is clearly what the companies know to be true. Good to have the option, I guess?
Grubhub, DoorDash and UberEats currently have a pending lawsuit in NYC against the fee cap, another non-surprise given the history here. (Uber is also suing the New York City Taxi & Limousine Commission over its recent approval of a rate increase for ride-hail apps and taxi drivers, meant to address driver shortages and rising costs.)
These are some of the biggest regulatory fights in restaurant technology history.
Supporters and opponents recognize the high stakes; what happens in court soon could define how the entire industry moves forward. (Legally, at least; companies who use gig work to their advantage have said they refuse to reclassify laborers.)
But what also seems at stake here is technology companies’ ability to define the future simply by disrupting the status quo. What’s newer is not necessarily better; building a business worth billions of dollars doesn’t mean it’s the correct way for any industry to move forward, no matter how many so-called visionaries say so.
-Danielle Hyams contributed to this report
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Speedy delivery, meet pragmatic reality
Last week in Europe, Turkish speedy grocery company Getir acquired Gorillas, a Berlin-based competitor. The deal valued Gorillas at a reported $1.2 billion, under half of what Gorillas was worth in the fall of 2021 when it raised close to $1 billion at a $3 billion valuation.
This is just the latest speedy grocery consolidation story. There are now just three major players: Getir and GoPuff, which operate in the U.S., and Flink, based in Germany.
In a May interview, venture capitalist Rick Heitzmann said that rapid grocery delivery and its eventual downfall would come to signify the excess in food-adjacent technology in 2022. Consider the sheer amount of cash poured into a shocking number of companies who felt they could somehow disrupt the passing of time — cramming unnecessarily fast delivery of goods that few really need in 15 minutes or less. (“We’ve seen this movie,” Heitzmann said in that interview. “Everyone dies in the end.”)
These predictions are coming to fruition as demand for services wanes amid inflation that’s seriously affecting the cost of goods and services. What’s not ending is the demand for grocery delivery. But, unlike what happened restaurants, the industry doesn’t seem to be supporting services that are built on top of existing grocery infrastructure.
Instead, it’s the grocery stores themselves that might lead innovation in delivery. A recent Barron’s piece explains:
“The next generation of grocery delivery is likely to be defined by the traditional brick-and-mortar giants building out their own delivery systems and even providing their services to their rivals. Investors are likely to find Walmart, Kroger, and potentially Amazon offer better rewards than their previously more nimble partners.
It comes down to cost. It’s more expensive to have groceries picked from shelves, put in bags, and delivered to homes. In fact, according to a recent McKinsey analysis, a grocery store alone takes a significant hit on the service — that’s why they’ve traditionally outsourced this to venture capital-backed companies like Instacart. Now, in this economy, where we don’t want to (or can’t afford to!) pay more fees for convenience, large grocers have an opportunity to take back control, challenging companies like speedy grocery GoPuff or delivery services like DoorDash, still reeling from economic changes and mass layoffs.
It’s an interesting dynamic in what was an overfunded industry; billions of dollars invested in potential disruption only to watch corporate grocery behemoths take the lead on delivery instead. Quick grocery startups took a page from the delivery successes of third-party delivery companies like DoorDash and Uber at their outset, but they may not be poised to come out on top. Instead, they may have just been a shiny distraction as legacy grocers readied their own practical solutions.